S-1/A
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As filed with the Securities and Exchange Commission on October 23, 2017.

Registration No. 333-220857

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ALLENA PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   2836   45-2729920

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

One Newton Executive Park, Suite 202

Newton, Massachusetts 02462

(617) 467-4577

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Alexey Margolin

Chief Executive Officer

Allena Pharmaceuticals, Inc.

One Newton Executive Park, Suite 202

Newton, Massachusetts 02462

(617) 467-4577

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Michael H. Bison

Daniel Lang

Goodwin Procter LLP

100 Northern Avenue

Boston, Massachusetts 02210

(617) 570-1000

 

Sophia Hudson

Joseph A. Hall

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

 

 

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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   ☒  (Do not check if a smaller reporting company)    Smaller 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 to Section 7(a)(2)(B) of the Securities Act.   ☒

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount

to be

Registered(1)

 

Proposed

Maximum

Offering Price

Per Share

 

Proposed

Maximum

Aggregate

Offering Price(2)

 

Amount of

Registration Fee(3)

Common Stock, par value $0.001 per share

  6,133,333   $16.00   $98,133,328   $12,218

 

 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. Includes the offering price of shares that the underwriters have an option to purchase to cover over-allotments, if any.
(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed maximum aggregate offering price.
(3) $11,454 of such amount was previously paid by the registrant in connection with the filing of its Registration Statement on Form S-1 on October 6, 2017.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated October 23, 2017

PROSPECTUS

5,333,333 Shares

 

LOGO

Common Stock

 

 

This is the initial public offering of shares of common stock of Allena Pharmaceuticals, Inc. We are offering 5,333,333 shares of our common stock. Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $14.00 and $16.00. We have applied to list our common stock on The NASDAQ Global Market under the trading symbol “ALNA.”

We are an “emerging growth company” under applicable Securities and Exchange Commission rules and will be subject to reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 12.

 

      

Per Share

    

Total

Initial public offering price

     $          $    

Underwriting discounts and commissions(1)

     $            $      

Proceeds to us, before expenses

     $              $        

 

(1) We have agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting” for additional disclosure regarding underwriting discounts, commissions and estimated expenses.

Certain of our existing stockholders, including certain affiliates of our directors, have indicated an interest in purchasing an aggregate of approximately $25.0 million of shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these stockholders, or any of these stockholders may determine to purchase more, less or no shares in this offering.

We have granted the underwriters an option for a period of 30 days to purchase up to an additional 800,000 shares of common stock from us at the initial price to the public less the underwriting discount.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares against payment in New York, New York on                 , 2017.

 

 

 

Credit Suisse   Jefferies   Cowen

 

 

Wedbush PacGrow

Prospectus dated                 , 2017


Table of Contents

TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     12  

CAUTIONARY NOTE REGARDING FORWARD -LOOKING STATEMENTS

     62  

INDUSTRY AND MARKET DATA

     64  

USE OF PROCEEDS

     65  

DIVIDEND POLICY

     67  

CAPITALIZATION

     68  

DILUTION

     70  

SELECTED CONSOLIDATED FINANCIAL DATA

     73  

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     75  

BUSINESS

     96  

MANAGEMENT

     136  

 

     Page  

EXECUTIVE COMPENSATION

     144  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     155  

PRINCIPAL STOCKHOLDERS

     158  

DESCRIPTION OF CAPITAL STOCK

     162  

SHARES ELIGIBLE FOR FUTURE SALE

     167  

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

     169  

UNDERWRITING

     173  

LEGAL MATTERS

     179  

EXPERTS

     179  

WHERE YOU CAN FIND MORE INFORMATION

     179  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

We are responsible for the information contained in this prospectus and in any free-writing prospectus we prepare or authorize. We have not, and the underwriters have not, authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the cover page of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Through and including                 , 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our financial statements and the related notes thereto and the information set forth under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included in this prospectus. Unless the context otherwise requires, we use the terms “Allena,” “the Company,” “we,” “us,” “our” and similar designations in this prospectus to refer to Allena Pharmaceuticals, Inc. and its wholly owned subsidiaries.

Overview

We are a late-stage clinical 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, such as oxalate and urate, that can cause kidney stones, damage the kidney, and potentially lead to chronic kidney disease, or CKD, and end-stage renal disease. Our lead product candidate, ALLN-177, is a first-in-class, oral enzyme therapeutic that we are developing for the treatment of hyperoxaluria, a metabolic disorder characterized by markedly elevated urinary oxalate levels and commonly associated with kidney stones, CKD and other serious kidney diseases. There are currently no approved therapies for the treatment of hyperoxaluria. We have conducted a robust clinical development program of ALLN-177, including three Phase 2 clinical trials, and we expect to initiate the first of two planned pivotal Phase 3 clinical trials for ALLN-177 in the first quarter of 2018, with topline data anticipated in the second half of 2019.

Using our proprietary technological approach, we developed ALLN-177, a crystalline formulation of the enzyme oxalate decarboxylase, to specifically degrade oxalate within the GI tract, allowing for its removal from the body through the bowel. This mechanism of action reduces the accumulation of oxalate in the body and therefore limits the burden on the kidney to filter and then excrete it in the urine. The data from our clinical trials and numerous academic studies suggest the potential for GI elimination of oxalate to reduce the chronic disease burden on the kidney and other organ systems.

Oxalate is endogenously produced as an end product of normal cellular metabolism and is also absorbed through a typical diet. Humans lack the innate capacity to digest oxalate and primarily depend on renal excretion to eliminate it from the body. Although oxalate has no identified biological function, it is known to damage the kidney when present in excess amounts, a condition called hyperoxaluria. Hyperoxaluria is characterized by significantly elevated oxalate levels in the urine, or urinary oxalate excretion, due to either overproduction of oxalate by the liver from a genetic defect, called primary hyperoxaluria, or from over absorption of oxalate from the diet, called secondary hyperoxaluria. Secondary hyperoxaluria is further characterized either as enteric, resulting from a chronic and unremediable underlying GI disorder associated with malabsorption, such as bariatric surgery complications or Crohn’s disease, which predisposes patients to excess oxalate absorption, or idiopathic, meaning the underlying cause is unknown. Enteric hyperoxaluria is the more severe type of secondary hyperoxaluria. Systemic oxalosis, which typically occurs in patients with primary or severe secondary hyperoxaluria and declining kidney function, refers to the presence of excess oxalate throughout the body, including the blood, bones, joints, eyes and heart.

 

We estimate there are approximately 200,000 to 250,000 patients in the United States with enteric hyperoxaluria and kidney stones. We plan to target this market initially. We believe that a therapeutic agent that reduces urine oxalate levels in this population could be commercialized into a potential multi-billion dollar U.S. market without any approved therapies at present. Primary hyperoxaluria, an ultra-rare genetic disease, is estimated to affect approximately 1 in 58,000, or approximately 5,000 patients, in the United States. Among

 

 

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patients with primary hyperoxaluria, about 50 percent will have kidney failure by age 15, and about 80 percent will have kidney failure by age 30. There are no therapies for primary hyperoxaluria approved by the U.S. Food and Drug Administration, or the FDA, and the most severe patients may be treated with a liver and/or kidney transplant. Patients with enteric hyperoxaluria can have levels of urinary oxalate excretion as high as patients with primary hyperoxaluria and a comparable renal burden.

Our Programs

We have developed a pipeline of first-in-class, oral, non-absorbed enzyme therapeutic candidates to treat patients with rare and severe metabolic disorders that affect the kidney. Our lead product candidate, ALLN-177, is an oral enzyme therapeutic that we are initially developing for the treatment of enteric hyperoxaluria in adults. Our second product candidate, ALLN-346, is being developed for patients with hyperuricemia and moderate to severe CKD. Hyperuricemia, or elevated levels of uric acid in the blood, is commonly associated with gout as well as kidney stones and kidney disorders.

 

LOGO

ALLN-177

We have conducted a robust clinical development program of ALLN-177 in healthy volunteers and patients with secondary hyperoxaluria. This program consisted of one Phase 1 clinical trial of 33 healthy volunteers and three Phase 2 clinical trials, which enrolled a total of 113 subjects with secondary hyperoxaluria, including the largest randomized, controlled trial of a novel therapeutic candidate specifically targeted at oxalate, which we refer to as Study 713. Our Phase 2 clinical program was designed to identify the optimal patient population, registrational endpoint and trial design for our planned pivotal Phase 3 program. As a result, we have developed key insights into hyperoxaluria, clinical trials in patients with hyperoxaluria and the activity and tolerability of ALLN-177 in this patient population.

We observed that ALLN-177 reduced 24 hour urinary oxalate excretion compared to placebo in patients with secondary hyperoxaluria, the overall population in Study 713. In this overall population, the magnitude of change

 

 

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did not reach statistical significance for the primary endpoint—reduction in urinary oxalate excretion from baseline to Week 4 of the trial. However, the data from pre-specified secondary endpoints and post-hoc analyses in the pre-specified subgroup of patients with enteric hyperoxaluria, which included 27% of the overall population (18/67) and 34% of the active treatment population (11/32) in Study 713, showed substantially greater reductions in urinary oxalate excretion in patients treated with ALLN-177 compared to placebo. Further, time-weighted average 24 hour urinary oxalate excretion over the four weeks of the trial, a pre-specified secondary endpoint in Study 713, achieved greater reductions in urinary oxalate excretion compared to placebo in both the overall population and the subgroup of patients with enteric hyperoxaluria. We believe this measurement to be an appropriate and clinically meaningful endpoint because it reflects the physiological effect of metabolic control of urinary oxalate excretion over time and dampens the effect of potential variability associated with 24 hour urinary oxalate excretion at any individual time point. In addition, our open-label Phase 2 clinical trial in secondary hyperoxaluria showed that ALLN-177 treatment resulted in greater reductions in urinary oxalate excretion in the enteric hyperoxaluria patient subgroup, which represented 31% of the overall patient population (5/16). Consequently, we believe our Phase 2 clinical program provided valuable insights with respect to both the study population—patients with enteric hyperoxaluria, and registrational endpoint—time-weighted average 24 hour urinary oxalate reduction, that we intend to carry forward in our planned pivotal Phase 3 program. In the aggregate, our clinical development program to date has demonstrated that:

 

    ALLN-177 can substantially reduce urinary oxalate excretion in patients with enteric hyperoxaluria;

 

    ALLN-177 has been well-tolerated, with no drug-related serious or severe adverse events; and

 

    the effect of ALLN-177 was specific to oxalate, with minimal to no changes in non-oxalate urine parameters.

We are in discussions with the FDA to finalize the design of our planned pivotal Phase 3 program for ALLN-177 in adult patients with enteric hyperoxaluria. We expect that this pivotal program will consist of two clinical trials evaluating efficacy and safety, one conducted primarily in the United States, and the other in the United States, Canada, Europe and potentially other geographies. We believe that these clinical trials will be sufficient to support our planned biologic license application, or BLA, assuming favorable results. We currently expect to initiate the first of these two Phase 3 clinical trials for ALLN-177 in the first quarter of 2018.

The FDA has granted separate orphan drug designations to ALLN-177 for the treatment of primary hyperoxaluria and for the treatment of pediatric hyperoxaluria. In addition, the European Commission has granted orphan designation for ALLN-177 for the treatment of primary hyperoxaluria. In light of these designations, we are planning to initiate a Phase 2 clinical trial in the first quarter of 2018 in adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria, both of which can lead to systemic oxalosis, a potentially fatal disorder, with interim data expected in the second half of 2018 and topline data anticipated in 2019.

Our Strategy

Our goal is to become the leader in developing and commercializing first-in-class, oral, non-absorbed enzyme therapeutics to treat patients with rare and severe metabolic and kidney disorders. To achieve this goal, we are executing on the following strategy:

 

   

Obtain regulatory approval in the United States for our lead product candidate, ALLN-177, for enteric hyperoxaluria in adults—We have conducted a robust Phase 2 clinical development program of ALLN-177 in patients with secondary hyperoxaluria, which demonstrated significant reductions of urinary oxalate excretion in patients with enteric hyperoxaluria. Based on these data and the high unmet need, we are initially developing ALLN-177 for enteric hyperoxaluria. Moreover, we believe the mechanism of action of ALLN-177, which degrades oxalate in the GI tract, is particularly well-targeted to treat enteric hyperoxaluria where excess oxalate absorption is driven by an underlying GI disorder. We

 

 

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are currently in discussions with the FDA to finalize the design of our planned pivotal Phase 3 program and we currently expect to initiate the first of two Phase 3 clinical trials for ALLN-177 in the first quarter of 2018, with topline data anticipated in the second half of 2019.

 

    Commercialize ALLN-177We have worldwide commercialization and development rights to ALLN-177. We intend to independently pursue regulatory approval of ALLN-177 in patients with enteric hyperoxaluria in the United States and, if approved, to commercialize the product by building a focused commercial organization in the United States specifically to target nephrologists and urologists who treat patients with hyperoxaluria, particularly at kidney stone clinics.

 

    Advance development of ALLN-177 for other severe forms of hyperoxaluria—The FDA has granted separate orphan drug designations for ALLN-177 for the treatment of primary hyperoxaluria and for the treatment of pediatric hyperoxaluria (primary and secondary). In light of these designations, we are planning to initiate a Phase 2 clinical trial in the first quarter of 2018 in adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria, both of which can lead to systemic oxalosis, with interim data expected in the second half of 2018 and topline data anticipated in 2019. In addition, we plan to seek breakthrough designation where appropriate.

 

    Seek regulatory approval in Europe for our lead product candidate, ALLN-177We plan to pursue regulatory approval for patients with severe hyperoxaluria in Europe in conjunction with our pursuit of approval in the United States. We plan to obtain National Scientific Advice from select countries in Europe by the end of 2017 and to discuss the results of our Phase 2 clinical program in secondary hyperoxaluria and our proposed pivotal Phase 3 program in enteric hyperoxaluria. In addition, the European Commission has granted orphan designation for ALLN-177 for the treatment of primary hyperoxaluria.

 

    Advance development of ALLN-346—Utilizing our expertise in enzyme therapeutics and proprietary technological approach, we have designed ALLN-346 to degrade urate in the GI tract. We intend to pursue the development of ALLN-346 for patients with hyperuricemia and CKD. These patients are challenging to manage due to limitations of existing therapies, such as poor tolerability, reduced efficacy, dose restriction or contraindications. We expect to initiate a preclinical proof of concept study for ALLN-346 in hyperuricemia animal models in the fourth quarter of 2017. Subject to the successful outcome of this study and customary toxicology preclinical studies, we expect to file an investigational new drug application (IND) for ALLN-346 in the first half of 2019.

 

    Explore collaboration opportunities for our product candidates in markets outside of the United States. We intend to explore collaborations to commercialize our product candidates, including ALLN-177, outside of the United States. However, depending on our evaluation of these market opportunities and the strategic merits of these collaboration opportunities, we may decide to retain commercial rights in key markets.

Competitive Strengths

We believe the following competitive strengths will help us achieve our strategy:

 

    Therapeutic focus on rare and severe metabolic disorders that affect the kidney and have high unmet medical needs due to the absence of approved or effective therapies;

 

    Lead product candidate, ALLN-177, with clear mechanism of action and consistent evidence of activity and tolerability across preclinical studies and multiple Phase 1 and 2 trials to support our planned pivotal Phase 3 program;

 

    Proprietary technological approach that allows us to design, formulate and deliver non-absorbed and stable enzymes orally and in sufficient doses for activity in the GI tract. This approach enables us to develop enzyme therapies that utilize the GI tract to degrade metabolites, such as oxalate and urate, reducing plasma and urine levels, and in turn, reducing their disease burden on the kidney over time;

 

 

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    Management team with substantial experience in developing and commercializing pharmaceutical products for metabolic and kidney disorders;

 

    Strong relationships with key opinion leaders and patient advocacy groups that provide access to the industry’s leading experts on hyperoxaluria and other metabolic and kidney disorders; and

 

    Support from leading healthcare-focused investors and board members with experience in building and operating life science companies.

Our Team

We have assembled a seasoned management team with extensive experience in drug discovery, development, manufacturing and commercialization. We are supported by a top-tier investor syndicate including Frazier Healthcare Partners, Third Rock Ventures, Bessemer Venture Partners, HBM Healthcare Investments, Pharmstandard International S.A., Partner Fund Management, Fidelity Management & Research Company and other investors and have raised approximately $96.0 million in equity financing to date.

Risks Affecting Us

Our business is subject to a number of risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. Some of these risks are:

 

    We are heavily dependent on the regulatory approval of ALLN-177 in the United States and Europe, and subsequent commercial success of ALLN-177, both of which may never occur.

 

    Results of earlier studies may not be predictive of future clinical trial results, and planned studies may not establish an adequate safety or efficacy profile for ALLN-177 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.

 

    We have not yet finalized the design of our pivotal Phase 3 clinical program for ALLN-177, including the primary and secondary endpoints and the statistical analyses for these planned Phase 3 clinical trials. The FDA and comparable foreign regulators may not agree with our proposed Phase 3 clinical program, in which case we may be required to modify our planned clinical trials, or run additional clinical trials, before we can submit a BLA or comparable foreign applications for this product candidate.

 

    We may attempt to secure approval from the FDA or comparable non-U.S. regulatory authorities through the use of accelerated registration pathways. If unable to obtain approval under an accelerated pathway, we may be required to conduct additional preclinical studies or clinical trials beyond those that we contemplate, which could increase the expense of obtaining, reduce the likelihood of obtaining and/or delay the timing of obtaining, necessary marketing approvals. Even if we receive accelerated approval from the FDA, if our confirmatory trials do not verify clinical benefit, or if we do not comply with rigorous post-marketing requirements, the FDA may seek to withdraw accelerated approval.

 

    Because we are developing product candidates for the treatment of diseases in which there is little clinical trial experience and, in some cases, using new endpoints or methodologies, there is increased risk that the FDA or other regulatory authorities may not consider the endpoints of our clinical program to provide clinically meaningful results and that these results may be hard to analyze.

 

    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.

 

   

The incidence and prevalence for target patient populations of our product candidates have not been established with precision. If the market opportunities for our product candidates are smaller than we

 

 

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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.

 

    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.

 

    We have relied, and will rely in the future, on third parties to conduct our nonclinical studies and clinical trials. If these third parties do not appropriately carry out their contractual duties, fail to conduct high-quality studies or meet expected deadlines, regulatory approval and commercialization of ALLN-177 or any future candidates we may develop could be delayed or not obtained at all.

 

    The third parties upon whom we rely for the supply of the drug product and drug substance used in our lead product candidate are our sole source of supply, and the loss of any of these suppliers could significantly harm our business.

 

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

 

    We have incurred significant losses since inception, expect to incur significant and increasing losses for at least the next several years, have not generated any revenue, may never generate any revenue, and may never achieve or maintain profitability.

 

    Even if we consummate this offering, 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.

 

    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.

Corporate Information

We were incorporated under the laws of the State of Delaware and commenced business operations in 2011. Our principal executive offices are located at One Newton Executive Park, Suite 202, Newton, MA 02462 and our telephone number is (617) 467-4577. Our website address is www.allenapharma.com. The information contained on our website, or that can be accessed through our website, is not a part of this prospectus and is not incorporated by reference into this prospectus. You should not rely on any such information in deciding whether to purchase our common stock.

We own various U.S. federal trademark registrations and applications, and unregistered trademarks and service marks, including “Allena Pharmaceuticals” and our corporate logo. All trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

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Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

 

    reduced disclosure about our executive compensation arrangements;

 

    exemption from the non-binding stockholder advisory votes on executive compensation or golden parachute arrangements;

 

    exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and

 

    reduced disclosure of financial information in this prospectus, such as being permitted to include only two years of audited financial information and two years of selected financial information in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenues as of the end of a fiscal year, have more than $700 million in market value of our capital stock held by non-affiliates as of any December 31 before that time or if we issue more than $1.0 billion of non-convertible debt over a three-year-period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of some reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

 

 

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THE OFFERING

 

Common stock offered by us

5,333,333 shares

 

Common stock to be outstanding immediately after this offering

20,621,848 shares

 

Underwriters’ option to purchase additional shares

We have granted a 30-day option to the underwriters to purchase up to an aggregate of 800,000 additional shares of common stock.

 

Use of proceeds

We estimate that the net proceeds from the issuance of our common stock in this offering will be approximately $71.4 million, or approximately $82.6 million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use the net proceeds from this offering, together with our existing cash, cash equivalents and investments, as follows: (1) approximately $45.0 million for our planned pivotal Phase 3 clinical program of ALLN-177 for the treatment of patients with enteric hyperoxaluria; (2) approximately $3.0 million for our planned Phase 2 clinical trial of ALLN-177 in adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria; (3) approximately $3.0 million for our planned development of ALLN-346 for the treatment of patients with hyperuricemia and CKD; (4) approximately $8.0 million to fund our process validation and manufacturing batches for ALLN-177; and (5) the remainder for working capital and other general corporate purposes. See “Use of Proceeds” for additional information.

 

Risk factors

See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

 

NASDAQ Global Market symbol

“ALNA”

Certain of our existing stockholders, including certain affiliates of our directors, have indicated an interest in purchasing an aggregate of approximately $25.0 million of shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these stockholders, or any of these stockholders may determine to purchase more, less or no shares in this offering.

The number of shares of our common stock to be outstanding after this offering is based on 15,288,515 shares of our common stock outstanding as of June 30, 2017, after giving effect to the conversion of all outstanding shares of our preferred stock as of June 30, 2017 into an aggregate of 13,945,509 shares of common stock upon the completion of this offering and excludes:

 

    1,394,299 shares of common stock issuable upon the exercise of stock options outstanding as of June 30, 2017 at a weighted-average exercise price of $1.41 per share;

 

 

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    43,265 shares of common stock issuable upon the exercise of warrants outstanding as of June 30, 2017 at a weighted-average exercise price of $5.55 per share;

 

    734,590 shares of common stock reserved for future issuance under our 2011 Stock Incentive Plan, or the 2011 Plan, as of June 30, 2017;

 

    2,038,021 shares of common stock reserved for future issuance under our 2017 Stock Option and Incentive Plan, or the 2017 Plan; and

 

    206,284 shares of common stock reserved for the future issuance under our 2017 Employee Stock Purchase Plan.

Unless otherwise indicated, all information in this prospectus reflects or assumes the following:

 

    a 1-for-4.174 reverse stock split of our common stock effected on October 23, 2017;

 

    the conversion of all 58,208,614 of our outstanding shares of our preferred stock into 13,945,509 shares of common stock, which will occur immediately prior to the closing of this offering;

 

    no issuance or exercise of stock options or warrants on or after June 30, 2017 (which excludes the issuance of options to purchase an aggregate of 150,933 shares of common stock at a weighted-average exercise price of $5.67 per share after June 30, 2017); and

 

    no exercise by the underwriters of their option to purchase up to an additional 800,000 shares of common stock in this offering.

 

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data for the years ended December 31, 2015 and 2016 is derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data as of June 30, 2017 and for the six months ended June 30, 2016 and 2017 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting of only normal recurring adjustments, that management considers necessary for the fair presentation of the financial information set forth in those statements. You should read this data together with our consolidated financial statements and related notes included elsewhere in this prospectus and the information under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results for any prior period are not necessarily indicative of results to be expected in any future period and our operating results for the six-month period ended June 30, 2017 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2017 or any other interim periods or any future year or period.

 

     Years Ended December 31,     Six Months Ended June 30,  
     2015     2016         2016             2017      
     (in thousands, except share and per share data)  

Consolidated Statement of Operations Data:

        

Operating expenses:

        

Research and development

   $ 11,540     $ 20,103     $ 10,025     $ 7,809  

General and administrative

     2,365       4,083       2,057       2,208  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,905       24,186       12,082       10,017  

Other income (expense):

        

Interest income (expense), net

     (335     (200     (71     (255

Other income (expense), net

     (7     (121     1       (31
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

     (342     (321     (70     (286
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (14,247   $ (24,507   $ (12,152   $ (10,303
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders—basic and diluted(1)

   $ (11.35   $ (18.35   $ (9.11   $ (7.70
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding—basic and diluted(1)

     1,258,123       1,339,254       1,337,100       1,342,628  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)(1)

     $ (1.59     $ (0.67
    

 

 

     

 

 

 

Pro forma weighted-average common shares outstanding—basic and diluted (unaudited)(1)

       15,284,763         15,288,137  
    

 

 

     

 

 

 

 

(1) See Note 2 to our consolidated financial statements included elsewhere in this prospectus for a description of the method used to calculate basic and diluted net loss per share and unaudited pro forma basic and diluted net loss per share as well as the weighted-average number of common shares used in the calculation of the per share amounts.

 

 

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     June 30, 2017  
    

Actual

   

Pro Forma(1)

    

Pro Forma As
Adjusted(2)(3)

 
  

 

 

 
     (in thousands)  

Consolidated Balance Sheet Data:

       

Cash, cash equivalents and investments

   $ 37,962     $ 37,962      $ 109,362  

Working capital(4)

     34,142       34,142        105,542  

Total assets

     38,579       38,579        109,979  

Loan payable, net of current portion and discount

     7,553       7,553        7,553  

Convertible preferred stock

     95,761       —          —    

Total stockholders’ deficit

     (69,414     26,646        98,046  

 

(1) The pro forma column reflects the automatic conversion of all 58,208,614 outstanding shares of our preferred stock into 13,945,509 shares of our common stock, which will occur immediately prior to the closing of this offering.
(2) The pro forma as adjusted column reflects the pro forma adjustments described in (1) above, and further reflects the sale of 5,333,333 shares of our common stock offered in this offering, assuming an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3) Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) pro forma as adjusted cash, cash equivalents and investments, working capital, total assets and total stockholders’ equity by $5.0 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares offered by us would increase (decrease) the pro forma as adjusted cash, cash equivalents and investments, working capital, total assets and total stockholders’ equity by $14.0 million, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.
(4) We define working capital as current assets less current liabilities. See our consolidated financial statements for further details regarding our current assets and current liabilities.

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of the following risks actually occur, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. Certain statements below are forward-looking statements. See “Special Note Regarding Forward-Looking Statements” in this prospectus.

Risks Related to Drug Development, Regulatory Approval and Commercialization

We are heavily dependent on the regulatory approval of ALLN-177 in the United States and Europe, and subsequent commercial success of ALLN-177, both of which may never occur.

We are a late-stage clinical 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 regulatory approval and commercial success of ALLN-177 in one or more of the indications for which we seek approval. Our ability to generate revenues in the near term will depend on our ability to obtain regulatory approval and successfully commercialize ALLN-177 on our own in the United States, the first country in which we intend to make ALLN-177 available for sale, if approved. We may experience delays in obtaining regulatory approval in the United States for ALLN-177, if it is approved at all, and our stock price may be negatively impacted. Even if we receive regulatory approval, the timing of the commercial launch of ALLN-177 in the United States is dependent upon a number of factors, including, but not limited to, hiring sales and marketing personnel, pricing and reimbursement timelines, the production of sufficient quantities of commercial drug product and implementation of marketing and distribution infrastructure.

In addition, we have incurred and expect to continue to incur significant expenses as we continue to pursue the approval of ALLN-177 in the United States, Europe and elsewhere. We plan to devote a substantial portion of our effort and financial resources in order to continue to grow our operational capabilities. This represents a significant investment in the clinical and regulatory success of ALLN-177, which is uncertain. The success of ALLN-177, if approved, and revenue from commercial sales, will depend on several factors, including:

 

    execution of an effective sales and marketing strategy for the commercialization of ALLN-177;

 

    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-177;

 

    the incidence and prevalence of enteric hyperoxaluria in those markets in which ALLN-177 is approved;

 

    the prevalence and severity of side effects, if any, experienced by patients treated with ALLN-177;

 

    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 of a generic or biosimilar version of oxalate decarboxylase, the active enzyme in ALLN-177;

 

    successful implementation of our manufacturing processes that are included in our new biologics license application, or 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 GLP, and good clinical practices, or GCPs; and

 

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    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 future product candidates, including ALLN-346 for patients with hyperuricemia and chronic kidney disease, or CKD. If this were to occur, we would continue to be heavily dependent on the regulatory approval and successful commercialization of ALLN-177, 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 may not be predictive of future clinical trial results, and planned studies may not establish an adequate safety or efficacy profile for ALLN-177 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.

The results of preclinical studies and clinical trials of ALLN-177 conducted to date and future studies and trials of other product candidates that we may pursue may not be predictive of the results of later-stage clinical trials, and interim results of a clinical trial do not necessarily predict final results. Data, our interpretation of data and results from our Phase 2 clinical trials of ALLN-177 in adults with enteric hyperoxaluria do not ensure that we will achieve similar results in a pivotal Phase 3 clinical trial in enteric hyperoxaluria or in clinical trials of ALLN-177 in other patient populations. 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 initial clinical trials.

In particular, as is common with Phase 2 clinical trials, particularly with the first clinical trials to be conducted in a patient population with disease, we explored numerous endpoints and analyzed the data from our Phase 2 clinical trials of ALLN-177 in a number of ways. Prior to obtaining approval for ALLN-177, we expect that the results of our registration trials will have to demonstrate statistically significant improvement in the pre-specified primary endpoint in the applicable registration trial. To date, two of our Phase 2 clinical trials of ALLN-177 (Study 713 and Study 649) have not demonstrated statistically significant results in the pre-specified primary endpoints. Our later-stage clinical trials will differ in significant ways from our Phase 2 clinical trials of ALLN-177, which may cause the outcome of these later-stage trials to differ from our earlier stage clinical trials. These differences may include changes to inclusion and exclusion criteria, efficacy endpoints and statistical design. We are still finalizing the design of our planned pivotal Phase 3 clinical program for ALLN-177, including the primary and secondary endpoints and statistical analysis plan for these trials.

Product candidates in Phase 3 clinical trials, such as ALLN-177 in our planned pivotal Phase 3 clinical program, may fail to demonstrate sufficient efficacy despite having progressed through initial clinical trials, even if certain analyses of primary or secondary endpoints in those early trials showed trends toward efficacy. Some of the data we present on the use of ALLN-177 for the treatment of enteric hyperoxaluria is drawn from post-hoc analyses. While we believe these data are useful in informing the design of future clinical trials for ALLN-177, these analyses involve the inherent bias of post-hoc rendering of data and choice of analytical methods. Further, while Study 713 was the largest randomized, controlled trial ever conducted in hyperoxaluria, only 18 subjects with enteric hyperoxaluria, the proposed indication for our planned pivotal Phase 3 program, enrolled in the trial. Thus, we have limited data on the activity of ALLN-177 in the target population for our planned Phase 3 clinical program.

We believe 24 hour urinary oxalate excretion is an appropriate metric of the therapeutic effect of ALLN-177 because 24 hour urinary oxalate excretion is a biochemical measurement of the daily amount of oxalate handling by the kidney and therefore its reduction would indicate lessening of potential kidney damage by oxalate. However, based on published scientific literature and data generated in our own clinical trials, daily urinary oxalate excretion is a biomarker that demonstrates significant variability between patients and day-to-day for the

 

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same patient. This variability in 24 hour urinary oxalate excretion, especially in enteric hyperoxaluria patients, can be attributed to changes in diet, metabolic activity, hydration status or other factors. It can also be attributed to the manner in which these measurements are taken. In our completed Phase 2 clinical trials, we relied heavily on the efforts and contributions of investigative clinical sites and study patients to comply with accurate timing of 24 hour urine collection, with the complete collection of all of the patient’s urine during a given 24 hour period and with the proper handling of collected urine specimens, including storage, documentation, sample handling and shipping to the testing laboratory. Following our completed Phase 2 clinical trials, we conducted a post-hoc review of these collection procedures. Although we are not aware of any case where the data reported in our prior clinical trials was inaccurate, due to the variability inherent in these data collection techniques, we cannot assure you that in all cases the data reported in our clinical trials accurately reflect the actual biochemical responses experienced by patients in these trials. We believe a time-weighted average of daily urinary oxalate excretion mitigates the risks of inherent variability, dietary change and sample handling associated with the testing of each individual 24 hour urine specimen, but no assurance can be given that any such variability will be fully addressed by this approach.

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-177 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.

We have not yet finalized the design of our pivotal Phase 3 clinical program for ALLN-177, including the primary and secondary endpoints and the statistical analyses for these planned Phase 3 clinical trials. The FDA and comparable foreign regulators may not agree with our proposed Phase 3 clinical program, in which case we may be required to modify our planned clinical trials, or run additional clinical trials, before we can submit a BLA and comparable foreign applications for this product candidate.

We are in discussions with the FDA to finalize the design of our pivotal Phase 3 program for ALLN-177 in adult patients with enteric hyperoxaluria, including the primary and secondary endpoints and the statistical analyses for these planned Phase 3 clinical trials. There can be no assurance that we will reach agreement with the FDA on our Phase 3 clinical program as currently proposed. For example, we have proposed as a primary endpoint the proportion of patients with ³ 20% reduction in time-weighted average, or TWA, 24 hour urinary oxalate, or UOx, excretion from baseline. The FDA has advised us that it may be willing to accept a substantial change in 24 hour UOx excretion as a surrogate endpoint in patients with secondary hyperoxaluria, especially patients with enteric hyperoxaluria, a prior history of kidney stones and very high baseline levels of UOx excretion, most likely as the basis for an accelerated approval. However, the FDA has also advised us that we have not yet provided sufficient data regarding the magnitude of effect on UOx excretion necessary to support its use as a primary endpoint for these clinical trials. We are currently assembling and analyzing available data from third-party clinical databases in order to develop a quantitative predictive model that further substantiates the relationship between the change in 24 hour UOx excretion and the change in specific outcomes of interest (e.g., stone formation) in the target hyperoxaluric patient populations. If the FDA agrees to accept a change in TWA 24 hour UOx excretion as the primary endpoint for our pivotal Phase 3 program under the accelerated approval pathway, we will be required to provide study data on longer term clinical follow up from trial patients, or conduct a separate clinical outcomes trial, to confirm the clinical benefit predicted by the biochemical therapeutic response demonstrated in our Phase 3 clinical trials. The FDA may require demonstration that we have initiated or made substantial progress in our clinical follow up of trial subjects, or any such clinical outcomes trial, prior to the submission of our BLA for accelerated approval of ALLN-177. If we are unable to reach consensus with the FDA on the magnitude of UOx reduction significant enough to predict clinical benefit, we may be required to

 

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demonstrate effectiveness by showing an effect on stone formation directly, or conduct one or more additional clinical trials to demonstrate this effect, prior to the submission of a BLA for ALLN-177. Moreover, the FDA may require us to make other changes to our proposed design of our Phase 3 clinical program for ALLN-177, including expanding the number of patients and/or treatment period evaluated or running one or more additional clinical trials prior to the submission of a BLA. Any of these decisions could have a material adverse effect on our expected clinical and regulatory timelines, business, prospects, financial condition and results of operations.

Similarly, our planned Phase 3 program may not be sufficient to support the submission of applications for marketing approval in foreign jurisdictions, including the European Union. Although our preliminary discussions with regulatory authorities in select countries within the European Union lead us to believe our planned Phase 3 program, if successful, may be sufficient to support the submission of an MAA in Europe, these discussions are not binding on such authorities or the EMA. Accordingly, no assurance can be given that our planned Phase 3 program will be sufficient to support the submission of an MAA in Europe, and we may be required to modify the design of these planned trials, or run additional clinical trials, before seeking marketing approval. Any of these decisions could have a material adverse effect on our expected clinical and regulatory timelines, business, prospects, financial condition and results of operations.

We may attempt to secure approval from the FDA or comparable non-U.S. regulatory authorities through the use of accelerated registration pathways. If unable to obtain approval under an accelerated pathway, we may be required to conduct additional preclinical studies or clinical trials beyond those that we contemplate, which could increase the expense of obtaining, reduce the likelihood of obtaining and/or delay the timing of obtaining, necessary marketing approvals. Even if we receive accelerated approval from the FDA, if our confirmatory trials do not verify clinical benefit, or if we do not comply with rigorous post-marketing requirements, the FDA may seek to withdraw accelerated approval.

We may seek an accelerated approval development pathway for our product candidates, including ALLN-177. Under the accelerated approval provisions of the Federal Food, Drug, and Cosmetic Act and the FDA’s implementing regulations, the FDA may grant accelerated approval to a product designed to treat a serious or life-threatening condition that provides meaningful therapeutic advantage over available therapies and demonstrates an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval development pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical profile or risks and benefits for accelerated approval. The FDA may require that any such confirmatory study be initiated or substantially underway prior to the submission of an application for accelerated approval. If such post-approval studies fail to confirm the drug’s clinical profile or risks and benefits, the FDA may withdraw its approval of the drug.

If we choose to pursue accelerated approval, we intend to seek feedback from the FDA or will otherwise evaluate our ability to seek and receive such accelerated approval. There can be no assurance that the FDA will agree that our proposed primary endpoint for our planned pivotal Phase 3 clinical program is an appropriate surrogate endpoint. There also can be no assurance that, after our evaluation of the feedback from the FDA or other factors, we will decide to pursue or submit a BLA for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be no assurance that after subsequent FDA feedback that we will continue to pursue or apply for accelerated approval or any other form of expedited development, review or approval, even if we initially decide to do so. Furthermore, if we submit an application for accelerated approval, there can be no assurance that such application will be accepted or that approval will be granted on a

 

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timely basis, or at all. For example, if another company receives full approval from the FDA to market a product for treatment of hyperoxaluria, our ability to seek and obtain accelerated approval for ALLN-177 in the same or similar indication may be materially adversely affected. The FDA or foreign regulatory authorities also could require us to conduct further studies or trials prior to considering our application or granting approval of any type. We might not be able to fulfill the FDA’s requirements in a timely manner, which would cause delays, or approval might not be granted because our submission is deemed incomplete by the FDA. A failure to obtain accelerated approval or any other form of expedited development, review or approval for a product candidate would result in a longer time period to commercialize such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.

Even if we receive accelerated approval from the FDA, we will be subject to rigorous post-marketing requirements, including the completion of confirmatory post-market clinical trial(s) to verify the clinical benefit of the product, and submission to the FDA of all promotional materials prior to their dissemination. The FDA could seek to withdraw accelerated approval for multiple reasons, including if we fail to conduct any required post-market study with due diligence, a post-market study does not confirm the predicted clinical benefit, other evidence shows that the product is not safe or effective under the conditions of use, or we disseminate promotional materials that are found by the FDA to be false and misleading

A failure to obtain accelerated approval or any other form of expedited development, review or approval for a product candidate that we may choose to develop would result in a longer time period prior to commercializing such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.

Because we are developing product candidates for the treatment of diseases in which there is little clinical trial experience and, in some cases, using new endpoints or methodologies, there is increased risk that the FDA or other regulatory authorities may not consider the endpoints of our clinical program to provide clinically meaningful results and that these results may be hard to analyze.

There are no pharmacologic therapies approved to treat the underlying causes of hyperoxaluria. In addition, it should be noted that no therapeutic agents have previously been approved by the FDA on the basis of a biochemical measurement of 24 hour urinary oxalate excretion, endpoints used in our Phase 2 clinical program and expected for our planned pivotal Phase 3 clinical program. As a result, the design and conduct of clinical trials for the treatment of hyperoxaluria, and the underlying conditions and disorders that drive the metabolic disease, are subject to increased risk.

We have engaged in discussions with the FDA during our end of Phase 2 meeting, and subsequently, regarding the design of our planned pivotal Phase 3 clinical program for ALLN-177 in adult patients with enteric hyperoxaluria. While we have received initial feedback, we do not yet have definitive feedback from the FDA on the proposed primary endpoint of our planned pivotal Phase 3 clinical program, the measure of what is clinically meaningful in respect of this endpoint, secondary endpoints and the requisite data necessary to justify an approval. Furthermore, the FDA has discretion to reserve judgment on whether our endpoint and the results seen in our planned pivotal Phase 3 clinical program sufficiently demonstrate clinical meaningfulness until the FDA reviews our BLA several years from now.

Moreover, even if the FDA does find our success criteria to be sufficiently validated and clinically meaningful, we may not achieve the pre-specified endpoint to a degree of statistical significance, in either or both of the Phase 3 clinical trials that we believe will be necessary for approval. Further, even if we do achieve the pre-specified criteria, we may produce results that are unpredictable or inconsistent with the results of the secondary efficacy endpoints in the trials. The FDA also could give overriding weight to other efficacy endpoints, even if we achieve statistically significant results on the primary endpoint, if we do not achieve statistically significant or clinically meaningful results on any of our secondary efficacy endpoints. The FDA also weighs the benefits of a product against its risks and the FDA may view the efficacy results in the context of safety as not being supportive of regulatory approval. Other regulatory authorities in the EU and other countries may take similar positions.

 

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The design and conduct of clinical trials is complex, particularly where there is not an established regulatory approval pathway for a given patient population, such as enteric hyperoxaluria, or a new mechanism of action is being tested, as this may result in unpredictable results. For example, in our Phase 2 clinical trial referred to as Study 649, a “crossover” trial design was used, which is a longitudinal study in which subjects receive a sequence of different exposures during the course of the trial. Each treatment sequence consisted of two seven-day treatment periods separated by a seven-day washout period. While no clear factor was identified to account for the lack of differentiation between ALLN-177 and placebo in Study 649, we believe the lack of effect may have been due to, among other things, the complexities inherent in the crossover study design.

In addition, we are planning to conduct a Phase 2 clinical trial of ALLN-177 utilizing an open-label, basket trial design that will enroll subsets of patients suffering from complications of severe hyperoxaluria, including adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria, both of which can lead to systemic oxalosis. We have not yet evaluated ALLN-177 in patients with primary hyperoxaluria and as such we have not yet demonstrated proof-of-concept in this patient population. Basket trial designs permit the exploration of a study drug in patient populations with common biochemical markers, such as patients afflicted with different forms of cancer, but the same genetic mutation. Although all patients enrolled in our planned Phase 2 trials will have elevated urinary oxalate levels, the underlying cause of their hyperoxaluria may be different. We cannot predict whether the design of our planned pivotal Phase 3 clinical program, the Phase 2 basket trial or any other future trials that we may conduct may successfully demonstrate ALLN-177 or any future product candidate’s safety and efficacy.

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;

 

    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;

 

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    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.

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 planned pivotal Phase 3 clinical program for ALLN-177 consists of two Phase 3 clinical trials of ALLN-177 in adult patients with enteric hyperoxaluria. We are in discussions with the FDA and expect to engage foreign regulators before the end of the year regarding the design of these trials. Even after we receive and incorporate guidance from these regulatory authorities, the FDA or other comparable foreign regulators could disagree that we have satisfied their requirements to commence our clinical trials or 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 things, drug-drug interactions, the generation of formate (i.e. a metabolic byproduct resulting from the degradation of oxalate by ALLN-177) 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-177, ALLN-346 and any product candidates we may develop in the future. We do not know whether any of our clinical trials will begin or 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:

 

    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;

 

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    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. 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.

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-177 or our other product candidates, our business will be substantially harmed.

We are not permitted to market ALLN-177 or any of our other product candidates in the United States or the European Union, or 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 and toxicology studies, as well as Phase 1, Phase 2 and Phase 3 clinical trials.

 

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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-177 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-177 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, 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-177 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.

 

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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-177 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-177 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-177 and 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-177 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.

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

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. In particular, because we are focused on patients with enteric hyperoxaluria with respect to our Phase 3 development of ALLN-177, our ability to enroll eligible patients may be limited or may result in slower enrollment than we anticipate.

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;

 

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    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

 

    the extent to which our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates.

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:

 

    restrictions on the marketing or manufacturing of the drug, withdrawal of the drug from the market, or voluntary 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.

 

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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, biotechnology companies and specialty pharmaceutical companies. Key competitive factors affecting the commercial success of ALLN-177, 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 is no approved pharmacologic therapy for the reduction of urinary oxalate excretion in patients with hyperoxaluria, either primary or secondary. Existing treatment options for hyperoxaluria generally are non-specific and include high fluid intake to increase urine output to more than two to three liters per day, a diet low in salt and oxalate, oral citrate and/or calcium and/or magnesium supplementation and orthophosphate and Vitamin B6, exclusively for the specific subset of responsive patients with the most severe form of primary hyperoxaluria (PH1).

We are aware of other companies pursuing oxalate reduction in both primary and secondary hyperoxaluria. Alnylam and Dicerna are developing injectable gene-silencing technologies using RNA, with product candidates focused on addressing primary hyperoxaluria. Both are in early-stage clinical development. Oxthera AB (Sweden) and Captozyme (U.S.) are developing orally delivered products to degrade oxalate in the stomach and GI tract. Oxthera is advancing oxabact, Oxalobacter formigenes, into Phase 3 clinical trials for the treatment of primary hyperoxaluria.

Many 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-177 or any future product candidates we may develop obsolete or non-competitive before we can recover the expenses of developing and commercializing ALLN-177 or any future product candidates we may develop. 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 oxalate decarboxylase, the active enzyme in ALLN-177. 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-177 or any future product candidates we may develop, if approved, will be adversely affected.

The incidence and prevalence for target patient populations of our product candidates have not been established with precision. If the market opportunities for our product candidates 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.

We focus our research and product development on treatments for hyperoxaluria and hyperuricemia. The precise incidence and prevalence for these diseases are unknown. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on estimates. For example, we estimate there are approximately 200,000 to 250,000 patients in the United States with enteric hyperoxaluria and kidney stones. This estimate has 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

 

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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 each of our product candidates may be limited or may not be amenable to treatment with our product candidates, 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 one or more of our product candidates, because certain of our potential target populations are small, including our target populations for which ALLN-177 has received orphan drug designation, we may never achieve profitability despite obtaining such significant market share.

Even if one of our product candidates 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 such product candidate may be smaller than we estimate.

We have never obtained marketing approval for a product candidate or commercialized a product. Even if one of our product candidates 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 candidates may require significant resources and may not be successful. If any one of our product candidates 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 any of our product candidates, 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;

 

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    adverse publicity about the product or favorable publicity about competitive products; and

 

    potential product liability claims.

The potential market opportunities for our product candidates are difficult to estimate precisely. Our estimates of the potential market opportunities 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 markets for our product candidates could be smaller than our estimates of the potential market opportunities, which would adversely affect our results of operations and our business.

Our proprietary technological approach is a new approach to the design and development of stable, non-absorbable oral enzyme 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-177, 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 receive regulatory approval, enter clinical development and, ultimately, be commercially valuable.

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

As of June 30, 2017, we had 29 full-time, part-time, or short-term employees. Our focus on the development of ALLN-177 requires us to optimize cash utilization and to manage and operate our business in a highly efficient manner. We will need to hire and retain a significant number of new employees to execute our clinical development and manufacturing plans. We cannot provide assurance that we will be able to hire and/or retain adequate staffing levels to develop ALLN-177 or run our operations and/or to accomplish all of the objectives that we otherwise would seek to accomplish.

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 candidates.

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-177 for enteric hyperoxaluria 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-177 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;

 

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    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-177, 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-177, 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-177 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-177 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-177 and any future product candidates we may develop in foreign markets, which could impair our business, operating results and financial condition.

 

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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-177 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-177 internationally. We do not have any experience in a commercial launch in Europe or elsewhere.

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.

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.

The manufacture and packaging of pharmaceutical products such as ALLN-177 are 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-177, if approved, are 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-177 and willing to do so. We may not be able to identify or secure contracts with manufacturers with suitable capability to manufacture ALLN-177 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 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-177, including the specific bacterial strains that are used to manufacture the oxalate decarboxylase enzyme, which is an active ingredient in ALLN-177.

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-177, by the FDA and foreign regulatory agencies, we will be required to consistently produce the drug substance and the finished

 

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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-177 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.

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.

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, 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-177, if approved.

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-177 for hyperoxaluria, we intend to pursue development of ALLN-346 for hyperuricemia and CKD as well as other product candidates. 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

 

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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-177 for the treatment of enteric hyperoxaluria and other indications, 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.

We may fail to obtain and maintain orphan drug designations from the FDA for our current and future product candidates, as applicable. Even for ALLN-177 for which we have received such designation for treatment of primary hyperoxaluria and pediatric hyperoxaluria, we may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity.

Our strategy includes filing for orphan drug designation where available for our product candidates. Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a full new drug application, or NDA, or BLA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the original manufacturer is unable to assure sufficient product quantity.

The FDA has granted separate orphan drug designations for ALLN-177 for treatment of primary hyperoxaluria and for the treatment of pediatric hyperoxaluria. In addition, the European Commission has granted orphan designation for ALLN-177 for the treatment of primary hyperoxaluria. Even where we have obtained such designations, we may not be the first to obtain regulatory approval of a product candidate for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. We may also fail to meet requirements to maintain orphan drug designation during our continued development of ALLN-177, which is primarily focused on enteric hyperoxaluria. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the orphan-designated disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties may

 

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receive and be approved for the same condition, and only the first applicant to receive approval will receive the benefits of marketing exclusivity. Even after an orphan-designated product is approved, the FDA can subsequently approve a later drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval process. In addition, while we may seek orphan drug designation for our product candidates, we may never receive such designations.

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to penalties, including criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.

Although we do not currently have any drugs on the market, once we begin commercializing our product candidates, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states, foreign governments and other jurisdictions in which we conduct our business. Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our product candidates for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

 

    the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, they are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

    the federal civil False Claims Act imposes criminal and civil penalties and authorizes civil whistleblower or qui tam actions against individuals or entities for: knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent; or making a false statement or record material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

 

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act” under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the Affordable Care Act, require manufacturers of drugs,

 

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devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Department of Health and Human Services information related to physician payments and other transfers of value and the ownership and investment interests of such physicians and their immediate family members;

 

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and its implementing regulations, which also imposes obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; and

 

    analogous state laws and regulations, such as state anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Ensuring that our future business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations, including anticipated activities to be conducted by our sales team, were to be found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Any of these occurrences may significantly harm our business, financial condition, prospects and results of operations and adversely affect our stock price.

Legislative or regulatory reform of the health care system in the United States and foreign jurisdictions may adversely impact our business, operations or financial results.

Our industry is highly regulated and changes in law may adversely impact our business, operations or financial results. In particular, in March 2010, the Affordable Care Act and a related reconciliation bill were signed into law. This legislation changes the current system of healthcare insurance and benefits intended to broaden coverage and control costs. The law also contains provisions that will affect companies in the pharmaceutical industry and other healthcare related industries by imposing additional costs and changes to business practices. Provisions affecting pharmaceutical companies include the following:

 

    mandatory rebates for drugs sold into the Medicaid program have been increased, and the rebate requirement has been extended to drugs used in risk-based Medicaid managed care plans;

 

    the definition of “average manufacturer price” was revised for reporting purposes, which could increase the amount of Medicaid drug rebates by state;

 

    the 340B Drug Pricing Program under the Public Health Service Act has been extended to require mandatory discounts for drug products sold to certain critical access hospitals, cancer hospitals and other covered entities;

 

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    pharmaceutical companies are required to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the “donut hole”; and

 

    pharmaceutical companies are required to pay an annual non-tax deductible fee to the federal government based on each company’s market share of prior year total sales of branded products to certain federal healthcare programs. Since we expect our branded pharmaceutical sales to constitute a small portion of the total federal health program pharmaceutical market, we do not expect this annual assessment to have a material impact on our financial condition.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013, which will remain in effect until 2024 unless additional congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, increased the statute of limitations period for the government to recover overpayments to providers from three to five years. We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce our profitability.

In addition, in September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted giving the FDA enhanced post-marketing authority including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to ensure compliance with post-approval regulatory requirements and potential restrictions on the sale and/or distribution of approved products. Other legislative and regulatory initiatives have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. For example, the Drug Supply Chain Security Act of 2013 imposes new obligations on manufacturers of certain pharmaceutical products related to product tracking and tracing. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance documents or interpretations will be changed, or what the impact of such changes on the marketing approvals of ALLN-177, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, that while not a law, is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the Affordable Care Act. In May 2017, the House of Representatives passed legislation to repeal and replace parts of the Affordable Care Act. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Thus, the full impact of the Affordable Care Act, any law repealing and/or replacing elements of it, and the political uncertainty surrounding any repeal or replacement legislation on our business remains unclear.

Moreover, we cannot predict what healthcare reform initiatives may be adopted in the future. Further, federal and state legislative and regulatory developments are likely, and we expect ongoing initiatives in the United States to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated

 

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revenues from ALLN-177 and any other product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

If successful product liability claims are brought against us, we may incur substantial liability and costs. If the use of our product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our product candidates, our regulatory approvals could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims.

The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, participants in our clinical trials, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. There is a risk that our product candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

 

    impairment of our business reputation;

 

    withdrawal of clinical trial participants;

 

    costs due to related litigation;

 

    distraction of management’s attention from our primary business;

 

    substantial monetary awards to patients or other claimants;

 

    increased FDA warnings on product labels;

 

    the inability to commercialize our product candidates; and

 

    decreased demand for our product candidates, if approved for commercial sale.

We carry product liability insurance in amounts that we believe are sufficient in light of our current clinical programs; however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.

During the course of treatment, patients may suffer adverse events, including death, for reasons that may or may not be related to our product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our product candidates, if approved, or require us to suspend or abandon our commercialization efforts of any approved product candidates. Even in a circumstance in which we do not believe that an adverse event is related to our products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals our product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations.

 

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We depend heavily on the success of our most advanced program, ALLN-177. Our only other product development program, ALLN-346, is at the preclinical stage. 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 have invested substantially all of our efforts and financial resources in the identification and development of our most advanced product program, ALLN-177 for the treatment of hyperoxaluria. 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-177 and our future product candidates. The success of ALLN-177, ALLN-346 and future product candidates we may identify and develop will depend on many factors, including the following:

 

    sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials for our most advanced program;

 

    successful completion of preclinical studies;

 

    successful enrollment in, and completion of, clinical trials;

 

    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 our most advanced program or any other product candidates we may develop, which would materially harm our business.

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-177 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 our most advanced program, 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, our most advanced program or any product candidates we may identify and develop, we may not be able to generate sufficient revenue to continue our business.

 

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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 the incidences of adverse events that were considered related to study drug were low and no drug-related serious or severe adverse events were observed, it is possible that our planned Phase 3 program or future clinical trials we conduct may not demonstrate a favorable safety profile. In addition, while we have not observed ALLN-177 to be absorbed in our clinical trials to date, it is possible absorption could occur in our planned Phase 3 clinical trials, particularly with a target population of patients with enteric hyperoxaluria, who are predisposed to chronic hyperabsorption. We may also need to conduct additional clinical trials or other testing for, among other things, drug-drug interactions, the generation of formate 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-177 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-177 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.

 

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Even if we are able to commercialize any product candidates, such products may become subject to unfavorable pricing regulations, third-party reimbursement practices, or healthcare reform initiatives, which would harm our business.

The regulations that govern marketing approvals, pricing, and reimbursement for new medicines vary widely from country to country. Some countries require approval of the sale price of a medicine before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a medicine in a particular country, but then be subject to price regulations that delay our commercial launch of the medicine, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the medicine in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if any product candidates we may develop obtain marketing approval.

Our ability to commercialize any medicines successfully also will depend in part on the extent to which reimbursement for these medicines and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any medicine that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining reimbursement for newly approved medicines, and coverage may be more limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulators. Moreover, eligibility for reimbursement does not imply that any medicine will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, marketing and distribution. Interim reimbursement levels for new medicines, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the medicine and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost medicines and may be incorporated into existing payments for other services. Net prices for medicines may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of medicines from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved medicines we may develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize medicines, and our overall financial condition.

Due to the novel nature of our product candidates and the potential for any product candidates we may develop to offer therapeutic benefit, we face uncertainty related to pricing and reimbursement for these product candidates.

Our initial target patient populations are relatively small, as a result of which the pricing and reimbursement of any product candidates we may develop, if approved, must be adequate to support the necessary commercial infrastructure. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell any such product candidates will be adversely affected. The manner and level at which reimbursement is

 

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provided for services related to any product candidates we may develop (e.g. for administration of our product to patients) is also important. Inadequate reimbursement for such services may lead to physician resistance and adversely affect our ability to market or sell our products. In addition, it may be necessary for us to develop new reimbursement models in order to realize adequate value. Payors may not be able or willing to adopt such new models, and patients may be unable to afford that portion of the cost that such models may require them to bear. If we determine such new models are necessary but we are unsuccessful in developing them, or if such models are not adopted by payors, our business, financial condition, results of operations, and prospects could be adversely affected.

We expect that coverage and reimbursement by government and private payors will be essential for most patients to be able to afford our product candidates. Accordingly, sales of any such product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of any product candidates we may develop will be paid by health maintenance, managed care, pharmacy benefit, and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers, and other third-party payors. Coverage and reimbursement by a third-party payor may depend upon several factors, including the third-party payor’s determination that use of a product is:

 

    a covered benefit under its health plan;

 

    safe, effective, and medically necessary;

 

    appropriate for the specific patient;

 

    cost-effective; and

 

    neither experimental nor investigational.

Obtaining coverage and reimbursement for a product from third-party payors is a time-consuming and costly process that could require us to provide to the payor supporting scientific, clinical, and cost-effectiveness data. There is significant uncertainty related to third-party coverage and reimbursement of newly approved products. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If coverage and reimbursement are not available, or are available only at limited levels, we may not be able to successfully commercialize any product candidates we may develop. Even if coverage is provided, the approved reimbursement amount may not be adequate to realize a sufficient return on our investment.

Moreover, the downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products such as ours. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell any product candidates we may develop will be harmed.

In light of the large population of patients with hyperoxaluria who reside outside the United States, our ability to generate meaningful revenues in those jurisdictions may be limited due to the strict price controls and reimbursement limitations imposed by governments outside of the United States.

In some countries, particularly those in the EU, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug. To obtain coverage and reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our product candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially, if we are not able to market our product to the large population of patients with hyperoxaluria who reside in outside the United States.

 

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Currently we plan to seek regulatory approval to market ALLN-177 solely for the treatment of enteric hyperoxaluria in adults and, unless we seek regulatory approval for additional indications, we will be prohibited from marketing ALLN-177 for any other indication.

We intend to initially seek approval to market ALLN-177 for the treatment of enteric hyperoxaluria in adults. Even if we obtain regulatory approval to market ALLN-177 in this indication, we will likely be prohibited from marketing ALLN-177 for any other indications. The FDA strictly regulates the promotional claims that may be made about prescription products. While ALLN-177 has been studied in patients beyond the enteric subgroup, ALLN-177 may not be promoted for uses that are not approved by the FDA as reflected in its approved labeling. Under applicable regulations, the ability of a company to make marketing statements about the effectiveness of its drug outside of the statements made in the label, referred to as “off-label” marketing, is prohibited. If we are found to have promoted such off-label uses, we may become subject to significant liability.

If we fail to comply or are found to have failed to comply with FDA and other regulations prohibiting the promotion of ALLN-177 for unapproved uses, we could be subject to criminal penalties, substantial fines or other sanctions and damage awards.

The regulations prohibiting the promotion of products for unapproved uses are complex and subject to substantial interpretation by the FDA and other government agencies. If we receive marketing approval for ALLN-177 for the treatment of enteric hyperoxaluria in adults, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. We intend to implement compliance and training programs designed to ensure that our sales and marketing practices comply with applicable regulations. Notwithstanding these programs, the FDA or other government agencies may allege or find that our practices constitute prohibited promotion of ALLN-177 for unapproved uses. We also cannot be sure that our employees will comply with company policies and applicable regulations regarding the promotion of products for unapproved uses.

Over the past several years, a significant number of pharmaceutical and biotechnology companies have been the target of inquiries and investigations by various federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for unapproved uses and other sales practices, including the Department of Justice and various U.S. Attorneys’ Offices, the Office of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. These investigations have alleged violations of various federal and state laws and regulations, including claims asserting antitrust violations, violations of the Federal Food, Drug, and Cosmetic Act, the False Claims Act, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of products for unapproved uses, pricing and Medicare and/or Medicaid reimbursement. Many of these investigations originate as “qui tam” actions under the False Claims Act. Under the False Claims Act, any individual can bring a claim on behalf of the government alleging that a person or entity has presented a false claim, or caused a false claim to be submitted, to the government for payment. The person bringing a qui tam suit is entitled to a share of any recovery or settlement. Qui tam suits, also commonly referred to as “whistleblower suits,” are often brought by current or former employees. In a qui tam suit, the government must decide whether to intervene and prosecute the case. If it declines, the individual may pursue the case alone.

If the FDA or any other governmental agency initiates an enforcement action against us or if we are the subject of a qui tam suit and it is determined that we violated prohibitions relating to the promotion of products for unapproved uses, we could be subject to substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and monitoring to ensure compliance with applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our revenue, business, financial prospects and reputation.

 

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Risks Related to Our Dependence on Third Parties

The third parties upon whom we rely for the supply of the drug product and drug substance used in our lead product candidate are our sole source of supply, and the loss of any of these suppliers could significantly harm our business.

We do not currently operate manufacturing facilities for clinical or commercial production of any product candidates. We have limited personnel experienced in drug manufacturing and formulation, and we lack the resources and the capabilities to manufacture ALLN-177 on a clinical or commercial scale. We do not intend to develop facilities for the manufacture of drug product candidates for clinical trials or products for commercial purposes in the foreseeable future. The drug product and drug substance used in ALLN-177 are supplied to us from single-source suppliers. Our ability to successfully develop our product candidates, to supply the drug required for our planned clinical trials, and to ultimately supply our commercial drugs in quantities sufficient to meet the market demand, depends in part on our ability to obtain the drug product and drug substance for these drugs in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. We do not currently have arrangements in place for a redundant or second-source supply of any such drug product or drug substance in the event any of our current suppliers of such drug product and drug substance cease their operations for any reason.

For all of our product candidates, we intend to identify and qualify additional manufacturers to provide such drug product and drug substance prior to submission of a BLA to the FDA and/or an MAA to the EMA. We are not certain, however, that our single-source suppliers will be able to meet our demand for their products, either because of the nature of our agreements with those suppliers, our limited experience with those suppliers or our relative importance as a customer to those suppliers. It may be difficult for us to assess their ability to timely meet our demand in the future based on past performance. While our suppliers have generally met our demand for their products on a timely basis in the past, they may subordinate our needs in the future to their other customers.

Establishing additional or replacement suppliers for the drug product and drug substance used in our product candidates, if required, may not be accomplished quickly. If we are able to find a replacement supplier, such replacement supplier would need to be qualified and may require additional regulatory approval, which could result in further delay. While we seek to maintain adequate inventory of the drug product and drug substance used in our product candidates, any interruption or delay in the supply of components or materials, or our inability to obtain such drug product and drug substance from alternate sources at acceptable prices in a timely manner could impede, delay, limit or prevent our development efforts, which could harm our business, results of operations, financial condition and prospects.

We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners to manufacture commercial quantities of our product candidates if and when approved for marketing by the applicable regulatory authorities. We have not secured commercial supply agreements with any contract manufacturers for ALLN-177 and can give no assurance that we will enter commercial supply agreements with any contract manufacturers on favorable terms or at all or that we will be able to manufacture our product candidates at commercial scale at the cost we expect. Our contract manufacturers’ failure to achieve and maintain high manufacturing standards, in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in patient injury or death, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel.

 

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An element of our strategy is to enter into licensing or collaboration agreements with respect to ALLN-177 and future product candidates in certain territories. We may not be able to identify suitable collaborators and, even if we do, our dependence on such relationships may adversely affect our business.

Because we have limited resources, we may seek to enter into collaboration agreements with other pharmaceutical or biotechnology companies. Our strategy for commercializing ALLN-177 and any future product candidates we may develop outside of the United States may depend on our ability to enter into agreements with collaborators to obtain assistance and funding for the development and potential commercialization of our product candidates in the territories in which we may seek to partner. Despite our efforts, we may be unable to secure collaborative licensing or other arrangements that are necessary for us to further develop and commercialize our product candidates. Supporting diligence activities conducted by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities ourselves, we may not be able to further develop our product candidates or bring them to market or continue to develop our technology platforms, and our business may be materially and adversely affected. Even if we are successful in entering into one or more collaboration agreements, collaborations may involve greater uncertainty for us, as we may have less control over certain aspects of our collaborative programs than we do over our proprietary development and commercialization programs. All of the risks relating to product development, regulatory approval and commercialization described in this prospectus also apply to the activities of any of our future program collaborators.

Any future collaborations that we enter into may not be successful. Any failure by our partners to perform their obligations or any decision by our partners to terminate these agreements could negatively impact our ability to successfully develop, obtain regulatory approvals for and commercialize our product candidates. In addition, partners may not properly obtain, maintain or, defend or enforce our intellectual property rights, may infringe, misappropriate or otherwise violate third-party intellectual property rights, may misappropriate our trade secrets or may otherwise use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation and potential liability. In the event we grant exclusive rights to such partners, we could be precluded from potential commercialization of our product candidates within the territories in which we have a partner. Furthermore, any termination of our collaboration agreements will terminate any funding we may receive under the relevant collaboration agreement and may impair our ability to fund further development efforts and our progress in our development programs.

Further, our potential future collaborators may develop alternative products or pursue alternative technologies either on their own or in collaboration with others, including our competitors, and the priorities or focus of our collaborators may shift such that our product candidates receive less attention or resources than we would like, or they may be terminated altogether. Any such actions by our potential future collaborators may harm our business prospects and ability to earn revenues. In addition, we could have disputes with our potential future collaborators, such as the interpretation of terms in our agreements. Any such disagreements could lead to delays in the development or commercialization of our product candidates or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.

We have relied, and will rely in the future, on third parties to conduct our nonclinical studies and clinical trials. If these third parties do not appropriately carry out their contractual duties, fail to conduct high-quality studies or meet expected deadlines, regulatory approval and commercialization of ALLN-177 or any future candidates we may develop could be delayed or not obtained at all.

We do not have the ability to conduct all of our clinical trials independently. We have relied will continue to rely on third parties, including clinical investigators, third-party CROs, patients and consultants, to monitor, manage data for, participate in and execute our ongoing nonclinical and planned clinical programs for ALLN-177

 

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and other product candidates, and we control only some aspects of their activities. For example, in our completed Phase 2 clinical trials we relied heavily on the efforts and contributions of investigative clinical sites and study patients to comply with a strict treatment regimen (e.g. three capsules per day with meals) and accurate timing of 24 hour urine collection, with the complete collection of all of the patient’s urine during a given 24 hour period and with the proper handling of collected urine specimens, including storage, documentation, sample handling and shipping to the testing laboratory. Any failure of these third parties to meet their obligations has had or may in the future have an adverse effect on the results of clinical trials we have conducted or will conduct.

Because we rely on third parties, our internal capacity to perform these functions is limited. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our third-party providers. Nevertheless, we are responsible for ensuring that each of our nonclinical studies and clinical trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific requirements and standards, including, for example, GLP, the Animal Welfare Act and GCPs. Our reliance on third parties does not relieve us of our regulatory responsibilities. Regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the relevant regulatory authorities may require us to perform additional clinical trials in support of our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. We are also required to register clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to comply with these regulations may require us to repeat nonclinical studies and clinical trials, which would delay the regulatory approval process.

The third parties conducting our nonclinical studies and clinical trials on our behalf are not our employees, and except for remedies available to us under our agreements with such contractors, we cannot control whether or not they devote sufficient time, skill and resources to our ongoing clinical and nonclinical programs. To the extent we are unable to identify and successfully manage the performance of third-party service providers in the future, our business may be adversely affected. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our nonclinical studies and clinical trials may be extended, delayed or terminated and we may not be able to obtain, or may be delayed in obtaining, regulatory approval of or successfully commercialize ALLN-177 and any other product candidates we may develop. As a result, our results of operations and the commercial prospects for our product candidates could be harmed, our costs could increase and our ability to generate revenues could be delayed, impaired or foreclosed.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to manufacture ALLN-177 and conduct other aspects of our clinical development activities, we must, at times, share trade secrets and other confidential information with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with any collaborators, CROs, manufacturers and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. However, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or other confidential information. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets and confidential information become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s or other third party’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

 

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In addition, these agreements typically restrict the ability of certain collaborators, CROs, manufacturers and consultants to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties. Despite our efforts to protect our trade secrets, our competitors or other third parties may discover our trade secrets, either through breach of these agreements, independent development or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. Discovery of our trade secrets by a competitor or other third party would impair our competitive position and have an adverse impact on our business.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since inception, expect to incur significant and increasing losses for at least the next several years, 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. We expect to continue to incur significant and increasing net operating losses for at least the next several years. Our net losses were $14.2 million and $24.5 million for the years ended December 31, 2015 and 2016, respectively, and $10.3 million for the six months ended June 30, 2017. As of June 30, 2017, we had an accumulated deficit of $70.6 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 financed our operations to date through $96.0 million in gross proceeds from private placements of our preferred stock and $10.0 million in gross proceeds from our credit facility with Silicon Valley Bank, or SVB. We have devoted substantially all of our financial resources and efforts to research and development of ALLN-177 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’ (deficit) equity and working capital.

We anticipate that our expenses will increase substantially if and as we:

 

    conduct future clinical trials of our lead product candidate, ALLN-177, including our planned pivotal Phase 3 clinical program in adult patients with enteric hyperoxaluria;

 

    manufacture additional material for these potential future clinical trials;

 

    scale up our manufacturing process for ALLN-177 to prepare for the submission of a potential BLA and commercialization if our clinical development program is successful;

 

    advance the development of ALLN-346;

 

    seek to identify and develop additional product candidates;

 

    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.

 

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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. 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 the value of our stock price.

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 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.

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.

Even if we consummate this offering, 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.

Since our inception, most of our resources have been dedicated to the nonclinical and clinical development of our lead product candidate, ALLN-177. As of June 30, 2017, we had working capital of $34.1 million and capital resources consisting of cash, cash equivalents and short-term investments of $38.0 million. We believe that we will continue to expend substantial resources for the foreseeable future as we continue clinical development, seek regulatory approval, and prepare for the commercialization of ALLN-177 and develop ALLN-346 and any other product candidates we may choose to pursue. These expenditures will include costs associated with research and development, conducting nonclinical studies and clinical trials, obtaining regulatory approvals, sales and marketing, and manufacturing and supply. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of ALLN-177 and any future product candidates.

 

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We believe that the net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments, will allow us to fund our operating plan into 2020. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, 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 current or future operating plans.

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

 

    the time and cost necessary to complete our pivotal Phase 3 program and obtain regulatory approvals for ALLN-177 and the costs of post-marketing studies that could be required by regulatory authorities;

 

    the costs of manufacturing clinical trial supplies of ALLN-177;

 

    our ability to successfully commercialize ALLN-177;

 

    the selling and marketing costs associated with ALLN-177, including the cost and timing of building our sales and marketing capabilities;

 

    the amount of sales and other revenues from ALLN-177, 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 credit facilities;

 

    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:

 

    clinical trials or other development activities for ALLN-177 or any other product candidate;

 

    our preclinical research and development activities; or

 

    our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize ALLN-177 or any future product candidate.

Raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.

We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, our existing stockholders’ ownership interest may be substantially diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a common stockholder. Additional debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. For example, our

 

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credit facility with Silicon Valley Bank, or SVB, contains restrictive covenants that, among other things and subject to certain exceptions, prohibit us from transferring any of our material assets, exclusively licensing our intellectual property (subject to certain exceptions), merging with or acquiring another entity, entering into a transaction that would result in a change of control, incurring additional indebtedness, creating any lien on our property, making investments in third parties or redeeming stock or paying dividends. Future debt securities or other financing arrangements could contain similar or more restrictive negative covenants. In addition, securing additional financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.

If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds 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.

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

As of June 30, 2017, we had $10.0 million of outstanding borrowings under our credit facility with SVB. We currently make monthly interest payments and, beginning in December 2017, will be required to repay principal and interest on these borrowings in monthly installments through May 2020. Subject to the restrictions in this existing credit facility, we could in the future incur additional indebtedness beyond our borrowings from SVB.

Our outstanding indebtedness, including any additional indebtedness beyond our borrowings from SVB, 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 intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents. However, we may not have sufficient funds, and may be unable to arrange for additional financing, to pay the amounts due under our existing credit facility or any other debt instruments. 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 SVB, 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 SVB 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 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.

 

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Risks Related to Our Business and Industry

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 Alexey Margolin, Ph.D., our Chief Executive Officer, Louis Brenner, M.D., our President and Chief Operating Officer, and Edward Wholihan, our Chief Financial Officer. 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, 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-177 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 requirements and insider trading.

We are exposed to the risk that our employees, principal investigators, CROs and consultants may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate the regulations of the FDA and other comparable foreign regulators, including those laws requiring the reporting of true, complete and accurate information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in our preclinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We intend to adopt, prior to the completion of this offering, a code of conduct applicable to all of our employees, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines,

 

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possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

We are subject to U.S. and foreign anti-corruption and anti-money laundering laws with respect to our operations and non-compliance with such laws can subject us to criminal and/or civil liability and harm our business.

We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and possibly other state and national anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, third-party intermediaries, joint venture partners and collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. We may have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. In addition, we may engage third-party intermediaries to promote our clinical research activities abroad and/or to obtain necessary permits, licenses, and other regulatory approvals. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize or have actual knowledge of such activities.

In connection with this offering, we will adopt a Code of Business Conduct and Ethics, which will be effective upon the completion of this offering, and expect to prepare and implement policies and procedures to ensure compliance with such code. The Code of Business Conduct and Ethics mandates compliance with the FCPA and other anti-corruption laws applicable to our business throughout the world. However, we cannot assure you that our employees and third-party intermediaries will comply with this code or such anti-corruption laws. Noncompliance with anti-corruption and anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas, investigations, or other enforcement actions are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense and compliance costs and other professional fees. In certain cases, enforcement authorities may even cause us to appoint an independent compliance monitor which can result in added costs and administrative burdens.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic

 

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tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

Our business and operations would suffer in the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security.

Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In addition, our systems safeguard important confidential personal data regarding patients enrolled in our clinical trials. If a disruption event were to occur and cause interruptions in our operations, it could result in a disruption of our drug development programs. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of ALLN-177 and any other product candidates we may develop could be delayed.

Risks Related to Intellectual Property

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.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary product candidates. If we do not adequately protect or enforce our intellectual property, competitors may be able to erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the United States and abroad related to our novel product candidates that are important to our business. The patent application and approval process is expensive, complex and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. In addition, the determination of patent rights with respect to biological and pharmaceutical products commonly involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.

Our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Assuming the other requirements for patentability are met, currently, the first to file a patent application is generally entitled to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

 

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Moreover, because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending patent applications may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in post-grant review procedures, oppositions, derivations, reexaminations, inter partes review or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

Our pending and future patent applications may not result in patents being issued which protect our product candidates, in whole or in part, or which effectively prevent others from commercializing competitive products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. In addition, the laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does.

Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may also seek approval to market their own products similar to or otherwise competitive with our products, for example, ALLN-177. Alternatively, our competitors may seek to market generic versions of any approved products by submitting abbreviated BLAs to the FDA during which process they may claim that patents owned or licensed by us are invalid, unenforceable or not infringed. In these circumstances, we may need to defend or assert our patents, or both, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid or unenforceable, or that our competitors are competing in a non-infringing manner. Thus, even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

We heavily rely on certain in-licensed patents and other intellectual property rights in connection with our development of ALLN-177 and, if we fail to comply with our obligations under our existing and any future intellectual property licenses with third parties, we could lose license rights that are important to our business.

Our ability to develop and commercialize our lead product candidate, ALLN-177, is heavily dependent on licenses to patent rights and other intellectual property granted to us by third parties. For example, we are party to a license agreement with Althea Technologies, Inc. (now known as Ajinomoto Althea, Inc.), or Althea, under which we received an exclusive, worldwide, royalty-bearing, sublicensable, and, except under certain circumstances, non-transferable license under certain of the patent rights to develop, use, make, have made, market, offer to sell, sell, have sold, distribute, import or otherwise exploit ALLN-177 (see corresponding agreement summary in “Business—Althea License Agreement”). We may enter into additional license agreements in the future. Our license agreement with Althea imposes, and we expect that future license agreements will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with our obligations under these licenses, our licensors, including Althea, may have the right to terminate these license agreements, in which event we might not be able to market our lead product candidate,

 

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ALLN-177. Similarly, other licensors may convert an exclusive license to a non-exclusive license, which could adversely affect the value of a product candidate developed under a given license agreement. Termination of any of our license agreements or reduction or elimination of our licensed rights may also result in our having to negotiate new or reinstated licenses with less favorable terms.

Further, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. For example, pursuant to our license agreement with Althea, Althea controls such activities for certain patents licensed to us under such agreement. Therefore, we cannot be certain that these patents will be prosecuted, maintained and enforced in a manner consistent with the best interests of our business. If our current or future licensors or collaboration partners fail to obtain, maintain or protect any patents or patent applications licensed to us, our rights to such patents and patent applications may be reduced or eliminated and our right to develop and commercialize any of our product candidates that are the subject of such licensed rights could be adversely affected.

Patent term may be inadequate to protect our competitive position on our products for an adequate amount of time.

Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However, a patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of the product’s approval by the FDA, only one patent applicable to an approved drug is eligible for the extension, and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. In the future, if and when our product candidates, for example, ALLN-177, receive FDA approval, we intend to apply for patent term extensions on patents covering those products in any jurisdiction where these are available. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. Moreover, we may not receive an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

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.

Competitors and other third parties may infringe, misappropriate or otherwise violate our patents and other intellectual property rights. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management, business and scientific personnel. In addition, many of our adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we can.

A court may disagree with our allegations and may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the third-party technology in question. Furthermore, the other party could counterclaim that we infringe their intellectual property or counterclaim that a patent we have asserted against them is invalid or unenforceable, or both. In patent litigation in the United States, counterclaims challenging the validity, enforceability or scope of asserted patents are commonplace. Similarly, third parties may initiate legal proceedings against us seeking a declaration that certain of our intellectual property rights are non-infringed, invalid, or unenforceable. The outcome of any such proceeding is generally unpredictable.

 

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Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement, or written description. In addition, validity challenges may, under certain circumstances, be based upon non-statutory obviousness-type double patenting and associated rules related to common ownership, which, if successful, could result in a finding that the patent claims at issue are invalid and unenforceable or a loss of patent term, including a patent term adjustment granted by the USPTO. Furthermore, patents may be held unenforceable if someone connected with prosecution of the patent in question withheld relevant information from the USPTO or made a misleading statement during prosecution of the patent. It is possible that prior art of which we and the patent examiner were unaware during prosecution exists, which could render our patents invalid. It is also possible that prior art may exist that we are aware of but do not believe is relevant to our current or future patents, but that could nevertheless be determined to render our patents invalid.

An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. If a defendant were to prevail on a legal assertion of invalidity or unenforceability of our patents covering one of our product candidates, we would lose at least part, and perhaps all, of the patent protection covering such product candidate. Competing drugs may also be sold in other countries in which our patent coverage might not exist or be as strong. If we lose a foreign patent lawsuit, alleging our infringement of a competitor’s patents, we could be prevented from marketing our drugs in one or more foreign countries. Any of these outcomes would have a material adverse effect on our business.

Because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearing, motions, or other interim developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Even if we ultimately prevail, a court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may not be an adequate remedy. Furthermore, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business.

We may not be able to effectively enforce our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing countries.

Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, the patent laws of some foreign countries do not afford intellectual property protection to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, for example, India and China, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, certain foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States.

Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents to stop infringing activities is inadequate. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

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Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in the major markets for our product candidates, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our drugs or procedures, we may not be able to stop a competitor from marketing drugs that are the same as or similar to our product candidates, which would have a material adverse effect on our business.

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.

Our commercial success depends, in part, upon our ability to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing, misappropriating or otherwise violating the proprietary rights and intellectual property of third parties. We may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates and technologies we use in our business. Our competitors or other third parties may assert infringement claims against us, alleging that our product candidates are covered by their patents. We cannot be certain that we do not infringe existing patents or that we will not infringe patents that may be granted in the future. For example, we are aware of companies that have filed patent applications directed to oxalate and uric acid degrading enzymes, some of which have already been allowed or issued, and others may issue in the future. It is possible that additional patent applications are filed and additional patents directed to these enzymes are granted in the future. Furthermore, because patent applications can take many years to issue and may be confidential for 18 months or more after filing, and because patent claims can be revised before issuance, there may be applications now pending which may later result in issued patents that may be infringed by the manufacture, use or sale of our product candidates. If a patent holder believes our product candidate infringes its patent rights, the patent holder may sue us even if we have received patent protection for our technology. Moreover, we may face patent infringement claims from non-practicing entities that have no relevant drug revenue and against whom our own patent portfolio may thus have no deterrent effect.

If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable. However, proving invalidity and unenforceability is difficult. In the United States, for example, providing invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.

 

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If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our product candidates and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain such a license, it could be granted on non-exclusive terms, thereby providing our competitors and other third parties access to the same technologies licensed to us. Without such a license, we could be forced, including by court order, to cease developing and commercializing the infringing technology or product candidates. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed such third-party patent rights. A finding of infringement could significantly harm our business and operating results.

Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

As is the case with other biotechnological and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnological and pharmaceutical industries involve both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Recent patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or Leahy-Smith Act, signed into law on September 16, 2011, could increase those uncertainties and costs. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a “first to file” system. The first-to-file provisions, however, only became effective on March 16, 2013. It is still not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could make it more difficult to obtain patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business, results of operations and financial condition.

In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Additionally, there have been recent proposals for additional changes to the patent laws of the United States and other countries that, if adopted, could impact our ability to obtain patent protection for our proprietary technology or our ability to enforce our proprietary technology. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

Although we have obtained composition of matter patents covering ALLN-177 and its use in therapy, we also rely on trade secrets, including confidential and unpatented know-how important to the maintenance of our competitive position. We protect our trade secrets and confidential and unpatented know-how, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as our employees, outside scientific collaborators, advisors, contractors, contract manufacturers and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants that obligate them to maintain confidentiality and assign their inventions to us. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts in the United States and certain foreign jurisdictions are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or

 

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independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be harmed.

We may be subject to claims by third parties asserting that our employees or we have misappropriated or otherwise violated their intellectual property rights, or claiming ownership of what we regard as our own intellectual property.

Many of our consultants, advisors and employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies. Some of these individuals, including certain members of our senior management, may have executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our consultants, advisors and employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, develops intellectual property that we regard as our own, which may result in claims by or against us related to the ownership of such intellectual property. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific personnel. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Risks Related to Our Common Stock and this Offering

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Stock Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect that we will need to hire additional accounting, finance and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a public company and our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that the rules and regulations applicable to us as a public company may make it more difficult and more expensive for

 

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us to obtain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors. We are currently evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404 of the Sarbanes-Oxley Act, or SOX Section 404, we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an Annual Report on Form 10-K with the Securities and Exchange Commission, or the SEC, after we become a public company. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with SOX Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by SOX Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.

Our stock price is likely to be volatile. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your shares of our common stock at or above the initial public offering price and you may lose some or all of your investment. The market price for our common stock may be influenced by many factors, including:

 

    the success of competitive drugs or technologies;

 

    regulatory actions with respect to our product candidates or our competitors’ products and product candidates;

 

    announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures,

 

    collaborations or capital commitments;

 

    regulatory or legal developments in the United States and other countries;

 

    developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

    the recruitment or departure of key personnel;

 

    the level of expenses related to any of our product candidates or clinical development programs;

 

    the results of our efforts to discover, develop, acquire or in-license additional product candidates or drugs;

 

    actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts, and our performance in relation to such estimates;

 

    variations in our financial results or those of companies that are perceived to be similar to us;

 

    announcement or expectation of additional financing efforts;

 

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    sales of our common stock by us, our insiders or other stockholders;

 

    variations in our financial results or those of companies that are perceived to be similar to us;

 

    changes in estimates or recommendations by securities analysts, if any, that cover our stock;

 

    changes in the structure of healthcare payment systems;

 

    market conditions in the pharmaceutical and biotechnology sectors;

 

    general economic, industry and market conditions; and

 

    the other factors described in this “Risk Factors” section.

An active trading market for our common stock may not develop, and you may not be able to resell your shares of our common stock at or above the initial public offering price, if at all, and our ability to raise capital in the future may be impaired.

Prior to this offering, there has been no public market for shares of our common stock. Although we expect our common stock to be approved for listing on The NASDAQ Stock Market, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price of our common stock was determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our common stock after this offering. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the initial public offering price or at the time that they would like to sell, if at all, and our ability to raise capital in the future may be impaired.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our common stock will likely depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us, or provide favorable coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price would likely decline. In addition, if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

Our directors, executive officers and principal stockholders exercise significant control over our company, which will limit your ability to influence corporate matters.

As of June 30, 2017, our executive officers, directors and principal stockholders collectively controlled approximately 91.7% of our outstanding common stock, excluding any shares of common stock that such persons may have the right to acquire upon exercise of outstanding options or warrants. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Certain of our existing stockholders, including certain affiliates of our directors, have indicated an interest in purchasing an aggregate of approximately $25.0 million of shares of our common stock in this offering at the initial public offering price. If such stockholders purchase all shares they have indicated an interest in purchasing, our executive officers, directors and principal stockholders will collectively control approximately 81.7% of our outstanding common stock following this offering. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.

 

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Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our restated certificate of incorporation and amended and restated by-laws may delay or prevent an acquisition of us or a change in our management. These provisions include a classified board of directors, a prohibition on actions by written consent of our stockholders and the ability of our board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirors to negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

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.

If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market after the 180-day contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline significantly and could decline below the initial public offering price. Based on shares outstanding as of June 30, 2017, upon the completion of this offering, we will have 20,621,848 outstanding shares of common stock, assuming no exercise of outstanding options or warrants. Of these shares, assuming no shares are purchased in this offering by our existing stockholders, shares of common stock, plus any shares sold pursuant to the underwriters’ option to purchase an additional shares, will be immediately freely tradable, without restriction, in the public market.

After the lock-up agreements pertaining to this offering expire, an additional 15,295,001 shares will be eligible for sale in the public market. In addition, the 1,394,299 shares subject to outstanding options under our stock option plans, the 2,722,611 shares reserved for future issuance under our stock option plans and the shares subject to outstanding warrants will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. Moreover, 180 days after the completion of this offering, holders of approximately 13,945,509 shares of our common stock will have the right to require us to register these shares under the Securities Act of 1933, as amended, pursuant to an investors’ rights agreement entered into prior to the completion of this offering. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business.

We will have broad discretion in the use of proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree or in ways that ultimately may not increase the value of your investment.

We will have broad discretion over the use of proceeds from this offering. You may not agree with our decisions, and our use of the proceeds may not yield any return on your investment. We expect to use the net proceeds to us from this offering for our planned pivotal Phase 3 clinical program of ALLN-177 for the treatment of patients with enteric hyperoxaluria; for our planned Phase 2 clinical trial of ALLN-177 in adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria; for our planned development of ALLN-346 for the treatment of patients with hyperuricemia and CKD; to fund our process validation and

 

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manufacturing batches for ALLN-177; and the remainder for working capital and other general corporate purposes. Our failure to apply the net proceeds from this offering effectively could compromise our ability to pursue our growth strategy and we might not be able to yield a significant return, if any, on our investment of these net proceeds. In addition, the net proceeds from this offering may not be sufficient for our anticipated uses, and we may need additional resources to progress our product candidates to the stage we expect. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of SOX Section 404, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, the information we provide stockholders will be different than the information that is available with respect to other public companies. In this prospectus, we have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividend on our common stock and do not currently intend to do so in the foreseeable future. Our credit facility with SVB also prohibits us from paying cash dividends without the prior written consent of SVB. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Therefore, the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which you purchased them.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in the ownership of its equity over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and certain other pre-change tax attributes to offset its post-change income may be limited. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of this offering or subsequent shifts in our stock ownership, some of which are outside our control. As of

 

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December 31, 2016, we had federal net operating loss carryforwards of approximately $58.8 million, and our ability to utilize those net operating loss carryforwards could be limited by an “ownership change” as described above, which could result in increased tax liability to us.

Volatility in our share price could subject us to securities class action litigation.

Securities class action litigations have often been brought against companies following a decline in the market price of their securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant share price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

If you purchase shares of common stock in this offering, you will suffer immediate dilution in the net tangible book value of your investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. Based on the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $10.25 per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the assumed initial public offering price.

Purchasers of common stock in this offering will have contributed approximately 45% of the aggregate price paid by all purchasers of our stock and will own approximately 26% of our common stock outstanding after this offering, excluding any shares of our common stock that they may have acquired prior to this offering. Furthermore, if the underwriters exercise their option to purchase additional shares or our previously issued options to acquire common stock at prices below the assumed initial public offering price are exercised, you will experience further dilution. For additional information on the dilution that you will experience immediately after this offering, see the section titled “Dilution.”

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, would result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

We will need additional capital in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

Pursuant to our 2017 Stock Option and Incentive Plan, or the 2017 Plan, which will become effective upon the effectiveness of the registration statement of which this prospectus is a part, we are authorized to grant stock options and other equity-based awards to our employees, directors and consultants. The number of shares available for future grant under the 2017 Plan will automatically increase each year by up to 4% of all shares of our capital stock outstanding as of December 31 of the prior calendar year, subject to the ability of our board of directors or compensation committee to take action to reduce the size of the increase in any given year. Currently, we plan to register the increased number of shares available for issuance under the 2017 Plan each year. If our board of directors elects to increase the number of shares available for future grant by the maximum amount each year, our stockholders may experience additional dilution, and our stock price may fall.

 

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As a public reporting company, we will be 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.

Upon completion of this offering, we will become a public reporting company subject to the rules and regulations established from time to time by the SEC and the PCAOB. These rules and regulations will require, among other things, that we establish and periodically evaluate procedures with respect to our internal controls over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel.

In addition, as a public company we will be required to document and test our internal controls over financial reporting pursuant to SOX Section 404, so that our management can certify as to the effectiveness of our internal controls over financial reporting by the time our annual report for the year ending December 31, 2018 is due and thereafter, which will require us to document and make significant changes to our internal controls over financial reporting. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting at such time as we cease to be an “emerging growth company,” as defined in the JOBS Act, although, as described in the preceding risk factor, we could potentially qualify as an “emerging growth company” for more than five years. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

If our senior management is unable to conclude that we have effective internal control over financial reporting, or to certify the effectiveness of such controls, or if our independent registered public accounting firm cannot render an unqualified opinion on management’s assessment and the effectiveness of our internal control over financial reporting once we cease to be an emerging growth company, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence, which could have a material adverse effect on our business and our stock price. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in our common stock price and adversely affect our results of operations and financial condition.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon completion of this offering, we will become subject to the periodic reporting requirements of the Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to reasonably ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures as well as internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are and will be met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

 

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Our restated certificate of incorporation and amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our restated certificate of incorporation and amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our restated certificate of incorporation and amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus 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. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this prospectus, regarding, among other things:

 

    the design and conduct of our planned Phase 3 clinical program of ALLN-177 in enteric hyperoxaluria;

 

    the number, designs, results and timing of our clinical trials and preclinical studies and the timing of the availability of data from these trials and activities;

 

    our ability to enroll a sufficient number of patients 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-177, 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 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-177 and ALLN-346;

 

    the market acceptance of ALLN-177, 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-177 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;

 

    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-177, 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;

 

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    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;

 

    our ability to generate revenue and become profitable;

 

    our expectations related to the use of proceeds, if any, from this offering; and

 

    our estimates regarding our capital requirements and our need for additional financing.

These risks are not exhaustive. Other sections of this prospectus 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 prospectus, 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 prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus 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 prospectus represent our views as of the date of this prospectus. 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 prospectus.

 

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INDUSTRY AND MARKET DATA

This prospectus includes statistical and other industry and market data that we obtained from our own internal estimates and research, as well as from industry publications and research, surveys and studies conducted by us and third parties. Industry publications, studies, and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal company research is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source. The industry in which we operate is subject to a high degree of uncertainty and risks due to various factors, including those described in the section titled “Risk Factors.”

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of 5,333,333 shares of common stock in this offering will be approximately $71.4 million at an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in full, we estimate that the net proceeds will be approximately $82.6 million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our net proceeds by $5.0 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1,000,000 shares offered by us would increase or decrease the net proceeds to us by $14.0 million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We currently expect to use the net proceeds from this offering, together with our existing cash, cash equivalents and investments, as follows:

 

    approximately $45.0 million for our planned pivotal Phase 3 clinical program of ALLN-177 for the treatment of patients with enteric hyperoxaluria, including clinical research outsourcing and drug manufacturing;

 

    approximately $3.0 million for our planned Phase 2 clinical trial of ALLN-177 in adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria, including clinical research outsourcing and drug manufacturing;

 

    approximately $3.0 million for our planned development of ALLN-346 for the treatment of patients with hyperuricemia and CKD, including preclinical proof of concept in hyperuricemia animal models, customary toxicology studies and preparation for filing of an investigational new drug application;

 

    approximately $8.0 million to fund our process validation and manufacturing batches for ALLN-177; and

 

    the remainder for working capital and other general corporate purposes, which includes making scheduled principal and interest payments under our existing $10.0 million credit facility, funding for additional research, hiring additional personnel, capital expenditures and the costs of operating as a public company.

As of June 30, 2017, the outstanding principal balance of our credit facility was $10.0 million. The credit facility has an interest only period that expires in December 2017. Upon the expiration of the interest only period, the outstanding amounts will be repaid over 30 months in equal monthly principal payments plus monthly payments of accrued interest. The outstanding principal balance accrues interest at a floating per annum rate equal to the greater of 4.0% or 0.5% above the Prime Rate (as defined in the credit facility). At June 30, 2017, the interest rate was 4.75%. In addition, we are required to make a final payment equal to 8.25% of the original principal amount, which is due on the earliest to occur of (a) the loan maturity date, which is May 1, 2020, (b) upon an acceleration of the loan in accordance with the credit facility or (c) the prepayment of the then outstanding principal balance.

The expected use of the net proceeds from this offering represents our current intentions based upon our present plans and business conditions, which could change in the future as our plans and business conditions evolve. We cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amount and timing of our actual expenditures will depend upon numerous factors, including the results of our research

 

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and development efforts, the timing of regulatory submissions and the feedback from regulatory authorities, the timing and success of our planned clinical trials, preclinical studies, or studies or trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our product candidates, and any unforeseen cash needs. Moreover, our estimates of the costs to fund our planned clinical trials are based on our expected designs of the trials. If the design of any of these trials were to be modified, for instance, to increase the number of patients in the trials, our costs to fund the trials could increase. As a result, our management will have broad discretion over the use of the net proceeds from this offering.

Although we may use a portion of the net proceeds of this offering for the acquisition or licensing, as the case may be, of additional technologies, other assets or businesses, or for other strategic investments or opportunities, we have no current understandings, agreements, commitments or plans to do so.

Based on our planned use of the net proceeds from this offering and our existing cash, cash equivalents and investments, we estimate that such funds will be sufficient to enable us to fund our operating expenses, debt service, and capital expenditure requirements into 2020. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

Based on our current operating expectations, we estimate that we will have sufficient resources to complete (i) our two planned Phase 3 clinical trials of ALLN-177 in patients with enteric hyperoxaluria, (ii) our planned Phase 2 clinical trial of ALLN-177 in adolescents and adults with primary hyperoxaluria and other severe forms of hyperoxaluria and (iii) our planned proof of concept and customary preclinical toxicology studies of ALLN-346 and, subject to the successful outcome of these studies, the filing of our IND. We will need to raise additional proceeds to secure marketing approval and to fund the commercialization of ALLN-177 if marketing approval is obtained as well as continue the development of ALLN-177 in other indications and advance ALLN-346 into clinical development.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. With the exception of our credit facility, we do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of our common stockholders. 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.

Pending the use of the proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, interest-bearing, investment-grade securities, certificates of deposit or government securities.

 

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DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. In addition, pursuant to our loan and security agreement with SVB, we are prohibited from paying cash dividends without the prior written consent of SVB. Moreover, any future indebtedness that we may incur could preclude us from paying dividends. Any future determination to pay dividends will be made at the discretion of our board of directors. Investors should not purchase our common stock with the expectation of receiving cash dividends.

 

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CAPITALIZATION

The following table sets forth our cash and capitalization as of June 30, 2017 on:

 

    an actual basis;

 

    a pro forma basis to give effect to (i) the automatic conversion of all 58,208,614 outstanding shares of our preferred stock into an aggregate of 13,945,509 shares of common stock immediately prior to the closing of this offering; (ii) the filing of our restated certificate of incorporation immediately prior to the closing of this offering; and (iii) the automatic conversion of warrants to purchase preferred stock into warrants to purchase common stock resulting in the reclassification of our warrant liability to stockholders’ equity; and

 

    a pro forma as adjusted basis to give further effect to the sale of 5,333,333 shares of our common stock offered in this offering, assuming an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this information together with our financial statements and related notes appearing elsewhere in this prospectus and the information set forth in the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    As of June 30, 2017  
    Actual     Pro Forma     Pro Forma As
Adjusted
 
    (in thousands, except share and per
share data)
 

Cash, cash equivalents and investments

  $ 37,962     $ 37,962     $ 109,362  
 

 

 

   

 

 

   

 

 

 

Loan payable, net of discount

  $ 9,641     $ 9,641     $ 9,641  

Warrants for the purchase of shares subject to redemption

    299       —         —    

Series A convertible preferred stock, $0.001 par value; 18,510,200 shares authorized, 18,367,344 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    17,971       —         —    

Series B convertible preferred stock, $0.001 par value; 19,841,270 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    24,939       —         —    

Series C convertible preferred stock, $0.001 par value; 20,037,736 shares authorized, 20,000,000 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    52,851       —         —    

Stockholders’ (deficit) equity:

     

Preferred stock, $0.001 par value; no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

    —         —         —    

Common stock, $0.001 par value; 75,000,000 shares authorized, 1,343,006 shares issued and outstanding, actual; 125,000,000 shares authorized, 15,288,515 shares issued and outstanding, pro forma; 125,000,000 shares authorized, 20,621,848 shares issued and outstanding, pro forma as adjusted

    1       15       21  

Additional paid-in capital

    1,195       97,241       168,635  

Accumulated deficit

    (70,610     (70,610     (70,610
 

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

    (69,414     26,646       98,046  
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 36,287     $ 36,287     $ 107,687  
 

 

 

   

 

 

   

 

 

 

The information above is illustrative only and our capitalization following the completion of this offering will depend on the actual initial public offering price and other terms of this offering determined at pricing.

Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the amount of cash,

 

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cash equivalents and investments, additional paid-in capital, total stockholders’ equity and total capitalization on a pro forma as adjusted basis by approximately $5.0 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares offered by us would increase (decrease) cash, cash equivalents and investments, total stockholders’ equity and total capitalization on a pro forma as adjusted basis by approximately $14.0 million, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The actual, pro forma and pro forma as adjusted information set forth in the table above excludes the following:

 

    1,394,299 shares of common stock issuable upon the exercise of stock options outstanding as of June 30, 2017 at a weighted-average exercise price of $1.41 per share;

 

    43,265 shares of common stock issuable upon the exercise of warrants outstanding as of June 30, 2017 at a weighted-average exercise price of $5.55 per share;

 

    734,590 shares of common stock reserved for future issuance under our 2011 Stock Incentive Plan, or the 2011 Plan, as of June 30, 2017;

 

    2,038,021 shares of common stock reserved for future issuance under our 2017 Stock Option and Incentive Plan, or the 2017 Plan; and

 

    206,284 shares of common stock reserved for the future issuance under our 2017 Employee Stock Purchase Plan.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

We had a net tangible book value (deficit) of $(69.4) million, or $(51.69) per share of common stock, as of June 30, 2017. Our net tangible book value represents total tangible assets less total liabilities and convertible preferred stock. Our net tangible book value per share is our net tangible book value divided by the number of shares of our common stock outstanding as of June 30, 2017.

The pro forma net tangible book value of our common stock as of June 30, 2017 was $26.6 million, or $1.74 per share of our common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the pro forma number of shares of our common stock outstanding after giving effect to (1) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 13,945,509 shares of common stock upon the closing of this offering, and (2) the automatic conversion of warrants to purchase preferred stock into warrants to purchase common stock resulting in the reclassification of our warrant liability to stockholders’ equity.

After giving further effect to the sale of 5,333,333 shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of June 30, 2017 would have been $98.0 million, or $4.75 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $3.01 per share to our existing stockholders and an immediate dilution of $10.25 per share to investors participating in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

     $ 15.00  

Historical net tangible book value (deficit) per share as of June 30, 2017

   $ (51.69  

Pro forma increase in net tangible book value per share attributable to the conversion of outstanding preferred stock and warrants to purchase preferred stock

     53.43    

Pro forma net tangible book value per share as of June 30, 2017

     1.74    

Pro forma increase in net tangible book value per share attributable to this offering

     3.01    

Pro forma as adjusted net tangible book value per share, after giving effect to this offering

       4.75  
    

 

 

 

Dilution of pro forma as adjusted net tangible book value per share to new investors

     $ 10.25  
    

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value by $5.0 million, the pro forma as adjusted net tangible book value per share by $0.24 per share and the dilution to investors purchasing shares in this offering by $0.76 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1,000,000 shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value by $14.0 million, the pro forma as adjusted net tangible book value per share by $0.43 and the dilution to investors purchasing shares in this offering by $(0.43) per share, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in full, pro forma as adjusted net tangible book value as of June 30, 2017 will increase to $109.2 million, or $5.10 per share, representing an increase (decrease) to

 

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existing stockholders of $0.35 per share, and there will be an immediate dilution of $9.90 per share to new investors, in each case assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, on a pro forma as adjusted basis as of June 30, 2017, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders (giving effect to the conversion of all outstanding shares of our preferred stock into 13,945,509 shares of common stock upon the completion of this offering) and by investors participating in this offering, before deducting estimated underwriting discounts and commissions and estimated offering expenses, at an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. As the table illustrates, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing stockholders paid.

Certain of our existing stockholders, including certain affiliates of our directors, have indicated an interest in purchasing an aggregate of approximately $25.0 million of shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these stockholders, or any of these stockholders may determine to purchase more, less or no shares in this offering. The following table does not reflect the potential purchases by such stockholders in this offering.

 

     Shares Purchased     Total Consideration     Average Price
Per share
 
     Number      Percent     Amount      Percent    
     (in thousands)  

Existing stockholders

     15,288,515        74   $ 96,047        55   $ 6.30  

IPO investors

     5,333,333        26     80,000        45     15.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     20,621,848        100   $ 176,047        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total gross consideration paid by new investors by $5.3 million and increase or decrease the percentage of total consideration paid by new investors by 2%, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase or decrease of 1,000,000 shares in the number of shares offered by us would increase (decrease) the total gross consideration paid by new investors by $15.0 million and increase (decrease) the percentage of total consideration paid by new investors by 4%, assuming no change in the assumed initial public offering price.

If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own 71% and our new investors would own 29% of the total number of shares of common stock outstanding after the closing of this offering.

The number of shares of common stock to be outstanding after this offering is based on 15,288,515 shares of our common stock outstanding as of June 30, 2017, after giving effect to the conversion of all outstanding shares of our preferred stock as of June 30, 2017 into an aggregate of 13,945,509 shares of common stock upon the completion of this offering and excludes the following:

 

    1,394,299 shares of common stock issuable upon the exercise of stock options outstanding as of June 30, 2017 at a weighted-average exercise price of $1.41 per share;

 

    43,265 shares of common stock issuable upon the exercise of warrants outstanding as of June 30, 2017 at a weighted-average exercise price of $5.55 per share;

 

    734,590 shares of common stock reserved for future issuance under our 2011 Plan as of June 30, 2017;

 

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    2,038,021 shares of common stock reserved for future issuance under our 2017 Plan; and

 

    206,284 shares of common stock reserved for the future issuance under our 2017 Employee Stock Purchase Plan.

New investors will experience further dilution if any of our outstanding options or warrants are exercised, new options are issued and exercised under our equity incentive plans or we issue additional shares of common stock, other equity securities or convertible debt securities in the future.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the information under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus. We have derived the consolidated statements of operations data for the years ended December 31, 2015 and 2016 and the balance sheet data as of December 31, 2015 and 2016 from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data as of June 30, 2017 and for the six months ended June 30, 2016 and 2017 has been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting of only normal recurring adjustments, that management considers necessary for the fair presentation of the financial information set forth in those statements. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period and our operating results for the six-month period ended June 30, 2017 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2017 or any other interim periods or any future year or period.

 

     Years Ended December 31,     Six Months Ended
June 30,
 
     2015     2016     2016     2017  
     (in thousands, except share and per share data)  

Consolidated Statement of Operations Data:

        

Operating expenses:

        

Research and development

   $ 11,540     $ 20,103     $ 10,025     $ 7,809  

General and administrative

     2,365       4,083       2,057       2,208  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,905       24,186       12,082       10,017  

Other income (expense):

        

Interest income (expense), net

     (335     (200     (71     (255

Other income (expense), net

     (7     (121     1       (31
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

     (342     (321     (70     (286
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (14,247   $ (24,507   $ (12,152   $ (10,303
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders—basic and diluted(1)

   $ (11.35   $ (18.35   $ (9.11   $ (7.70
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding—basic and diluted(1)

     1,258,123       1,339,254       1,337,100       1,342,628  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)(1)

     $ (1.59     $ (0.67
    

 

 

     

 

 

 

Pro forma weighted-average common shares outstanding—basic and diluted (unaudited)(1)

       15,284,763         15,288,137  
    

 

 

     

 

 

 

 

(1) See Note 2 to our consolidated financial statements included elsewhere in this prospectus for a description of the method used to calculate basic and diluted net loss per share and unaudited pro forma basic and diluted net loss per share as well as the weighted-average number of common shares used in the calculation of the per share amounts.

 

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     December 31,     June 30,
2017
 
     2015     2016    
     (in thousands)  

Consolidated Balance Sheet Data:

      

Cash, cash equivalents and investments

   $ 69,011     $ 48,755     $ 37,962  

Working capital(1)

     64,735       46,025       34,142  

Total assets

     70,008       49,479       38,579  

Loan payable, net of current portion and discount

     3,932       9,409       7,553  

Convertible preferred stock

     95,658       95,727       95,761  

Total stockholders’ deficit

     (34,969     (59,277     (69,414

 

(1) We define working capital as current assets less current liabilities. See our consolidated financial statements for further details regarding our current assets and current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the “Selected Consolidated Financial Data” section of this prospectus and our consolidated financial statements and the related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a late-stage clinical 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 cause kidney stones, damage the kidney, and potentially lead to chronic kidney disease, or CKD, and end-stage renal disease. Our lead product candidate, ALLN-177, is a first-in-class, oral enzyme therapeutic that we are developing for the treatment of hyperoxaluria, a metabolic disorder characterized by markedly elevated urinary oxalate levels and commonly associated with kidney stones, CKD and other serious kidney diseases. There are currently no approved therapies for the treatment of hyperoxaluria. We have conducted a robust clinical development program of ALLN-177, including three Phase 2 clinical trials, and we expect to initiate the first of two planned pivotal Phase 3 clinical trials for ALLN-177 in the first quarter of 2018, with topline data anticipated in the second half of 2019.

We were incorporated under the laws of the State of Delaware on June 24, 2011 and our headquarters is in Newton, Massachusetts. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our technology, identifying potential product candidates, producing drug substance and drug product material for use in preclinical studies and clinical trials, conducting preclinical studies of our product candidates and clinical trials for our lead product candidate, ALLN-177. We do not have any products approved for sale and have not generated any revenue to date. We have financed our operations to date primarily through private placements of convertible preferred stock and a credit facility with Silicon Valley Bank, or SVB. From inception through June 30, 2107, we have raised an aggregate of $106.0 million to fund our operations, of which $96.0 million were gross proceeds from sales of our convertible preferred stock and $10.0 million were the gross proceeds from our credit facility. As of June 30, 2017, we had cash, cash equivalents and investments totaling $38.0 million.

We have incurred significant net operating losses in every year since our inception and expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. Our net losses were $14.2 million and $24.5 million for the years ended December 31, 2015 and 2016, respectively, and $12.2 million and $10.3 million for the six months ended June 30, 2016 and 2017, respectively. As of June 30, 2017, we had an accumulated deficit of $70.6 million. We anticipate that our expenses will increase significantly as we:

 

    conduct future clinical trials of our lead product candidate, ALLN-177;

 

    manufacture additional material for our planned pivotal Phase 3 clinical program, planned Phase 2 clinical basket trial and potential future clinical studies we might conduct for our product candidates;

 

    scale up our manufacturing process for ALLN-177 to prepare for the filing of a potential biologics license application, or BLA, and commercialization if our clinical development program is successful;

 

    advance the development of ALLN-346;

 

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    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. Furthermore, commencing upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we may seek to fund our operations through public or private equity or debt financings or other sources, including strategic collaborations. We may, however, be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates, or any additional product candidates, if developed.

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-177 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 preclinical 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.

 

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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.

The following summarizes our most advanced current research and development programs:

 

    ALLN-177 is our lead product candidate which we are developing for the treatment of hyperoxaluria. Substantially all of our research and development costs to date have been used to fund this program.

 

    ALLN-346 is our second product candidate which we are developing for patients with hyperuricemia and CKD. We began incurring external research and development costs for this program in 2016.

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):

 

     Years Ended
December 31,
     Six Months Ended
June 30,
 
     2015      2016      2016      2017  

ALLN-177 external costs

   $ 9,059      $ 16,057      $ 8,579      $ 5,168  

ALLN-346 external costs

     —          312        —          123  

Employee compensation and benefits

     2,018        3,074        1,194        2,081  

Other

     463        660        252        437  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 11,540      $ 20,103      $ 10,025      $ 7,809  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 $44.8 million of external research and development costs for ALLN-177. We expect that our research and development costs will continue to increase for the foreseeable future as we initiate additional clinical trials of ALLN-177, scale our manufacturing processes and advance development of ALLN-346.

The successful development of ALLN-177, 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-177;

 

    successful data from our clinical program of ALLN-177 that supports an acceptable benefit-risk profile of ALLN-177 in the intended populations;

 

    establishing an appropriate safety profile for ALLN-346 and any potential future product candidate with studies to enable the filing of an investigational new drug application;

 

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    approval of INDs for ALLN-346 and 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 facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and professional fees for accounting, auditing, tax and consulting services.

We expect that our general and administrative expenses will increase in the future to support continued research and development activities and potential commercialization of our product candidates. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys and accountants, among other expenses. Additionally, we expect to incur increased expenses associated with being a public company, including costs of additional personnel, accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs, and investor and public relations costs.

Interest Income (Expense), Net

Interest income (expense), net, primarily consists of interest expense incurred on our credit facility, amortized debt discount related to the fair value of the warrants issued in conjunction with the advances under the credit facility and debt issuance costs, and interest income earned on our cash, cash equivalents and investments.

Other Income (Expense), Net

Other income (expense), net, primarily consists of non-cash changes in the fair value of warrants issued in connection with our credit facility.

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

 

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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.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this prospectus, we believe the following accounting policies used in the preparation of our financial statements require the most significant judgments and estimates.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing purchase orders and open contracts, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by CROs and CMOs in connection with research and development activities for which we have not yet been invoiced.

We contract with CROs and CMOs to conduct clinical and manufacturing and other research and development services on our behalf. We base our expenses related to CROs and CMOs on our estimates of the services received and efforts expended pursuant to quotes and contracts with them. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our CROs or CMOs will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Stock-Based Compensation

We apply the fair value recognition provisions of ASC 718, Compensation—Stock Compensation, or ASC 718, for stock-based awards granted to employees and directors for their services on the board of directors. We account for stock-based awards to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees, or ASC 505-50. Determining the amount of stock-based compensation to be recorded

 

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requires us to develop estimates of the fair value of stock options as of their grant date. We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model. Calculating the fair value of stock-based awards requires that we make subjective assumptions.

Pursuant to ASC 718, we measure stock-based awards granted to employees and members of the board of directors at fair value on the date of grant and recognize the corresponding stock-based compensation expense of those awards on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. We have historically granted stock options with exercise prices equivalent to the fair value of our common stock as of the date of grant.

Pursuant to ASC 505-50, we measure stock-based awards granted to consultants at fair value as the awards vest and recognize the resulting value as expense during the period the related services are rendered, which is typically the vesting period. At the end of each financial reporting period prior to completion of the service, we re-measure the unvested portion of these awards using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model uses the following inputs: the fair value of our common stock, the expected volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Due to the lack of a public market for our common stock and a lack of company-specific historical and implied volatility data, we have based our computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to us, including stage of product development, life science industry focus, length of trading history and similar vesting provisions. The historical volatility data is calculated based on a period of time commensurate with the expected term assumption. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available or until circumstances change, such that the identified entities are no longer representative companies. In the latter case, more suitable, similar entities whose share prices are publicly available would be utilized in the calculation. We use the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. Under this approach, the weighted-average expected option term is presumed to be the average of the contractual term (ten years) and the vesting term (generally four years) of our stock options. We utilize this method due to lack of historical exercise data and the “plain-vanilla” nature of our stock-based awards. The expected term is applied to the stock option grant group as a whole, as we do not expect substantially different exercise or post-vesting termination behavior among our employee population. For options granted to non-employees, we utilize the contractual term of the arrangement as the basis for the expected term assumption. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.

The fair value of stock options granted to employees and directors was estimated on the date of grant using the Black-Scholes option-pricing model, with the following range of assumptions for the years ended December 31, 2015 and 2016, and the six months ended June 30, 2016 and 2017:

 

     Years Ended December 31,     Six Months Ended
June 30,
 
     2015     2016     2016     2017  

Risk-free interest rate

     1.8% - 1.9     1.3% - 1.7     1.4% - 1.7     1.9% - 2.0

Expected dividend yield

     —       —       —       —  

Expected term (in years)

     6.25       5.4 - 6.4       5.4 - 6.5       5.6 - 6.3  

Expected volatility

     85     77% - 84     83% - 84     84% - 87

 

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The fair value of stock options granted to consultants was estimated on the date of grant and as the grants are remeasured over the vesting period using the Black-Scholes option-pricing model, with the following range of assumptions for the years ended December 31, 2015 and 2016, and the six months ended June 30, 2016:

 

     Years Ended
December 31,
    Six Months Ended
June 30,
 
     2015     2016     2016  

Risk-free interest rate

     2.4     1.9% - 2.4     1.9% - 2.4

Expected dividend yield

     —       —       —  

Expected term (in years)

     10.0       8.9 - 10.0       8.9 - 10.0  

Expected volatility

     85     89% - 96     89% - 96

We did not grant any stock options to consultants during the six months ended June 30, 2017. These assumptions represented our best estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

In the first quarter of the year ending December 31, 2017, we made an accounting policy election to recognize forfeitures as they occur upon adoption of guidance per ASU No. 2016-09, Compensation—Stock Compensation, or ASU 2016-09. The adoption of ASU 2016-09 did not have a material impact on our consolidated financial statements. In reporting periods prior to the year ending December 31, 2017, we estimated forfeitures at the time of grant and revised the forfeitures rate in subsequent periods as necessary if actual forfeitures differed from estimates.

Through December 31, 2016, the amount of stock-based compensation expense recognized in our consolidated financial statements was based on awards that were ultimately expected to vest. Forfeitures were estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differed from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option.

The following table presents the grant dates, number of underlying shares of common stock and the per share exercise prices of stock options granted between January 1, 2015 and the date of this prospectus, along with the fair value per share utilized to calculate stock-based compensation expense:

 

Grant Date

   Type of Award      Number of
Common Shares
     Exercise Price of
Award per Share(1)
     Fair Value of
Common Stock
per Share on
Grant Date
     Per Share
Estimated
Fair Value of
Award(2)(3)
 

March 4, 2015

     Option        27,551      $ 1.17      $ 1.17      $ 0.83  

June 18, 2015

     Option        255,944      $ 1.17      $ 1.17      $ 0.83  

March 10, 2016

     Option        315,644      $ 1.59      $ 1.59      $ 1.29  

June 9, 2016

     Option        76,545      $ 1.59      $ 1.59      $ 1.13  

September 15, 2016

     Option        227,968      $ 1.59      $ 1.59      $ 1.09  

February 26, 2017

     Option        51,070      $ 4.01      $ 4.01      $ 2.92  

August 17, 2017

     Option        9,583      $ 4.88      $ 4.88      $ 3.42  

September 26, 2017(4)

     Option        39,530      $ 5.72      $ 5.72      $ 4.09  

September 26, 2017(4)(5)

     Option        101,820      $ 5.72      $ 5.72      $ 4.01  

 

(1) The Exercise Price of Award per Share represents the fair value of our common stock on the date of grant, as determined by our board of directors, after taking into account our most recently available contemporaneous valuations of our common stock as well as additional factors that may have changed since the date of such contemporaneous valuations through the date of grant.
(2) The Per Share Estimated Fair Value of Award reflects the fair value of options as estimated at the date of grant using the Black-Scholes option-pricing model.

 

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(3) For the purposes of recording stock-based compensation for stock options granted to non-employees, we measure the fair value of the award on the service completion date (vesting date). At the end of each reporting period prior to completion of the services, we re-measure the value of any unvested portion of the award based on the then-current fair value of the award and adjust expense accordingly.
(4) The estimated fair value of these options is based upon a valuation analysis as of August 31, 2017 and represents what the Company believed was the fair value of its common stock on September 26, 2017. As part of the Company’s third quarter financial statement close process, the Company expects to perform a retrospective analysis of the estimated per share fair value of these awards based on the IPO price range established on October 10, 2017.
(5) Represents options granted to members of our Board of Directors, for which vesting is contingent upon a successful IPO within one year of the grant date.

The following table summarizes the classification of our stock-based compensation expense recognized in our statements of operations and comprehensive loss (in thousands):

 

     Years Ended
December 31,
     Six Months
Ended

June 30,
 
     2015      2016      2016      2017  

Research and development

   $ 74      $ 68      $ 28      $ 57  

General and administrative

     133        183        71        139  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 207      $ 251      $ 99      $ 196  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2017, we had $0.9 million of unrecognized compensation expense related to stock option awards, which is expected to be recognized over weighted-average remaining vesting periods of approximately 2.4 years. In future periods, we expect stock-based compensation expense to increase, due in part to our existing unrecognized stock-based compensation expense, potential increases in the value of our common stock and expected additional stock-based awards to continue to attract and retain our employees.

Determination of Fair Value of Common Stock

As a private company with no active public market for our common stock, our board of directors has historically determined the fair value of our common stock on each date of grant, with input from management. Our board of directors periodically determined the estimated per share fair value of our common stock at various dates using contemporaneous valuations performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, or the Practice Aid. Once a public trading market for our common stock has been established in connection with the completion of this offering, it will no longer be necessary for us to estimate the fair value of our common stock in connection with our accounting for stock options, as the fair value of our common stock will be its trading price on The NASDAQ Stock Market.

We performed contemporaneous valuations, with the assistance of a third-party specialist, as of November 6, 2014, February 15, 2016, December 31, 2016, April 30, 2017 and August 31, 2017, which resulted in valuations of our common stock of $1.17, $1.59, $4.01, $4.88 and $5.72 per share, respectively. In conducting the valuations, we considered all objective and subjective factors that we believed to be relevant for each valuation conducted, including our best estimate of our business condition, prospects and operating performance at each valuation date. Within the valuations performed, a range of factors, assumptions and methodologies were used. The significant factors included:

 

    the lack of an active public market for our common stock and convertible preferred stock;

 

    the prices at which we sold shares of our convertible preferred stock in arm’s length transactions and the superior rights, preferences and privileges of the convertible preferred stock relative to our common stock, including the liquidation preferences of our preferred stock;

 

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    our results of operations and financial condition, including cash on hand and borrowings under our credit facility;

 

    the material risks related to our business;

 

    our stage of development and business strategy;

 

    the composition of, and changes to, our management team and board of directors;

 

    the market performance of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed initial public offerings, or IPOs, of companies in the life sciences and biotechnology sectors; and

 

    the likelihood of achieving a liquidity event such as an IPO given prevailing market conditions.

Historically, the dates of our contemporaneous valuations have not coincided with the dates of our stock-based compensation grants. In determining the exercise prices of the stock options granted, our board of directors considered, among other things, the most recent contemporaneous valuations of our common stock and our assessment of additional objective and subjective factors we believed were relevant as of the grant date. The additional factors considered when determining any changes in fair value of our common stock between the most recent contemporaneous valuation and the grant dates included the status of our stage of research and development, our operating and financial performance and current business conditions.

There are significant judgments and estimates inherent in the determination of the fair value of our common stock. These judgments and estimates are management’s best estimates and include assumptions regarding our future operating performance, the time to completing an IPO or other liquidity event, the related company valuations associated with such events and the determinations of the appropriate valuation methods. If we had made different assumptions, our stock-based compensation expense, net loss and net loss per common share could have been different.

Common Stock Valuation Methodologies

Our contemporaneous common stock valuations were prepared in accordance with the guidelines in the Practice Aid, which prescribes several valuation approaches for determining the value of an enterprise, such as the cost, market and income approaches, and various methodologies for allocating the value of an enterprise to its capital structure and specifically the common stock.

Our common stock valuation of November 6, 2014 was prepared using the backsolve method to calculate the total equity value and the option-pricing method, or OPM, to allocate the total equity value. The backsolve method derives the implied equity value for one type of equity security from a contemporaneous transaction involving another type of security. Our common stock valuation as of February 15, 2016 was prepared using the backsolve method to calculate the total equity value and a hybrid of the OPM and probability-weighted expected return method, or PWERM, including a future IPO scenario, to allocate the total equity value. We used the backsolve method to calculate the total equity value of our company in the November 6, 2014 and February 15, 2016 valuations as we had recently completed convertible preferred stock financings that represented recent transactions in our securities that should be considered in estimating the fair value of our equity per the Practice Aid. Our common stock valuations of December 31, 2016 and April 30, 2017 were prepared using the guideline public company method, or GPC, which includes comparisons to publicly traded companies in our industry that recently completed IPOs, to calculate the total equity value and a hybrid of the OPM and PWERM, including a future IPO scenario, to allocate the total equity value. The GPC was used in these valuations as there were no recent equity financings or other transactions involving the Company’s equity securities, yet there were several recently completed IPOs of comparable companies in the industry.

Option-Pricing Method (OPM). The OPM treats each class of common stock and convertible preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at

 

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which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceed the value of the convertible preferred stock liquidation preferences at the time of a liquidity event, such as a strategic sale, merger or IPO. The common stock is modeled as a call option on the underlying equity value at a predetermined exercise price. In the model, the exercise price is based on a comparison with the total equity value rather than, as in the case of a regular call option, a comparison with a per share stock price. Thus, common stock is considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the convertible preferred stock liquidation preference is paid.

The OPM uses the Black-Scholes option-pricing model to price the call options. This model defines the securities’ fair values as functions of the current fair value of a company and uses assumptions, such as the anticipated timing of a potential liquidity event and the estimated volatility of the equity securities. The aggregate value of the common stock derived from the OPM is then divided by the number of shares of common stock outstanding to arrive at the per share value.

We used the OPM backsolve approach to estimate enterprise value under the OPM. The OPM backsolve approach uses the OPM to calculate the implied equity value based on recent sales of the company’s securities. For the OPM, we based our assumed volatility factor on the historical trading volatility of our publicly traded peer companies. At each valuation date, we determined the appropriate volatility to be used, considering such factors as our expected time to a liquidity event and our stage of development.

To derive the fair value of our common stock using the OPM, we calculated the proceeds to the common stockholders based on the preferences and priorities of the convertible preferred and common stock. We then applied a discount for lack of marketability to the common stock to account for the lack of access to an active public market.

Probability-Weighted Expected Return Method (PWERM). The PWERM is a scenario-based methodology that estimates the fair value of common stock-based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for lack of marketability is then applied to the common stock to account for the lack of access to an active public market.

Hybrid Method. The hybrid method is a PWERM where the equity value in one of the scenarios is calculated using an OPM. In the hybrid method used by us, we considered two types of future-event scenarios: an IPO and an unspecified liquidity event. The equity value for the IPO scenario was determined using the GPC method under the market approach. The equity value for the unspecified liquidity event scenario was determined using a backsolve method. The relative probability of each type of future-event scenario was determined based on an analysis of market conditions at the time, including then-current IPO valuations of similarly situated companies, and our expectations as to the timing and likely prospects of the future-event scenarios. A discount for lack of marketability is then applied to the common stock to account for the lack of access to an active public market.

To derive the fair value of the common stock for each scenario using the hybrid method, we calculated the proceeds to the common stockholders based on the preferences and priorities of the convertible preferred and common stock. We then applied a discount for lack of marketability to the common stock to account for the lack of access to an active public market.

 

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Warrant Valuation

We issued warrants to purchase shares of our Series A and Series C convertible preferred stock in conjunction with the advances made under our credit facility. These warrants are classified as liabilities as they either conditionally or unconditionally obligate us to transfer assets regardless of the timing of the redemption feature or price of the underlying convertible preferred stock. The warrants were initially recorded at their grant date fair value and are subject to revaluation at each balance sheet date. Changes in the fair value of the warrants are recorded as a component of other income (expense) in the statements of operations and comprehensive loss, until the earlier of their exercise or expiration or the completion of a liquidation event, at which time the warrant liability may be reclassified to stockholders’ (deficit) equity if the criteria for recording the warrant as an equity instrument are met.

The fair value of the warrants is estimated using the Black-Sholes model, which incorporates assumptions and estimates to value these warrants. We assess these assumptions and estimates on a periodic basis based on information available to us on each valuation date. Such assumptions and estimates include: the fair value of the Series A and Series C convertible preferred stock, the remaining contractual term of the warrants, the risk-free interest rate applicable to the remaining contractual term, the expected dividend yield and the expected volatility of the price of the underlying common stock into which the preferred stock is convertible. We estimate the fair value of our Series A and Series C convertible preferred stock upon the issuance of the warrants and at each reporting period based upon our common stock valuations which include a derived fair value for such shares of preferred stock. We have historically been a private company and lack company-specific historical and implied volatility information of our stock. Therefore, we estimate expected stock volatility based on the historical volatility of publicly traded comparable companies for a term equal to the remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods that approximately equal the remaining contractual term of the warrants. We assumed no dividend yield based on the fact that we have never paid or declared dividends, and do not expect to pay or declare dividends in the future.

In connection with this offering, all outstanding shares of our preferred stock will be converted to common stock. The convertible preferred warrants will therefore become exercisable into common stock instead of convertible preferred stock and the fair value of the warrant liability may be reclassified to stockholders’ (deficit) equity if the criteria for recording the warrants as an equity instrument are met.

Results of Operations

Comparison of the Six Months Ended June 30, 2016 and 2017

The following table summarizes our results of operations for the six months ended June 30, 2016 and 2017 (in thousands):

 

     Six Months Ended
June 30,
    Dollar
Change
 
     2016     2017    

Operating expenses:

      

Research and development

   $ 10,025     $ 7,809     $ (2,216

General and administrative

     2,057       2,208       151  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     12,082       10,017       (2,065

Other income (expense):

      

Interest income (expense), net

     (71     (255     184  

Other income (expense), net

     1       (31     32  
  

 

 

   

 

 

   

 

 

 

Other income (expense), net

     (70     (286     216  
  

 

 

   

 

 

   

 

 

 

Net loss

   $ 12,152     $ 10,303     $ (1,849
  

 

 

   

 

 

   

 

 

 

 

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Research and Development Expenses

Research and development expense decreased by $2.2 million from $10.0 million for the six months ended June 30, 2016 to $7.8 million for the six months ended June 30, 2017. The following table summarizes our research and development expenses for the six months ended June 30, 2016 and 2017 (in thousands):

 

     Six Months Ended
June 30,
     Dollar
Change
 
     2016      2017     

Clinical development external costs

   $ 2,972      $ 2,482      $ (490

Manufacturing external costs

     4,706        1,829        (2,877

Employee compensation and benefits

     1,194        2,081        887  

Other

     1,153        1,417        264  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 10,025      $ 7,809      $ (2,216
  

 

 

    

 

 

    

 

 

 

The decrease in research and development expense was primarily attributable to the following:

 

    Our manufacturing external costs decreased by $2.9 million from $4.7 million for the six months ended June 30, 2016 to $1.8 million for the six months ended June 30, 2017.

 

    We entered into a contract manufacturing agreement with a new CMO for the manufacturing of our ALLN-177 drug substance in June 2015. We incurred significant costs setting up the new CMO in the second half of 2015 and the duration of 2016. Costs incurred at this CMO were $1.0 million and $0.2 million during the six months ended June 30, 2016 and 2017, respectively;

 

    During the six months ended June 30, 2016, we purchased consumables and raw materials to supply our planned pre-engineering, engineering and clinical batches. These consumables and raw materials were expensed at the time of purchase. Our costs for consumables and raw materials were $1.6 million and $0.3 million for the six months ended June 30, 2016 and 2017, respectively; and

 

    During the six months ended June 30, 2016, we conducted considerable process development and manufactured several pre-engineering and engineering batches of product for ALLN-177 as we scaled our manufacturing process and manufactured material for our clinical trials. Costs associated with these activities were $1.0 million for the six months ended June 30, 2016. During the six months ended June 30, 2017, we conducted less process development and batch production consisted only of engineering batches. Costs associated with these activities were $0.4 million for the six months ended June 30, 2017.

 

    Our clinical development external costs for the six months ended June 30, 2016 included $1.3 million of costs for our Phase 2 clinical trial for ALLN-177 (Study 649). This trial stopped enrolling subjects in June 2016. Partially offsetting this decrease in clinical development costs from the prior year period were increased costs for our Phase 2 clinical trial for ALLN-177 (Study 713) during the six months ended June 30, 2017. Our costs for Study 713 were $0.9 million and $1.4 million for the six months ended June 30, 2016 and 2017, respectively, as we completed enrollment for Study 713 in early 2017 and incurred expenses related to the completion of this trial, finalization of the database, and analysis of the data. In addition, we incurred costs of $0.3 million during the six months ended June 30, 2017 as we conducted and completed a prospective controlled clinical trial (Study 204) in subjects with secondary hyperoxaluria. We initiated this study during the fourth quarter of the year ending December 31, 2016 and therefore did not incur any costs relating to the Study 204 during the six months ended June 30, 2016; and

 

    Our employee compensation and benefits costs increased by $0.9 million for the six months ended June 30, 2017. The increase is primarily due to an overall increase in research and development headcount. We had 13 employees in research and development at June 30, 2016 compared to 20 employees in research and development at June 30, 2017.

 

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We expect that our research and development expenses will increase in future periods as we continue our clinical development of ALLN-177, scale our manufacturing processes for ALLN-177 and advance development of ALLN-346.

General and Administrative Expenses

General and administrative expense increased by $151,000 from $2.1 million for the six months ended June 30, 2016 to $2.2 million for the six months ended June 30, 2017. The following table summarizes our general and administrative expenses for the six months ended June 30, 2016 and 2017 (in thousands):

 

     Six Months Ended
June 30,
     Dollar
Change
 
     2016      2017     

Employee compensation and benefits

   $ 823      $ 1,209      $ 386  

Consulting and professional services

     469        442        (27

Market research and commercialization planning

     445        271        (174

Other

     320        286        (34
  

 

 

    

 

 

    

 

 

 

Total general and administrative expenses

   $ 2,057      $ 2,208      $ 151  
  

 

 

    

 

 

    

 

 

 

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

 

    Our employee compensation and benefits costs increased by $0.4 million. The increase is primarily due to the addition of three new employees in the second quarter of the year ended December 31, 2016, including our Chief Financial Officer, who were employed for the full six months ended June 30, 2017. Our stock-based compensation also increased $68,000 from $71,000 for the six months ended June 30, 2016 to $139,000 for the six months ended June 30, 2017; and

 

    Our market research and commercialization planning costs decreased by $174,000, partially offsetting the increase in our employee-compensation and benefits-related costs during the six months ended June 30, 2017. During the six months ended June 30, 2016, we engaged an independent third party to conduct a study to assess the market opportunity for ALLN-177.

We expect that our general and administrative expense will increase in future periods as we expand our operations and incur additional costs in connection with being a public company.

Interest Income (Expense), net

Interest income (expense), net consists of interest income earned on our cash, cash equivalents and short-term investments, interest expense charged on our outstanding debt, and amortization of our debt discount related to the fair value of the warrants. It increased $0.2 million from $(0.1) million for the six months ended June 30, 2016 to $(0.3) million for the six months ended June 30, 2017. The increase was attributable to additional interest costs associated with the refinancing of our credit facility in May 2016.

Other Income (Expense), net

Other income (expense), net consists primarily of non-cash changes in the fair value of warrants issued in connection with our credit facility.

 

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Comparison of the Years Ended December 31, 2015 and 2016

The following table summarizes our results of operations for the years ended December 31, 2015 and 2016 (in thousands):

 

     Years Ended
December 31,
    Dollar
Change
 
     2015     2016    

Operating expenses:

      

Research and development

   $ 11,540     $ 20,103     $ 8,563  

General and administrative

     2,365       4,083       1,718  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,905       24,186       10,281  

Other income (expense):

      

Interest income (expense), net

     (335     (200     135  

Other income (expense), net

     (7     (121     (114
  

 

 

   

 

 

   

 

 

 

Other income (expense), net

     (342     (321     21  
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (14,247   $ (24,507   $ (10,260
  

 

 

   

 

 

   

 

 

 

Research and Development Expense

Research and development expense increased by $8.6 million from $11.5 million for the year ended December 31, 2015 to $20.1 million for the year ended December 31, 2016. The following table summarizes our research and development expenses for the years ended December 31, 2015 and 2016 (in thousands):

 

     Years Ended
December 31,
     Dollar
Change
 
     2015      2016     

Clinical development external costs

   $ 3,517      $ 7,275      $ 3,758  

Manufacturing external costs

     4,480        7,068        2,588  

Employee compensation and benefits

     2,018        3,074        1,056  

Other

     1,525        2,686        1,161  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 11,540      $ 20,103      $ 8,563  
  

 

 

    

 

 

    

 

 

 

The increase in research and development expense was primarily attributable to the following:

 

    Our clinical development external costs increased by $3.8 million from $3.5 million for the year ended December 31, 2015 to $7.3 million for the year ended December 31, 2016:

 

    Study 649 expense increased by $0.8 million from $1.4 million for the year ended December 31, 2015 to $2.2 million for the year ended December 31, 2016. Expenses during the year ended December 31, 2015 consisted primarily of startup and related costs and initial subject-related costs, as we enrolled our first subject in the trial in September 2015. Expenses in the year ended December 31, 2016 included a majority of the trial’s CRO and subject costs as well as close-out costs;

 

    Study 713 expense increased by $2.2 million from $0.8 million for the year ended December 31, 2015 to $3.0 million for the year ended December 31, 2016. Expenses during the year ended December 31, 2015 consisted primarily of startup and related costs. We enrolled our first subject into the trial in December 2015. The trial continued for the duration of the year ended December 31, 2016 and the vast majority of subjects were enrolled during the year ended December 31, 2016, which increased our CRO and subject enrollment costs; and

 

    We initiated and conducted Study 204 in the year ended December 31, 2016. Expenses for this trial were $0.5 million for the year ended December 31, 2016. There were no expenses related to this trial during the year ended December 31, 2015.

 

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    Our manufacturing external costs increased by $2.6 million from $4.5 million for the year ended December 31, 2015 to $7.1 million for the year ended December 31, 2016:

 

    During the year ended December 31, 2016, we conducted considerable process development and manufactured several pre-engineering, engineering, and clinical trial batches of product for ALLN-177 as we scaled our manufacturing process and manufactured material for our clinical trials. Costs associated with these activities were $1.7 million in the year ended December 31, 2016. During the year ended December 31, 2015, we incurred process development costs of $0.9 million;

 

    During the year ended December 31, 2016 we purchased consumables and raw materials to supply our planned pre-engineering, engineering and clinical trial batches. These consumables and raw materials were expensed at the time of purchase. Our costs for consumables and raw materials were $0.3 million and $1.7 million for the years ended December 31, 2015 and 2016, respectively; and

 

    Consulting costs increased by $0.4 million from $0.2 million for the year ended December 31, 2015 to $0.6 million for the year ended December 31, 2016 to support our increased drug substance and drug product activities.

 

    Our employee compensation and benefits costs increased by $1.1 million from $2.0 million for the year ended December 31, 2015 to $3.1 million for the year ended December 31, 2016. The increase is primarily due to an overall increase in research and development headcount. We had nine employees in research and development at December 31, 2015 compared to 18 employees in research and development at December 31, 2016; and

 

    Other costs increased by $1.2 million from $1.5 million for the year ended December 31, 2015 to $2.7 million for the year ended December 31, 2016. We had $0.3 million of external costs for our ALLN-346 product candidate for the year ended December 31, 2016, with no comparable costs for the year ended December 31, 2015. Our project management costs also increased by $0.5 million from $0.1 million for the year ended December 31, 2015 to $0.6 million for the year ended December 31, 2016. We engaged a third party consulting firm during the fourth quarter of the year ended December 31, 2015 to provide project management consulting services, which were provided to us for the duration of the year ended December 31, 2016.

General and Administrative Expenses

General and administrative expense increased by $1.7 million from $2.4 million for year ended December 31, 2015 to $4.1 million for the year ended December 31, 2016. The following table summarizes our general and administrative expenses for the years ended December 31, 2015 and 2016 (in thousands):

 

     Years Ended
December 31,
     Dollar
Change
 
     2015      2016     

Employee compensation and benefits

   $ 1,319      $ 1,939      $ 620  

Consulting and professional services

     500        843        343  

Market research and commercialization planning

     265        674        409  

Other

     281        627        346  
  

 

 

    

 

 

    

 

 

 

Total general and administrative expenses

   $ 2,365      $ 4,083      $ 1,718  
  

 

 

    

 

 

    

 

 

 

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

 

    Our employee compensation and benefits costs increased by $0.6 million. The increase was primarily related to an increase in the number of employees, including the addition of our Chief Financial Officer, who joined us in June 2016. We had four general and administrative employees at December 31, 2015 compared to seven employees at December 31, 2016; and

 

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    Our market research and commercialization planning costs increased by $0.4 million. During the year ended December 31, 2016, we engaged an independent third party to conduct a study to assess the market opportunity for ALLN-177. We incurred $330,000 of costs for the year ended December 31, 2016 for this study.

Interest Income (Expense), net

Interest income (expense), net decreased by $0.1 million from $(0.3) million for the year ended December 31, 2015 to $(0.2) million for the year ended December 31, 2016. The decrease was attributable to interest income earned on our investment portfolio attributable to investments we made after our Series C convertible preferred stock financing in November 2015, partially offset by additional interest costs associated with the refinancing of our credit facility in May 2016 and an increase in amounts outstanding under the loan in the year ended December 31, 2016 as compared to the year ended December 31, 2015.

Other Income (Expense), net

Other income (expense), net consists primarily of non-cash changes in the fair value of the warrants issued in connection with our credit facility.

Liquidity and Capital Resources

Sources of Liquidity

We have funded our operations from inception through June 30, 2017 through gross proceeds of $96.0 million from sales of our convertible preferred stock and borrowings of $10.0 million under our credit facility with SVB. The following table provides information regarding our total cash, cash equivalents and short term investments at December 31, 2015 and 2016 and June 30, 2017 (in thousands):

 

     December 31,      June 30,
2017
 
     2015      2016     

Cash and cash equivalents

   $ 69,011      $ 25,250      $ 34,713  

Short term investments

     —          23,505        3,249  
  

 

 

    

 

 

    

 

 

 

Total cash, cash equivalents and short term investments

   $ 69,011      $ 48,755      $ 37,962  
  

 

 

    

 

 

    

 

 

 

On August 18, 2014, we entered into a loan and security agreement with SVB, or the credit facility, which was subsequently amended on December 22, 2014 and May 2, 2016. The credit facility initially provided up to $7.0 million principal in term loans, $3.8 million of which was funded at the time we entered into the original agreement and $3.2 million of which was funded in March 2015. As amended in May 2016, the loan and security agreement provides for up to $10.0 million in term loans, $7.5 million of which was funded when we entered into the second amendment to the loan and security agreement, of which we received $1.6 million in net proceeds after deducting $5.3 million for repayment of the original advances and $0.6 million for interest and debt issuance costs. The remaining $2.5 million was funded in December 2016 upon our achievement of certain milestones. The May 2016 and December 2016 advances have a floating annual interest rate equal to the greater of 4.0% or 0.5% above the prime rate.

The repayment schedule provides for interest only payments for eighteen months, beginning in May 2016. Following the interest only period, the loan repayment schedule provides for 30 equal monthly payments of principal plus interest. The loan and security agreement also provides for a final interest payment equal to 8.25% of the total which is due on the earliest of the loan maturity date, acceleration of the loan in the case of an event of default, at the time of prepayment of the facility or termination of the agreement. We have the option to prepay the outstanding balance of the term loan in full, subject to a prepayment fee of 0%—2% depending upon when the prepayment occurs. The term loan facility matures on May 1, 2020.

 

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The borrowings under the loan and security agreement are secured by a lien on all of our assets except intellectual property. The loan and security agreement contains customary representations, warranties and covenants by us, including negative covenants restricting our activities, such as disposing of our business or certain assets, changing our business, management, ownership or business locations, 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. The obligations under the loan and security 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.

In connection with entering into the loan and security agreement, in August 2014, we granted to SVB a warrant to purchase 142,856 shares of our Series A preferred stock at an exercise price of $0.98 per share. In connection with entering into the second amendment to the loan and security agreement, in May 2016, we granted to SVB a warrant to purchase 37,736 shares of our Series C preferred stock at an exercise price of $2.65 per share. Each warrant may be exercised at the option of SVB either by delivery of the exercise price in cash or by a cashless exercise, and will expire in August 2024 and May 2026, respectively. Following the consummation of this offering, these warrants will be exercisable for shares of our common stock.

Cash Flows

The following table provides information regarding our cash flows for the years ended December 31, 2015 and 2016 and for the six months ended June 30, 2016 and 2017 (in thousands):

 

     Years Ended
December 31,
    Six Months Ended
June 30,
 
     2015     2016     2016     2017  

Net cash used in operations

   $ (13,175   $ (23,394   $ (10,391   $ (10,708

Net cash provided by (used in) investing activities

     5       (23,762     (33,684     20,169  

Net cash provided by financing activities

     55,295       3,395       895       2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 42,125     $ (43,761   $ (43,180   $ 9,463  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Cash Used in Operating Activities

The 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 $10.7 million for the six months ended June 30, 2017 compared to $10.4 million for the six months ended June 30, 2016. The increase in cash used in operating activities of $0.3 million was attributable to a $2.4 million decrease in working capital, including a decrease of $2.3 million in accounts payable and accrued expenses, partially offset by a reduction in net loss of $1.9 million and an increase in non-cash expenses of $0.2 million.

Net cash used in operating activities was $23.4 million for the year ended December 31, 2016 compared to $13.2 million for the year ended December 31, 2015. The increase in cash used in operating activities of $10.2 million was attributable to:

 

    an increase in net loss of $10.3 million;

 

    an increase in non-cash items of $0.3 million resulting primarily from increases in amortization of premium on investments and the change in the fair value of the warrant liability; and

 

    an increase of $0.2 million in changes in the components of working capital.

 

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Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $20.2 million for the six months ended June 30, 2017 compared to net cash used in investing activities of $33.7 million for the six months ended June 30, 2016. The increase in cash flows from investing activities of $53.9 million was attributable to a decrease in purchases of short term investments of $37.9 million and an increase in maturities of short-term investments of $16.0 million, as we converted short-term investments to cash and cash equivalents to fund our operations.

Net cash used in investing activities was $23.8 million for the year ended December 31, 2016 compared to net cash provided by investing activities of $5,000 for the year ended December 31, 2015. The increase in cash used for investing activities of $23.8 million was attributable to:

 

    an increase in purchases of short-term investments of $53.2 million partially offset by maturities of $29.6 million; and

 

    an increase in purchases of property and equipment of $0.1 million.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $2,000 for the six months ended June 30, 2017 compared to $0.9 million for the six months ended June 30, 2016. The decrease in cash provided by financing activities of $0.9 million was attributable to our net proceeds during the six months ended June 30, 2016 from the refinancing of our loan payable. We received $7.5 million of advances under our amended credit facility and we repaid the $6.3 million outstanding balance and certain interest and debt issuance costs under the original credit facility. There were no advances received or principal payments made on our credit facility during the six months ended June 30, 2017.

Net cash provided by financing activities was $3.4 million for the year ended December 31, 2016 compared to $55.3 million for the year ended December 31, 2015. The decrease in cash provided by financing activities of $51.9 million was attributable to:

 

    the sale of Series C convertible preferred stock in November 2015 partially offset by;

 

    a $0.9 million increase in net proceeds from the refinancing of our credit facility.

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. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

We expect that the net proceeds from this offering, together with our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into 2020. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:

 

    the costs of conducting future clinical trials of ALLN-177;

 

    the costs of manufacturing additional material for our planned pivotal Phase 3 clinical program, planned Phase 2 basket clinical trial and potential future clinical studies we might conduct for ALLN-177;

 

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    the costs of scaling up our manufacturing process for ALLN-177 to prepare for the filing of a potential BLA and commercialization if our clinical development program is successful;

 

    the advancement of 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;

 

    our headcount growth and associated costs as we expand our business operations and our research and development activities; and

 

    the costs of operating as a public company.

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

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. With the exception of our credit facility, we do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect your rights as a common stockholder. Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.

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

 

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Contractual Obligations

The following table summarizes our significant contractual obligations as of payment due date by period at June 30, 2017 (in thousands):

 

     Total      Less than
1 Year
     1 to 3 years      3 to 5 Years      More than
5 years
 

Credit facility(1)

   $ 11,450      $ 2,479      $ 8,971      $ —        $ —    

Operating lease obligations(2)

     464        369        95        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 11,914      $ 2,848      $ 9,066      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Consists of repayment obligations under our credit facility with SVB, including interest.
(2) Represents future minimum lease payments under our non-cancelable operating leases which expire through February 2019. The minimum lease payments above do not include any related common area maintenance charges or real estate taxes.

Under a license agreement with Althea Technologies, Inc. (now known as Ajinomoto Althea, Inc.), or Althea, which we entered into in March 2012, as amended in March 2016, we reimbursed Althea for patent-related fees of $0.1 million and issued 88,186 shares of common stock to Althea. In addition, we are obligated to pay milestone payments and royalties of a mid-single digit percentage of net sales. Milestone payments are triggered upon the achievement of specified regulatory milestones that could total up to $31.0 million and sales-based milestones that could total up to $25.0 million. The milestone payments are not creditable against royalties. Actual amounts due under the agreement will vary depending on the number of products developed, the type and development path of the products, and other related factors. As of June 30, 2017, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. We have the right to terminate the agreement for convenience upon 60 days prior written notice to Althea. As a result, no amounts are included in the table above. See “Business—Althea License Agreement” for a more detailed description of this agreement.

We enter into agreements in the normal course of business with CROs for clinical trials, CMOs for clinical supply manufacturing, professional consultants for expert advice and other vendors for other services for operating purposes. We have not included these payments in the table of contractual obligations above since the contracts do not contain any minimum purchase commitments and are cancelable at any time by us, generally upon 30 days prior written notice and therefore we believe that our non-cancelable obligations under these agreements are not material.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to changes in interest rates. As of June 30, 2017, our cash equivalents consisted of primarily of short-term money market funds. As of June 30, 2017, our short-term investments consisted of United States Treasury securities and corporate notes with maturities of less than one year. 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 investments in our portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio or on 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.

 

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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 years ended December 31, 2015 and 2016 or the six months ended June 30, 2016 and 2017.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, or EGC, we intend to rely on certain of these exemptions, including exemptions from the requirement to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an EGC until the earlier of: the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

 

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BUSINESS

Overview

We are a late-stage clinical 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, such as oxalate and urate, that can cause kidney stones, damage the kidney, and potentially lead to chronic kidney disease, or CKD, and end-stage renal disease. Our proprietary technological approach enables us to design and develop stable, non-absorbable oral enzyme therapies that remain in the gastrointestinal, or GI, tract, where the enzyme can degrade these metabolites, allowing for removal from the body through the bowel. This mechanism of action reduces the accumulation of the metabolites in the body and therefore limits the burden on the kidney to filter and then excrete the metabolite in the urine. The data from our clinical trials and numerous academic studies suggest the potential for GI elimination of these metabolites to reduce the chronic disease burden on the kidney and other organ systems. Our lead product candidate, ALLN-177, is a first-in-class, oral enzyme therapeutic that we are developing for the treatment of hyperoxaluria, a metabolic disorder characterized by markedly elevated urinary oxalate levels and commonly associated with kidney stones, CKD and other serious kidney diseases. There are currently no approved therapies for the treatment of hyperoxaluria.

ALLN-177, a crystalline formulation of the enzyme oxalate decarboxylase, has been designed to specifically degrade oxalate within the GI tract, limiting systemic absorption of the metabolite into the bloodstream. Oxalate is endogenously produced as an end product of normal cellular metabolism and is also absorbed through the GI tract from a typical diet. Humans lack the innate capacity to digest oxalate and primarily depend on renal excretion to eliminate it from the body. Although oxalate has no identified biological function, it is known to damage the kidney when present in excess amounts, a condition called hyperoxaluria. Hyperoxaluria is characterized by significantly elevated oxalate levels in the urine, or urinary oxalate excretion, due to either overproduction of oxalate by the liver from a genetic defect, called primary hyperoxaluria, or from over absorption of oxalate from the diet, called secondary hyperoxaluria. Secondary hyperoxaluria is further characterized either as enteric, resulting from a chronic and unremediable underlying GI disorder associated with malabsorption, such as bariatric surgery complications or Crohn’s disease, which predisposes patients to excess oxalate absorption, or idiopathic, meaning the underlying cause is unknown. Enteric hyperoxaluria is the more severe type of secondary hyperoxaluria.

We have conducted a robust clinical development program of ALLN-177, including three Phase 2 clinical trials, which demonstrated reductions of urinary oxalate excretion in patients with secondary hyperoxaluria, particularly in patients with enteric hyperoxaluria. ALLN-177 has also been well tolerated in clinical trials to date. Based on these data, the high unmet medical need, the enzyme’s specific mechanism of action, and the significant market opportunity, we are initially developing ALLN-177 for adult patients with enteric hyperoxaluria. We are in discussions with the U.S. Food and Drug Administration, or the FDA, to finalize the design of our planned pivotal Phase 3 program in enteric hyperoxaluria and we expect to initiate the first of two Phase 3 clinical trials in the first quarter of 2018, with topline data anticipated in the second half of 2019. The FDA has also granted separate orphan drug designations for ALLN-177 for the treatment of primary hyperoxaluria and for the treatment of pediatric hyperoxaluria. In addition, the European Commission has granted orphan designation for ALLN-177 for the treatment of primary hyperoxaluria. In light of these designations, we are planning to initiate a Phase 2 clinical trial in the first quarter of 2018 in adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria, both of which can lead to systemic oxalosis, a potentially fatal disorder associated with excess levels of oxalate in the blood, or hyperoxalemia, with interim data expected in the second half of 2018 and topline data anticipated in 2019.

The first clinical manifestation of hyperoxaluria is often a kidney stone; however, the disorder can be variable in its presentation. Patients with severe hyperoxaluria may have recurrent kidney stones or experience infrequent or no kidney stones, yet still develop CKD and end-stage renal disease, which can be fatal. Systemic

 

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oxalosis, which typically occurs in patients with primary or severe secondary hyperoxaluria and declining kidney function, refers to the presence of excess oxalate throughout the body, including the blood, bones, joints, eyes and heart.

We estimate there are approximately 200,000 to 250,000 patients in the United States with enteric hyperoxaluria and kidney stones. We plan to target this market initially. We believe that a therapeutic agent that reduces urine oxalate levels in this population could be commercialized into a potential multi-billion dollar U.S. market without any approved therapies at present. Primary hyperoxaluria, an ultra-rare genetic disease, is estimated to affect approximately 1 in 58,000, or approximately 5,000 patients, in the United States. Among patients with primary hyperoxaluria, about 50 percent will have kidney failure by age 15, and about 80 percent will have kidney failure by age 30. There are no FDA approved therapies for primary hyperoxaluria, and the most severe patients may be treated with a liver and/or kidney transplant. Patients with enteric hyperoxaluria can have levels of urinary oxalate excretion as high as patients with primary hyperoxaluria and a comparable renal burden.

We believe our proprietary know-how in enzyme technology allows us to design, formulate and deliver non-absorbed and stable enzymes orally and in sufficient doses for activity in the GI tract. This approach enables us to develop enzyme therapies that degrade metabolites within the GI tract, thereby preventing their absorption, which reduces potentially toxic metabolite levels in the blood and urine, and in turn, diminishes the disease burden on the kidney over time. 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. Utilizing our proprietary technological approach, we conceived and developed ALLN-177, an oral biologic product candidate. Manufacturing biologic drugs is generally a complex and cost intensive process because they are manufactured in living systems or cells and tend to be large complex molecules. Since the living systems used to produce biologics can be sensitive to very minor changes in manufacturing techniques, small process differences can significantly affect the nature of the finished biologic and, most importantly, the way it functions in the body. Our proprietary and scalable manufacturing capabilities enable us to produce large quantities of our oral enzyme product candidates sufficiently to support our clinical and commercial strategy, with costs anticipated to be comparable to small molecule therapeutics. We have issued patents covering ALLN-177 in addition to the trade secrets that cover our manufacturing process.

We have assembled a seasoned management team with extensive experience in drug discovery, development, manufacturing and commercialization. We are supported by a top-tier investor syndicate including Frazier Healthcare Partners, Third Rock Ventures, Bessemer Venture Partners, HBM Healthcare Investments, Pharmstandard International S.A., Partner Fund Management, Fidelity Management & Research Company and other investors and have raised approximately $96.0 million in equity financing to date.

 

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Our Product Candidate Pipeline

Using our proprietary technological approach, we have developed a pipeline of first-in-class, oral, non-absorbed enzyme therapeutic candidates to treat patients with rare and severe metabolic disorders that affect the kidney. Our lead product candidate, ALLN-177, is an oral enzyme therapeutic that we are developing for the treatment of hyperoxaluria, for which there are currently no approved therapies. Our second product candidate, ALLN-346, is being developed for patients with hyperuricemia and moderate to severe CKD. Hyperuricemia, or elevated levels of uric acid in the blood, is commonly associated with gout as well as kidney stones and kidney disorders.

 

 

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Strategy

Our goal is to become the leader in developing and commercializing first-in-class, oral, non-absorbed enzyme therapeutics to treat patients with rare and severe metabolic and kidney disorders. To achieve this goal, we are executing on the following strategy:

 

    Obtain regulatory approval in the United States for our lead product candidate, ALLN-177, for enteric hyperoxaluria in adults—We have conducted a robust Phase 2 clinical development program of ALLN-177 in patients with secondary hyperoxaluria, which demonstrated significant reductions of urinary oxalate excretion in patients with enteric hyperoxaluria. Based on these data and the high unmet need, we are initially developing ALLN-177 for enteric hyperoxaluria. Moreover, we believe the mechanism of action of ALLN-177, which degrades oxalate in the GI tract, is particularly well-targeted to treat enteric hyperoxaluria where excess oxalate absorption is driven by an underlying GI disorder. We are currently in discussions with the FDA to finalize the design of our planned pivotal Phase 3 program and we currently expect to initiate the first of two Phase 3 clinical trials for ALLN-177 in the first quarter of 2018, with topline data anticipated in the second half of 2019.

 

    Commercialize ALLN-177—We have worldwide commercialization and development rights to ALLN-177. We intend to independently pursue regulatory approval of ALLN-177 in patients with enteric hyperoxaluria in the United States and, if approved, to commercialize the product by building a focused commercial organization in the United States specifically to target nephrologists and urologists who treat patients with hyperoxaluria, particularly at kidney stone clinics.

 

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    Advance development of ALLN-177 for other severe forms of hyperoxaluria—The FDA has granted separate orphan drug designations for ALLN-177 for the treatment of primary hyperoxaluria and for the treatment pediatric hyperoxaluria (primary and secondary). In light of these designations, we are planning to initiate a Phase 2 clinical trial in the first quarter of 2018 in adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria, both of which can lead to systemic oxalosis, with interim data expected in the second half of 2018 and topline data anticipated in 2019. In addition, we plan to seek breakthrough designation where appropriate.

 

    Seek regulatory approval in Europe for our lead product candidate, ALLN-177—We plan to pursue regulatory approval for patients with severe hyperoxaluria in Europe in conjunction with our pursuit of approval in the United States. We plan to obtain National Scientific Advice from select countries in Europe by the end of 2017 and to discuss the results of our Phase 2 clinical program in secondary hyperoxaluria and our proposed pivotal Phase 3 program in enteric hyperoxaluria. In addition, the European Commission has granted orphan designation for ALLN-177 for the treatment of primary hyperoxaluria.

 

    Advance development of ALLN-346Utilizing our expertise in enzyme therapeutics and proprietary technological approach, we have designed ALLN-346 to degrade urate in the GI tract. We intend to pursue the development of ALLN-346 for patients with hyperuricemia and CKD. These patients are challenging to manage due to limitations of existing therapies, such as poor tolerability, reduced efficacy, dose restriction or contraindications. We expect to initiate a preclinical proof of concept study for ALLN-346 in hyperuricemia animal models in the fourth quarter of 2017. Subject to the successful outcome of this study and customary toxicology preclinical studies, we expect to file an IND for ALLN-346 in the first half of 2019.

 

    Explore collaboration opportunities for our product candidates in markets outside of the United States. We intend to explore collaborations to commercialize our product candidates, including ALLN-177, outside of the United States. However, depending on our evaluation of these market opportunities and the strategic merits of these collaboration opportunities, we may decide to retain commercial rights in key markets.

Competitive Strengths

We believe the following competitive strengths will help us achieve our strategy:

 

    Therapeutic focus on rare and severe metabolic disorders that affect the kidney and have high unmet medical needs due to the absence of approved or effective therapies;

 

    Lead product candidate, ALLN-177, with clear mechanism of action and consistent evidence of activity and tolerability across preclinical studies and multiple Phase 1 and 2 trials to support our planned pivotal Phase 3 program;

 

    Proprietary technological approach that allows us to design, formulate and deliver non-absorbed and stable enzymes orally and in sufficient doses for activity in the GI tract. This approach enables us to develop enzyme therapies that utilize the GI tract to degrade metabolites, such as oxalate and urate, reducing plasma and urine levels, and in turn, reducing their disease burden on the kidney over time;

 

    Management team with substantial experience in developing and commercializing pharmaceutical products for metabolic and kidney disorders;

 

    Strong relationships with key opinion leaders and patient advocacy groups that provide access to the industry’s leading experts on hyperoxaluria and other metabolic and kidney disorders; and

 

    Support from leading healthcare-focused investors and board members with experience in building and operating life science companies.

 

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ALLN-177

Overview of Oxalate and Hyperoxaluria

Oxalate is endogenously produced as an end product of normal cellular metabolism and is also absorbed from a typical diet. Oxalate is present in many foods, especially healthy foods like plants, including green leafy vegetables, fruits and nuts, because plants utilize oxalate to store calcium. Oxalate does not have a known productive role in normal human physiology. Humans lack the innate capacity to digest oxalate, and oxalate is largely excreted unchanged by the kidney in the urine. In addition, bacteria in the GI tract, especially Oxalobacter formigenes, play a variable role in degrading oxalate in some patients. Progressively elevated levels of oxalate in the urine increase the risk for kidney stones and other serious kidney diseases.

Hyperoxaluria is a serious metabolic disorder characterized by markedly elevated levels of urinary oxalate excretion, due to either overproduction of oxalate by the liver from a genetic defect, called primary hyperoxaluria, or from over absorption of oxalate from the diet, called secondary hyperoxaluria. Secondary hyperoxaluria often leads to recurrent and frequent kidney stones, placing this patient population at higher risk for CKD, and end-stage renal disease, or ESRD. Secondary hyperoxaluria is further characterized either as enteric, resulting from a chronic and unremediable underlying GI disorder associated with malabsorption, or idiopathic, meaning the underlying cause is unknown. Enteric hyperoxaluria is the more severe type of secondary hyperoxaluria since the underlying GI disorder predisposes patients to chronic excess oxalate absorption. Given this hyperabsorption, patients with enteric hyperoxaluria can have levels of urinary oxalate excretion comparable to patients with primary hyperoxaluria.

The diagnosis and subsequent management of hyperoxaluria are typically based on measurements of oxalate levels in samples of urine voided and collected over a full 24 hour period, referred to as 24 hour urinary oxalate excretion. Hyperoxaluria is generally defined as levels of urinary oxalate excretion greater than 40 mg/24 hour at ages beyond infancy. While there is no firmly established level of urinary oxalate excretion that results in kidney stone formation, the scientific literature suggests that sustained urinary oxalate excretion above 30-40 mg/24 hour increases the risk of stone formation and that higher baseline urinary oxalate excretion is predictive of future stone events. Independent academic studies have shown that an increase in urinary oxalate excretion of approximately 10 mg/24 hour can increase the risk of significant adverse kidney complications. We consider severe hyperoxaluria as having levels of oxalate in the urine greater than 50 mg/24 hour. For example, the average urinary oxalate excretion level at baseline for the subjects with enteric hyperoxaluria in our most recently completed Phase 2 clinical trial was 103 mg/24 hour. Analysis of data from our clinical trials and multiple independent studies, including, but not limited to, peer-reviewed academic studies published in Nephron in 1980, The New England Journal of Medicine in 1994 and 2002, Kidney International in 2006 and 2008, the Urology Journal in 2011, the Clinical Journal of the American Society of Nephrology in 2016 and, most recently, the Journal of the American Society of Nephrology Abstract Supplement in 2017, suggest that a therapeutic strategy that reduces urinary oxalate excretion per 24 hours by approximately 20% could result in a 25-50% reduction in the incidence of kidney stone recurrence (in the short term) and may increase renal survival (in the long term).

 

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Conceptual Rendering of Hyperoxaluria and Associated Kidney Complications

 

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* The complications noted in the figure represent a general progression of kidney harm and disease associated with increasing urinary oxalate excretion levels. Not all patients experience this progression and there is considerable variability among individuals between urinary oxalate excretion levels and kidney function and disease.

Secondary Hyperoxaluria

Secondary hyperoxaluria, or increased urinary oxalate excretion resulting from excess absorption of oxalate from the GI tract, falls into two categories:

 

    Enteric, the more severe form of secondary hyperoxaluria, which results from an underlying chronic and unremediable GI disorder; and

 

    Idiopathic, which has no known cause. Some patients with idiopathic hyperoxaluria can have severe disease characterized by hyperabsorption of oxalate with manifestations similar to enteric patients.

Enteric hyperoxaluria is most commonly seen as a complication of malabsorptive bariatric surgical procedures, such as Roux-en-Y gastric bypass, and can also be related to inflammatory bowel disease, such as Crohn’s disease, or other conditions associated with GI malabsorption, including cystic fibrosis, pancreatic insufficiency, celiac disease or short bowel syndrome following surgical resection of the bowel. Enteric hyperoxaluria is the more severe type of secondary hyperoxaluria since the underlying GI disorder predisposes patients to chronic excess oxalate absorption. Given this hyperabsorption, patients with enteric hyperoxaluria can have markedly high levels of urinary oxalate excretion that can result in recurrent kidney stones, progressive calcium oxalate (CaOx) deposits in the kidney, or nephrocalcinosis, systemic oxalosis, CKD and ESRD. We estimate there are approximately 200,000 to 250,000 patients in the United States with enteric hyperoxaluria and kidney stones. We plan to target this market initially. We believe that a therapeutic agent that reduces urine oxalate levels in this population could be commercialized into a potential multi-billion dollar U.S. market without any approved therapies at present.

Idiopathic hyperoxaluria has no known underlying cause and patients with the disorder exhibit varying levels of oxalate absorption from their diet. A number of physiological parameters influence the absorption of dietary oxalate, including intestinal pH and transit time, type of diet, and the amount of other compounds and elements, such as calcium and magnesium, present in the GI tract. Consequently, a subgroup of patients with idiopathic hyperoxaluria hyperabsorbs oxalate from their diets at levels similar to those patients with enteric hyperoxaluria.

 

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Primary Hyperoxaluria

Primary hyperoxaluria, a type of severe hyperoxaluria, is a rare genetic disorder that can result in kidney stone disease, kidney damage, and kidney failure, which may lead to death. Primary hyperoxaluria has three main types, PH1, PH2, and PH3, with each categorization representing the particular genetic enzyme deficiency that drives the overproduction of oxalate, mainly in the liver, and massive excretion of oxalate in the urine. The most severe and common type of primary hyperoxaluria is PH1. These patients typically develop recurrent kidney stones with progressive nephrocalcinosis and end stage renal disease by 20-30 years of age. Among patients with primary hyperoxaluria, about 50 percent will have kidney failure by age 15, and about 80 percent will have kidney failure by age 30. Primary hyperoxaluria is estimated to affect approximately 1 in 58,000, or approximately 5,000 patients in the United States, and approximately 0.1 in 10,000 people, or approximately 5,000 patients in the Europe with no currently approved therapies.

Hyperoxaluria—Patient Journey and Progression of Disease

The first clinical manifestation of hyperoxaluria is often a kidney stone; however, the disorder can be variable in its presentation. Patients with severe hyperoxaluria may have recurrent kidney stones or experience infrequent or no kidney stones, yet still develop CKD and ESRD, which can be fatal. The risk for kidney stones increases with progressively elevated levels of urinary oxalate excretion. Up to 80% of kidney stones contain oxalate; therefore hyperoxaluria is a primary driver of kidney stones and reducing urinary oxalate is a scientifically targeted approach to prevent kidney stone episodes. Patients experiencing a kidney stone typically go to the emergency room for treatment due to the intense physical pain, as the kidney stone may take hours to days to pass or require interventional surgical procedures to remove it if it is too large to pass on its own. Kidney stones affect approximately 1 in 11 people in the United States at some point in their lives and the likelihood of recurrence has been estimated to be as high as 50% within 5 years of the initial event. Based on a project completed in 2016 by Health Advances, a strategic consulting firm for the healthcare industry that we engaged to conduct market research, approximately 5 million patients have been affected by recurrent calcium oxalate kidney stones in the United States.

Given the debilitating and recurrent nature of kidney stones, patients suffering from recurrent kidney stones bear significant social and financial burdens and are therefore highly motivated to prevent further relapse. Patients with enteric hyperoxaluria tend to have more frequent and more complicated kidney stone episodes and other kidney disorders as a result of their underlying GI disorders and predisposition to chronic excess oxalate absorption. For example, an additional project completed by Health Advances for us in 2017, which included analysis of peer-reviewed academic studies in two patient populations with GI malabsorption (Roux-en-Y gastric bypass and short bowel syndrome), suggested that these patients had a significantly higher kidney stone risk and rate of kidney stone recurrence than the general population of patients with kidney stones. They also had a significantly higher rate of intervention to remove kidney stones. In addition, in our largest Phase 2 clinical trial of ALLN-177 in secondary hyperoxaluria, 94% of the subjects with enteric hyperoxaluria had experienced at least one kidney stone; the enteric patients also had an average of > 3 kidney stones (> 2 mm in size) visible by routine CT scan at baseline. Based upon a separate analysis of claims data obtained from Truvan Health Analytics, part of the IBM Watson Health business, we estimate that enteric hyperoxaluria patients with new onset kidney stones, including those who have developed new onset CKD, on average incur approximately $66,000 annually in direct medical costs within a 4-year period after a malabsorptive procedure or disease diagnosis.

Further, people with kidney stones have a two times greater risk of CKD and ESRD and a higher risk of stroke and heart attack than the general population. Managing CKD and ESRD is complex as many metabolic factors, such as phosphorus, potassium and parathyroid hormone, are out of balance, often requiring treatment with multiple therapeutic agents. Patients who develop ESRD secondary to hyperoxaluria require frequent hemodialysis—approximately 6 or 7 times per week—with or without supplemental peritoneal dialysis while awaiting kidney transplantation to prevent or limit systemic oxalosis. Systemic oxalosis, which typically occurs in patients with primary or severe secondary hyperoxaluria and declining kidney function, refers to the presence

 

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of excess oxalate throughout the body, including the blood, bones, joints, eyes and heart. Elevated levels of oxalate in the blood is referred to as hyperoxalemia.

Patients with enteric hyperoxaluria are at risk for developing CKD, and those who receive a kidney transplant for ESRD due to oxalate-related kidney damage remain at risk for recurrent oxalate-related kidney damage. Primary and enteric hyperoxaluria patients with high urinary oxalate concentrations can develop nephrocalcinosis, which can lead to kidney failure.

Hyperoxaluria Current Treatment and Unmet Need

There is no approved pharmacologic therapy for the reduction of urinary oxalate excretion in patients with hyperoxaluria, either primary or secondary. Existing treatment options for hyperoxaluria generally are non-specific and include high fluid intake to increase urine output to more than two to three liters per day, a diet low in salt and oxalate, oral citrate and/or calcium and/or magnesium supplementation and, exclusively for the subset of responsive patients with the most severe form of primary hyperoxaluria (PH1), orthophosphate and Vitamin B6 supplementation. Despite these strategies, many patients continue to experience hyperoxaluria with recurrent kidney stones and continued risk for long-term kidney damage. Consequently, we believe patients afflicted with severe hyperoxaluria could greatly benefit from a therapy that reliably lowers oxalate levels in the body and therefore reduces the burden on the kidney to filter and then excrete the metabolite in the urine.

There are no FDA-approved therapies for enteric hyperoxaluria and no approved pharmacologic therapies specifically directed at reducing oxalate absorption driven by an underlying GI disorder. Current management of enteric hyperoxaluria relies on strategies to reduce dietary oxalate intake, increase calcium intake and drink large volumes of fluid. Increased oral fluid intake results in increased urine volume, with the goal of decreasing the saturation of oxalate in the urine and therefore reducing the risk of kidney stone formation and/or more severe kidney diseases. However, because patients with enteric hyperoxaluria have an underlying GI condition predisposing them to chronically hyperabsorb oxalate, this population often finds it particularly difficult to consistently ingest the quantities of fluid required to maintain adequate urine volume. In addition, recommendations for a low oxalate diet are somewhat in conflict with general recommendations for a healthy diet of largely plant-based foods. Many plants are high in oxalate, making it difficult to adhere to a low oxalate diet, given the relatively large number of healthy foods with moderate or high oxalate content. The limited medicinal options to treat calcium oxalate kidney stones, including thiazide diuretics and potassium citrate, have suboptimal efficacy, are not targeted to oxalate, and can be difficult to tolerate in patients with GI diseases.

We believe that ALLN-177 can address unmet medical needs for patients with severe hyperoxaluria, who experience recurrent kidney stones, CKD, end-stage renal disease and other serious kidney diseases. ALLN-177, if approved, would be the first therapeutic option that directly degrades oxalate in the GI tract using a mechanism of action specifically targeted to reducing excess absorption of oxalate.

Our Solution: ALLN-177

Our lead product candidate, ALLN-177, is a first-in-class, non-absorbed, orally-administered enzyme for the treatment of hyperoxaluria. ALLN-177, a crystalline formulation of the enzyme oxalate decarboxylase, has been designed to specifically degrade oxalate into formate and carbon dioxide within the GI tract, thus limiting systemic absorption of oxalate into the bloodstream. The decrease in systemic absorption reduces the burden on the kidney to filter and then excrete oxalate in the urine and, in turn, reduces the risk of kidney stones and other serious kidney diseases.

We are initially developing ALLN-177 for adult patients with enteric hyperoxaluria. As summarized in the table below, we have evaluated ALLN-177 in 113 subjects with secondary hyperoxaluria in three Phase 2 clinical trials, of whom 33 subjects had enteric hyperoxaluria, and a Phase 1 clinical trial with 33 healthy volunteers with

 

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diet-induced hyperoxaluria. Based on these data, particularly the significant reductions in urinary oxalate excretion observed in patients with enteric hyperoxaluria in our Phase 2 clinical program, we are in discussions with the FDA to finalize the design of our planned pivotal Phase 3 program. We expect to initiate the first of two Phase 3 clinical trials in the first quarter of 2018, with topline data anticipated in the second half of 2019.

In addition, the FDA has granted separate orphan drug designations for ALLN-177 for the treatment of primary hyperoxaluria and for the treatment of pediatric hyperoxaluria (primary and secondary hyperoxaluria). The European Commission has also granted orphan designation for ALLN-177 for the treatment of primary hyperoxaluria. In light of these designations, we are planning to initiate a Phase 2 clinical trial in the first quarter of 2018 in adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria, both of which can lead to systemic oxalosis, with interim data expected in the second half of 2018 and topline data anticipated in 2019.

Clinical Development Program

Overview

Since 2012, we have conducted a robust clinical development program of ALLN-177 in healthy volunteers and patients with secondary hyperoxaluria. As a result, we have developed key insights into hyperoxaluria, clinical trials in patients with hyperoxaluria and the activity and tolerability of ALLN-177 in this patient population. In our Phase 1 clinical trial in healthy volunteers, we demonstrated proof of concept that the GI tract could be used for reducing the renal oxalate burden, as measured by 24 hour urinary oxalate excretion. Our Phase 2 clinical program was designed to identify the optimal patient population, registrational endpoint and trial design for our planned pivotal Phase 3 program. In the aggregate, our clinical development program to date has demonstrated that:

 

    ALLN-177 can substantially reduce urinary oxalate excretion in patients with enteric hyperoxaluria;

 

    ALLN-177 has been well-tolerated, with no drug-related serious or severe adverse events; and

 

    the effect of ALLN-177 was specific to oxalate, with minimal to no changes in non-oxalate urine parameters.

The table below summarizes our clinical trial experience with ALLN-177 to date.

 

 

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Summary of Completed Phase 2 Clinical Trials

Study 713—Phase 2 Clinical Trial in Patients with Secondary Hyperoxaluria

We completed a multi-center, randomized, double-blind, placebo-controlled clinical trial to evaluate the safety and efficacy of ALLN-177 in patients with secondary hyperoxaluria. The enrollment criteria consisted of patients with either idiopathic or enteric hyperoxaluria with at least 50 mg/24 hour in urinary oxalate, or UOx, excretion at

 

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screening, most of whom had a history of kidney stones. We designed the trial to measure the ability of ALLN-177 to reduce UOx levels in this patient population, with additional planned analysis in subgroups of secondary hyperoxaluria. The primary endpoint was reduction in UOx excretion from baseline to Week 4. We specified key secondary endpoints including a measure of time-weighted average, or TWA, 24 hour UOx excretion over the four weeks of the trial and percent change in UOx excretion from baseline to Week 4. TWA 24 hour UOx excretion is the average of all 24 hour UOx excretion values obtained while on study drug (ALLN-177 or placebo), with each value weighted for the number of days since the last urine collection. We believe this measurement better captures the durability of metabolic control. We also performed various post-hoc analyses on the data.

In the trial, 71 subjects were randomized to receive either a 7,500 unit oral dose of ALLN-177 or placebo three times per day with meals, for 28 days. A total of 67 subjects received treatment (32 ALLN-177 and 35 placebo), and comprised the modified intent-to-treat and safety populations. Subjects with enteric hyperoxaluria accounted for 34% of the ALLN-177 group (11 subjects) and 20% of the placebo group (7 subjects). Subjects with idiopathic hyperoxaluria accounted for 66% of the ALLN-177 group (21 subjects) and 80% of the placebo group (28 subjects). On average, subjects with enteric hyperoxaluria had markedly higher UOx excretion levels at baseline (103 mg/24 hour) than the subjects with idiopathic hyperoxaluria (57 mg/24 hour), and despite consuming roughly half the amount of dietary oxalate as idiopathic subjects, their baseline UOx excretion levels were approximately twice as high.

Key efficacy results from this Phase 2 clinical trial included:

 

•  In the overall population, reduction in 24 hour UOx excretion from baseline to Week 4 (the primary endpoint of the trial) was greater in subjects treated with ALLN-177 (LS mean(1) = 8.75 mg/24 hour) compared to subjects who received placebo (LS mean = 2.40 mg/24 hour); however, the difference between treatment groups (LS mean = 6.35 mg/24 hour) did not reach statistical significance (p(2) = 0.160).

 

•  In the subgroup with enteric hyperoxaluria, reduction in 24 hour UOx excretion from baseline to Week 4 was substantially greater in subjects treated with ALLN-177 (LS mean = 21.31 mg/24 hour) compared to subjects who received placebo (LS mean = 4.86 mg/24 hour), and the treatment difference was LS mean = 16.45 mg/24 hour (p = 0.184). The magnitude of the treatment effect was substantially greater than what was observed in the overall population.

  

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(1)  LS mean, or least squares mean, is an average calculated based on a linear model that is adjusted for other terms, such as covariates, and is less sensitive to missing data.
(2)  A p-value is a conventional statistical method for measuring the statistical significance of clinical results. A p-value of 0.05 or less is generally considered to represent statistical significance, meaning that there is a less than 1-in-20 likelihood that the observed results occurred by chance.

 

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•  In the overall population, reduction in 24 hour UOx excretion from baseline to TWA across Weeks 1-4 (a key pre-specified secondary endpoint of the trial) was substantially greater in subjects treated with ALLN-177 (LS mean = 9.08 mg/24 hour) compared to subjects who received placebo (LS mean = 0.96 mg/24 hour), and the difference between treatment groups was LS mean = 8.13 mg/24 hour (p = 0.016).

 

•  In the subgroup with enteric hyperoxaluria, reduction in 24 hour UOx excretion from baseline to TWA across Weeks 1-4 was substantially greater in subjects treated with ALLN-177 (LS mean = 25.34 mg/24 hour) compared to subjects who received placebo (LS mean = +0.35 mg/24 hour), and the treatment difference was LS mean = 25.69 mg/24 hour (p = 0.018). As with the primary efficacy endpoint, the magnitude of the treatment effect was substantially greater than what was observed in the overall population.

  

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•  In the overall population, percent reduction in 24 hour UOx excretion from baseline to Week 4 (a pre-specified secondary endpoint of the trial) was greater in subjects treated with ALLN-177 (LS mean = 10.37%) compared to subjects who received placebo (LS mean = +5.45%), and the treatment difference was LS mean = 15.81% (p = 0.016).

 

•  In the subgroup with enteric hyperoxaluria, percent reduction in 24 hour UOx excretion from baseline to Week 4 was substantially greater in subjects treated with ALLN-177 (LS mean = 20.21%) compared to subjects who received placebo (LS mean = +16.03%), and the treatment difference was LS mean = 36.25% (p = 0.046). The magnitude of the treatment effect was substantially greater than what was observed in the overall population.

  

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•  In the overall population, percent reduction in 24 hour UOx excretion from baseline to TWA across Weeks 1-4 (a post-hoc analysis) was greater in subjects treated with ALLN-177 (LS mean = 5.10%) compared to subjects who received placebo (LS mean = +9.13%). The treatment difference was LS mean = 14.23% (p = 0.015)

 

•  In the subgroup with enteric hyperoxaluria, percent reduction in 24 hour UOx excretion from baseline to TWA across Weeks 1-4 was substantially greater in subjects treated with ALLN-177 (LS mean = 20.11%) compared to subjects who received placebo (LS mean = +19.04%), and the treatment difference was LS mean = 39.15% (p = 0.010). The magnitude of the treatment effect was substantially greater than what was observed in the overall population.

  

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    In the overall population, the proportion of subjects with a ³ 20% reduction in 24 hour UOx excretion from baseline to TWA across Weeks 1 to 4 (a post-hoc analysis) was greater in subjects treated with ALLN-177 (40.6%) compared to subjects who received placebo (8.6%), with an odds ratio(3), or OR, of 9.59 (p = 0.006).

 

    In the subgroup with enteric hyperoxaluria, as illustrated by the figure below, the proportion of subjects with a ³ 20% reduction in 24 hour UOx excretion from baseline to TWA across Weeks 1 to 4 was substantially greater in subjects treated with ALLN-177 (63.6%) compared to subjects who received placebo (14.3%), with an OR of 9.35 (p = 0.092).

 

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(3)  Odds ratio is a measure of association between an exposure and an outcome. The OR represents the odds that an outcome will occur given treatment with ALLN-177 compared to the odds of the outcome occurring in placebo subjects.

 

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Additional key findings:

 

    The trial demonstrated ALLN-177 to be well tolerated and all 32 subjects treated with ALLN-177 completed the trial. Treatment emergent adverse events, or TEAEs, were reported at a lower incidence in subjects receiving ALLN-177 (16 subjects or 50.0%) compared to subjects receiving placebo (22 subjects or 62.9%). The incidence of TEAEs that were considered related to the study drug was also lower in subjects treated with ALLN-177 (9.4%) compared with subjects who received placebo (22.9%). Among subjects with enteric hyperoxaluria, TEAEs were also reported at a lower frequency in the ALLN-177 group (6 of 11 subjects, or 54.5%) compared with the placebo group (5 of 7 subjects, or 71.4%). Similar to the overall population, GI-related TEAEs (the most common type of adverse event) were reported at a lower frequency in the ALLN-177 group (3 of 11 subjects, or 27.3%) compared with the placebo group (3 of 7 subjects, or 42.9%). While two subjects in the placebo group experienced TEAEs (nausea and dermatitis) that led to withdrawal from the trial, there were no TEAEs that led to withdrawal from the trial among the subjects treated with ALLN-177. There were no deaths, severe or serious adverse events, or SAEs, reported during the trial. There were no clinically important changes in laboratory values, vital signs or physical examinations.

 

    We observed intra-individual variability in UOx excretion that may have arisen from changes in diet, metabolic activity, hydration status or other factors. Consequently, we believe TWA UOx excretion per 24 hours over the study period is a clinically meaningful endpoint because it reflects the physiological effect of metabolic control of UOx excretion over time and dampens the effect of intra-individual variability in 24 hour UOx excretion. There have been several approved metabolic disease therapies that utilized a TWA measure as the endpoint for their pivotal clinical program.

 

    The effects of ALLN-177 were observed to be highly specific to oxalate, as there were minimal to no changes in other non-oxalate urine parameters, such as calcium, citrate, sodium and urinary volume, between baseline and Week 4 in subjects on ALLN-177.

 

    We observed from diet recall data that subjects with enteric hyperoxaluria consumed on average more than three meals per day and more than two snacks per day. On average, they consumed 28% of their total daily oxalate intake from snacks, with snacks accounting for 40-50% of daily oxalate intake in some subjects. In the trial, subjects received either a 7,500 unit oral dose of ALLN-177 (22,500 units/day) or placebo three times per day with meals. As a result of their eating patterns, subjects in the subgroup with enteric hyperoxaluria therefore consumed a significant portion of their daily oxalate intake without treatment. Patients with enteric hyperoxaluria often have individualized dietary patterns, particularly patients following bariatric surgery, who are typically advised to eat frequent, smaller meals. These data informed our plans to tailor the dosing regimen in our planned pivotal Phase 3 clinical program for patients with enteric hyperoxaluria in order to maximize the therapeutic effect of ALLN-177. We plan to dose subjects in our Phase 3 clinical program with 7,500 units of ALLN-177 with each meal and/or snack, up to five times per day (up to 37,500 units/day). This dosing regimen is consistent with the eating patterns of patients with enteric hyperoxaluria and is designed to provide ALLN-177 at most meals and snacks in order to maximize the degradation of oxalate ingested.

This trial was the largest randomized controlled trial ever conducted in hyperoxaluria and key elements will serve as the blueprint for our planned pivotal Phase 3 program. Although the trial did not achieve the primary efficacy endpoint, we observed substantial reductions in UOx excretion in several key pre-specified secondary endpoints, particularly in patients with enteric hyperoxaluria. Moreover, due to observed variability in UOx excretion, we believe that an analytical approach based upon TWA most appropriately indicates the therapeutic effect of ALLN-177 in patients with enteric hyperoxaluria. In addition, we observed ALLN-177 to be well tolerated and highly specific to oxalate.

Study 396—Phase 2 Clinical Trial in Patients with Secondary Hyperoxaluria

We conducted a proof of concept clinical trial in patients with secondary hyperoxaluria. This trial was a multi-center, open-label, single arm trial to evaluate the safety and efficacy of ALLN-177 treatment in 16

 

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patients with secondary hyperoxaluria and kidney stones, many of whom were receiving treatment in kidney stone clinics to manage kidney stone disease (e.g. low oxalate diet and high oral fluid intake, thiazide diuretics and potassium citrate). In the trial, all subjects were treated with a 7,500 unit oral dose of ALLN-177 three times per day with meals for four days.

Key results from this Phase 2 clinical trial included:

 

    Subjects had an average reduction in UOx excretion of 13.92 mg/24 hour (p = 0.0084). The five subjects with enteric hyperoxaluria experienced a substantially greater average reduction in UOx excretion of 22.01 mg/24 hour as illustrated by the chart below.

 

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    Overall, 11 of 16 subjects, or 69%, had some reduction in UOx excretion levels, in whom the mean reduction was 23%.

 

    The reduction in 24 hour UOx excretion was correlated with baseline UOx, demonstrating that subjects with higher UOx excretion levels at baseline showed greater reduction in UOx levels after taking ALLN-177, as shown in the figure below.

 

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    The trial demonstrated ALLN-177 to be well tolerated. No deaths, SAEs, or other significant adverse events occurred in this trial. No subject was withdrawn from the study due to an adverse event. There were no clinically significant hematology or serum biochemistry abnormal values reported during the trial.

Study 649—Phase 2 Clinical Trial in Patients with Secondary Hyperoxaluria

We conducted a randomized, double-blind, placebo-controlled, crossover trial with an adaptive design to evaluate the efficacy and safety of three different doses of ALLN-177 compared with placebo, administered for seven days, in subjects with kidney stones and secondary hyperoxaluria. Subjects were randomized to treatment sequences in a crossover fashion. A crossover trial is a longitudinal study in which subjects receive a sequence of different treatment arms during the course of the trial. Each treatment sequence consisted of two seven-day treatment periods separated by a seven-day washout period. Throughout the trial, each subject participated in two of the four treatment arms, which included a 1,500 unit oral dose of ALLN-177, a 3,000 unit oral dose of ALLN-177, a 7,500 unit oral dose of ALLN-177 or placebo, with meals three times a day. A total of 32 subjects were randomized; two subjects were not treated, resulting in a total of 30 subjects included in the analyses.

Randomization in the ALLN-177 low and mid-dose groups was halted after the first Adaptive Design Review Committee review of data on the first 12 subjects, resulting in only a small number of subjects in those two groups. The trial stopped enrolling in July 2016 following the second planned interim analysis once 24 subjects’ data were available, due to the inability to differentiate among the treatment arms.

A post-hoc evaluation of the data was conducted to attempt to determine factors which may have influenced the inability of ALLN-177 to demonstrate a statistically significant difference from placebo. While no clear factor was identified to account for the lack of differentiation between ALLN-177 and placebo, we believe the lack of effect may have been due to variability in dietary oxalate ingestion, measurement of UOx excretion and the complexities inherent in the short-cycle, crossover study design.

All three doses of ALLN-177 were well tolerated in this study. No deaths, SAEs, or other significant AEs occurred. One subject who received the 1,500 unit oral dose of ALLN-177 per meal three times per day experienced an SAE after the seven-day washout period during the first dosing day of ALLN-177 at the 7,500 unit oral dose that led to withdrawal from the trial. The event was considered not related to study drug by the investigator. No other subjects withdrew due to a TEAE during the trial.

Summary of Planned Pivotal Phase 3 Program and Regulatory Pathway

We are in discussions with the FDA to finalize the design of our Phase 3 clinical program for ALLN-177 in adult patients with enteric hyperoxaluria. We currently expect that this pivotal program will consist of two randomized, double-blind, placebo-controlled clinical trials evaluating efficacy and safety of ALLN-177 in adult patients with enteric hyperoxaluria and UOx ³ 50 mg/24 hours, one conducted primarily in the United States, and the other globally in the United States, Canada, Europe and potentially other geographies. We expect to enroll approximately 125 patients in the first of these two Phase 3 clinical trials, or Study 301, which trial we expect will randomize patients to four weeks of treatment with either ALLN-177 or placebo. We expect the second trial, or Study 302, will enroll approximately 400 patients and will randomize patients for a minimum of 24 weeks of treatment with either ALLN-177 or placebo. We believe that a safety database of approximately 650 subjects in our ALLN-177 development program, including approximately 400 subjects exposed to ALLN-177, including approximately 100 of whom will be exposed for 1 year, inclusive of subjects enrolled in our prior clinical trials and approximately 525 subjects expected to be enrolled in our Phase 3 program, will be sufficient to support our planned biologic license application, or BLA, assuming favorable results in our pivotal Phase 3 clinical program. Subject to further discussion with the FDA, we currently expect to initiate Study 301 in the first quarter of 2018, with topline data anticipated in the second half of 2019. Further, we currently expect to initiate Study 302 in the second half of 2018, with data available in the second half of 2020. For a discussion about the risks related to our

 

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planned pivotal Phase 3 clinical program, please see “Risk Factors—Risks Related to Drug Development, Regulatory Approval and Commercialization,” including, but not limited to, the specific risk factors titled “We have not yet finalized the design of our pivotal Phase 3 clinical program for ALLN-177…before we can submit a BLA for this product candidate.” and “We may attempt to secure approval from the FDA…withdraw accelerated approval.”

In addition, we have conducted scientific advisory meetings with regulatory authorities in select countries within the European Union, in order to discuss the results of our Phase 2 clinical program, our proposed pivotal Phase 3 program as described above and potential pathways for regulatory approval of ALLN-177 in Europe. Based on these meetings, we believe that our proposed Phase 3 program, if successful, could support the filing of a future MAA application in the European Union.

Finally, the Kidney Health Initiative, or the KHI, a public-private partnership established in 2012 by the American Society of Nephrology in collaboration with stakeholders in the renal community, including the FDA, recently endorsed a project on oxalate disorders. The project called, “Identification of Appropriate Endpoints for Clinical Trials in Hyperoxaluria”, was submitted by John C. Lieske, M.D., FASN, of the Mayo Clinic, in coordination with the Oxalosis and Hyperoxaluria Foundation. The Oxalosis and Hyperoxaluria Foundation is an organization dedicated to the awareness, understanding and treatment of hyperoxaluria and oxalosis for healthcare professionals, patients and their families. A stated key deliverable of the KHI project is a document that summarizes consensus recommendations regarding appropriate biochemical endpoints for clinical trials in hyperoxaluria.

Summary of Completed Phase 1 Clinical Trial—Study 183

We completed a single-center, double-blind, randomized, placebo-controlled crossover Phase 1 clinical trial to evaluate the safety and provide initial proof of concept of activity of ALLN-177 in healthy volunteers. We fed 33 healthy adult subjects an oxalate-rich diet in order to induce transient dietary hyperoxaluria. Each subject then received either a 7,500 unit oral dose of ALLN-177 or placebo three times per day with meals for seven days while continuing on the oxalate-rich diet. The high-oxalate diet increased baseline UOx excretion per 24 hours from a mean of 27.2 mg/24 hour to a mean 80.8 mg/24 hour. ALLN-177 demonstrated significantly reduced UOx excretion with a mean reduction of11.54 mg/24 hour compared to placebo (p = 0.0002). The mean reduction in the 18 of 30 subjects, or 60%, defined as responders (i.e. those who had > 5 mg/24 hour reduction in UOx excretion) was 20 mg/24 hour. No deaths, SAEs, or other significant AEs occurred during this trial, and no differences in the pattern of TEAEs were observed while on ALLN-177 or placebo.

Summary of Preclinical Studies

We have completed a series of preclinical studies to assess the pharmacology and toxicology of ALLN-177. Based on the results from these studies, which demonstrated, among other things, that ALLN-177 remains in the GI tract and is not systemically absorbed, we believe the preclinical program for ALLN-177 is substantially complete.

Pharmacology Studies

We have conducted an extensive pharmacology program consisting of a total of nine rodent and pig studies of ALLN-177. Our pharmacology studies provided confirmation of our hypothesis that orally administered oxalate decarboxylase, the active enzyme in ALLN-177, can reduce or normalize UOx levels by degrading both endogenously produced and dietary oxalate in rodent and pig models of hyperoxaluria and kidney damage. The pharmacology program for ALLN-177 includes five studies in rodent models of primary and enteric hyperoxaluria (e.g. Roux-en-Y gastric bypass, or RYGB bariatric surgery) and four in pig dietary models of severe and enteric hyperoxaluria, designed to mimic these disorders in humans. Results of these preclinical studies demonstrated that ALLN-177 was well tolerated and reduced or normalized UOx excretion in a dose-dependent manner in all forms of hyperoxaluria.

 

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The initial pharmacology studies were completed in rodent models of primary hyperoxaluria (e.g. genetic model) and enteric hyperoxaluria (e.g. genetic and surgical models). In the primary hyperoxaluria mouse model, oxalate decarboxylase, the active enzyme in ALLN-177, was shown to be capable of acting on endogenously produced oxalate and to reduce urinary oxalate levels in a dose-dependent manner, preventing nephrocalcinosis, maintaining creatinine clearance (an important measure of kidney function) and increasing survival. In the RYGB rat model, oxalate decarboxylase reduced urine oxalate in a dose dependent manner and normalized UOx excretion.

Based on the results from testing oxalate decarboxylase in the rodent models, we and our scientific collaborators developed a pig model of hyperoxaluria to further assess the therapeutic and tolerability effects of different doses and formulations of ALLN-177, all in an effort to inform and de-risk our clinical development program in patients with hyperoxaluria. These studies were conducted in pig models of hyperoxaluria since, at the functional level, humans and pigs share many similarities with regard to kidneys, the urinary tract and the GI tract. The pig studies demonstrated that ALLN-177, administered orally with meals, reduced UOx excretion by degrading oxalate in the GI tract. Treatment was well tolerated, and resulted in mean reduction in UOx of between 12-30% relative to the control group. We observed the reduction in UOx excretion to be correlated with the severity of hyperoxaluria and treatment dose. More specifically, in a pig model where severe hyperoxaluria and hyperoxalemia were induced with an infusion of potassium oxalate salt, ALLN-177 reduced hyperoxalemia and prevented further impairment of kidney function. Finally, in a pig model where chronic dietary hyperoxaluria was induced by a human-like high oxalate diet, resulting in an above-normal increase in plasma oxalate levels, we observed that therapy with ALLN-177 normalized both plasma and urinary oxalate levels as illustrated in the figure below.

 

 

LOGO

Taken together, these studies support the potential efficacy and mechanistic rationale of ALLN-177 as a novel and thus far well-tolerated treatment for reducing hyperoxaluria, hyperoxalemia, and progressive nephrocalcinosis and CKD in patients with either primary or secondary hyperoxaluria. They provide in vivo mechanistic confirmation that supports our proposed pivotal Phase 3 clinical program in adults with enteric hyperoxaluria and our planned Phase 2 clinical trial in adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria, both of which can lead to systemic oxalosis. In addition, these preclinical studies were submitted as scientific evidence to demonstrate the proof of concept for ALLN-177 as a treatment for primary hyperoxaluria, which led to the orphan drug designations for ALLN-177 for the treatment of primary hyperoxaluria by the FDA and the European Commission.

 

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Toxicology Studies

To support our clinical development program of ALLN-177, we conducted a total of six toxicity studies in rats and dogs. These studies demonstrated that ALLN-177 was well tolerated in animals. We conducted our first two studies which demonstrated that oral administration of ALLN-177 for 14 days was well tolerated in animals at doses up to 200 mg/kg/day (which corresponds to 2,000 units/kg/day). We also performed an additional 2-week repeated dose toxicology study of ALLN-177 in rats at doses up to 4,860 units/kg/day, approximately 13 times the dose used in our Phase 1 clinical trial of ALLN-177, for a 60 kg subject.

To support clinical trials of longer duration, we conducted two 28-day repeat-dose toxicology studies in rats and dogs. These studies demonstrated that twice-daily oral administration of ALLN-177 was well tolerated for 28 consecutive days at 520 mg/kg/day. The NOAEL, or no-observed-adverse-effect-level, or highest concentration of drug which caused no detectable adverse effect, was 7,000 units/kg/day in both species. This concentration was approximately 18 times the highest dose used in Study 713, our 28-day Phase 2 clinical trial, for a 60 kg subject.

We have also completed a six month chronic toxicology study of ALLN-177 in rats. It demonstrated that twice-daily oral administration of ALLN-177 was well tolerated for 26 consecutive weeks at 520 mg/kg/day (6,618 units/kg/day) with the NOAEL approximately 11 times greater for a 60 kg subject than we expect to use in our planned pivotal Phase 3 clinical program. In each study, the NOAEL was the highest dose evaluated in that particular study.

Based on the results from these studies, which demonstrated, among other things, that ALLN-177 is not systemically absorbed, and feedback from the FDA, we believe the preclinical program for ALLN-177 is substantially complete, and no carcinogenicity, genotoxicity, or reproductive toxicity studies are planned.

In connection with our preparations for our planned pivotal Phase 3 clinical program, we are considering the best mechanism to study the potential for drug-drug interactions in patients treated with ALLN-177 and also the potential effects of formate generation resulting from ALLN-177’s degradation of oxalate. Based on feedback from the FDA, we plan to conduct an in vitro assessment to evaluate the potential for systemic drug interactions. Based on extensive scientific evidence, we believe that the level of formate generation derived from ALLN-177 and oxalate is below limits generally regarded as safe. We are developing a plan to investigate these two items. The nature of additional studies, if any, will be determined by the results of these initial investigations.

Summary of Planned Phase 2 Clinical Program for ALLN-177 in Primary and Severe Hyperoxaluria

Our preclinical pharmacology studies in models of primary hyperoxaluria have demonstrated that ALLN-177 significantly reduced oxalate levels in the urine and plasma. The FDA has granted separate orphan drug designations for ALLN-177 for the treatment of primary hyperoxaluria and for the treatment of pediatric hyperoxaluria (primary and secondary hyperoxaluria). The European Commission has also granted orphan designation for ALLN-177 for the treatment of primary hyperoxaluria. In light of these designations, we are planning to initiate a Phase 2 clinical trial in the first quarter of 2018 in adolescents and adults with primary hyperoxaluria or severe forms of secondary hyperoxaluria, both of which can lead to systemic oxalosis, with interim data expected in the second half of 2018 and topline data anticipated in 2019.

Systemic oxalosis refers to the presence of excess oxalate throughout the body, including the bones, joints, eyes and heart, which occurs when the kidney fails to excrete oxalate from the body, leading to elevated oxalate levels in the blood and deposition in the tissues. Our planned Phase 2 clinical trial will utilize an open-label basket trial design with a 12-week treatment period and will enroll subsets of patients suffering from complications of severe hyperoxaluria, including adults and adolescents with primary hyperoxaluria or enteric hyperoxaluria. More specifically, we plan to enroll subjects ³12 years of age with primary or enteric hyperoxaluria, approximately 50% each, screened for baseline UOx excretion greater than 40 mg/24 hr and

 

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plasma oxalate levels greater than 5 µmol/L. Since these patients typically have varying degrees of renal impairment, such as CKD, dialysis patients will be allowed, but limited to approximately 25% of total enrollment as extensive tissue oxalate deposition may obscure a potential signal of lowering plasma oxalate levels. We expect that the endpoints will include change from baseline in plasma oxalate and UOx excretion. A peer-reviewed study published in the New England Journal of Medicine in 1994 demonstrated that treatment with orthophosphate and Vitamin B6 in a subset of patients with primary hyperoxaluria reduced UOx excretion by approximately 10% annually over 10 years, which showed preservation of renal function in these patients. In light of this data, we believe that the ability of ALLN-177 to degrade oxalate in the GI tract to prevent systemic oxalate absorption and therefore decrease the renal oxalate burden is well suited for testing in this patient populations. If ALLN-177 can reduce urine and plasma oxalate levels in these patients, it may be able to diminish the amount of systemic oxalate available for calcium oxalate crystal formation and deposition in the kidney and other organs or tissues.

Other Potential Indications for ALLN-177—Idiopathic Hyperoxaluria

We believe the mechanism of action of ALLN-177, which is designed to degrade oxalate in the GI tract, is particularly well-targeted to treat enteric hyperoxaluria where excess oxalate absorption is driven by an underlying GI disorder. While hyperabsorption of oxalate is typically a characteristic of enteric hyperoxaluria, we believe there is a subgroup of patients with idiopathic hyperoxaluria that hyperabsorbs oxalate from their diets at levels similar to those patients with enteric hyperoxaluria. We confirmed these pathophysiological traits in both enteric and idiopathic patients in a prospective controlled clinical trial designed to identify patients who hyperabsorb oxalate (Study 204) in 22 patients with secondary hyperoxaluria, with no study drug administration. Although subjects with enteric hyperoxaluria had greater average oxalate absorption than the subjects with idiopathic hyperoxaluria, approximately 40% of the subjects with idiopathic hyperoxaluria approached absorption levels observed in subjects with enteric disorders. Consequently, although we are initially targeting ALLN-177 for patients with enteric hyperoxaluria, we believe the product candidate holds promise in treating the subset of patients with idiopathic hyperoxaluria who hyperabsorb oxalate.

ALLN-346

Overview of Hyperuricemia & Gout

Hyperuricemia, or elevated levels of uric acid in the blood, results from overproduction or insufficient excretion of urate, or often a combination of the two. Humans lack urate oxidase, an enzyme that degrades uric acid in a wide range of other organisms, including animals, plants, bacteria and fungi. Hyperuricemia can be a predisposing condition for gout and kidney stones, and is also intricately linked with various metabolic disorders, including hypertension, CKD, glucose intolerance, dyslipidemia, insulin resistance and obesity. Hyperuricemia may also be an independent risk factor for cardiovascular disease.

Gout is a kind of arthritis caused by excess uric acid in the blood. When uric acid levels in the blood are too high, hard crystals may form in the joints, causing attacks of sudden burning pain, stiffness, and swelling. These attacks can happen over and over unless gout is treated. Over time, they can harm joints, tendons, and other tissues.

Current Therapeutic Options and Their Limitations

The gout market is incompletely served by existing therapies. Several of the current drugs approved for gout raise concerns over lack of efficacy or increased toxicity in patients with reduced kidney function. There are approximately 850,000 hyperuricemia patients with moderate to severe CKD on urate lowering therapy of which approximately 375,000 have uncontrolled gout. Hyperuricemic and gout patients with renal impairment are more challenging to manage due to limitations of existing therapies. These limitations include poor tolerability, reduced efficacy, dose restriction and contraindications. Co-morbidities (e.g. cardiovascular disease) are common in this patient population and may also limit urate lowering therapeutic options. Accordingly, there is a significant unmet need for a safe and effective therapy that can be used in patients with renal impairment.

 

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Our Solution

Our second product candidate, ALLN-346, is designed to be a first-in-class, orally-administered non-absorbed urate-degrading enzyme. ALLN-346 is a recombinant, mutant formulation of urate oxidase designed to be active in humans and have greater stability and/or activity than naturally occurring enzymes. We have developed ALLN-346 to degrade urate in the GI tract and in turn, reduce the urate burden on the impaired kidney and lower the risk of urate related complications, including gouty flares and arthritis and urate-based stones in the kidney, bladder and/or urinary tract. We are initially targeting ALLN-346 for patients with hyperuricemia and moderate to severe CKD, where currently available therapeutics are insufficient. Data from prior animal studies of an unmodified urate oxidase enzyme demonstrated normalization of plasma uric acid similar to allopurinol, a drug commonly prescribed for gout patients. We expect to initiate a preclinical proof of concept study for ALLN-346 in hyperuricemia animal models in the fourth quarter of 2017. Subject to the successful outcome of this study and other customary toxicology preclinical studies, we expect to file an IND for ALLN-346 in the first half of 2019.

Our Proprietary Technological Approach

Expertise in Enzyme Technology

We believe our proprietary know-how in enzyme technology allows us to design, formulate and deliver non-absorbed and stable enzymes orally and in sufficient doses for activity in the GI tract. This approach enables us to develop enzyme therapies that degrade metabolites, such as oxalate and urate, within the GI tract, thereby preventing their absorption, which reduces potentially toxic metabolite levels in the blood and urine, and in turn, diminishes the disease burden on the kidney over time.

One of the technologies that we use in our lead product candidate, ALLN-177, is protein crystallization, which stabilizes a highly active form of the oxalate degrading enzyme, oxalate decarboxylase, ensuring effective transit through the GI tract, as well as stabilization at room temperature for convenient storage. Crystallized enzymes are more stable, pure and concentrated than enzymes in solution. For example, one enzyme crystal may contain several billion molecules of the underlying enzyme. These characteristics improve storage and delivery, permitting delivery of the enzyme molecules with fewer capsules. Once an enzyme is in the crystallized state, we can formulate it for oral delivery. Within the GI tract, the crystalized enzyme is stable and protected from proteolytic degradation, yet sufficiently porous for metabolites to pass through and be degraded by the enzyme. 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. For example, Renagel and Renvela, marketed by Sanofi, remove excess levels of phosphate in the body in patients with CKD by delivering drug to the GI tract, where it binds to phosphate and removes it from the body through the bowel.

Our knowledge base from ALLN-177 provides us with a useful template for our other research and preclinical programs that rely on the same fundamental science and therapeutic strategy. We anticipate that our second product candidate, ALLN-346, a first-in-class uricase enzyme, will utilize several proprietary technologies to ensure its stabilization in the GI tract as well as other attractive manufacturing, clinical and commercial attributes similar to ALLN-177.

Manufacturing

ALLN-177 is an oral, solid dosage form of crystalline recombinant oxalate decarboxylase enzyme that is produced using a combination of traditional and novel manufacturing processes. The methods of production for ALLN-177 have been carefully selected for cost-effectiveness and ease of scaling. We believe our manufacturing technology enables us to produce large quantities of our oral enzyme product candidates, sufficiently to support our clinical and commercial strategy, with costs anticipated to be comparable to small molecule therapeutics. Working in collaboration with top-tier development and manufacturing companies, we have completed several successive scale-ups to the manufacturing process in support of increasing clinical trial demand and in planning for commercialization.

 

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Manufacturing biologic drugs is generally a complex and cost intensive process because they are manufactured in living systems or cells and tend to be large complex molecules. Since the living systems used to produce biologics can be sensitive to minor changes in manufacturing techniques, small process differences can significantly affect the nature of the finished biologic and, most importantly, the way it functions in the body.

Production of ALLN-177 occurs utilizing scientifically developed know-how, delivering high productivity from host bacterial cells. The entire biomass is harvested and processed through primary recovery and downstream purification unit operations, resulting in the recovery of large quantities of oxalate decarboxylase. The purified and concentrated product is crystallized, dried into a protein powder and formulated for production as an oral capsule. The oral capsule presentation has attractive properties of pharmaceutical activity and stability suitable for further development and ultimate commercial use. Over the course of our development of ALLN-177, we have been able to increase enzyme yield and activity through improvements to our manufacturing processes, thereby reducing the pill burden of our therapeutic candidate. As a result, we expect that the dosing regimen for our planned pivotal Phase 3 program will be one to two capsules per dosing compared to five capsules per dosing in our Phase 2 clinical program.

Drug product production starts with dried oxalate decarboxylase crystals, then uses tailored pharmaceutical techniques to blend, densify and encapsulate the product candidate, which is an oral, solid-dose formulation of the crystallized enzyme. We have secured development and supply agreements with premiere global drug product contract manufacturing organizations suited to meet the needs of commercialization for ALLN-177. Finally, we forecast cost of goods sold for ALLN-177 to be comparable to traditional oral small molecules over the course of its commercialization life cycle.

Commercialization Strategy

We hold worldwide commercialization and development rights to all of our first-in-class, oral, non-absorbed enzyme therapeutic product candidates. The FDA has granted separate orphan drug designations for our lead product candidate, ALLN-177, for the treatment of primary hyperoxaluria and for the treatment pediatric hyperoxaluria (primary and secondary hyperoxaluria). In addition, the European Commission has granted orphan designation for ALLN-177 for the treatment of primary hyperoxaluria.

ALLN-177, if approved, has the potential to be the first therapeutic option for patients with severe hyperoxaluria. We intend to independently pursue regulatory approval of ALLN-177 in patients with enteric hyperoxaluria in the United States and, if approved, to commercialize the product by building a focused commercial organization in the United States specifically to target nephrologists and urologists who treat patients with hyperoxaluria, particularly at kidney stone clinics. In addition, we plan to build a marketing organization that will conceive and implement marketing strategies for any product that we directly commercialize. The responsibilities of the marketing organization would include developing commercialization initiatives for each approved product and establishing and maintaining relationships with researchers, practitioners and key opinion leaders for rare and severe metabolic and kidney disorders.

Outside of the United States, we intend to explore collaborations to commercialize our product candidates, including ALLN-177. Depending on our evaluation of these market opportunities and the strategic merits of these collaboration opportunities, we may decide to retain commercial rights in key markets.

Competition

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, biotechnology companies and specialty pharmaceutical companies. Key competitive factors affecting the commercial success of ALLN-177, 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.

 

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There is no approved pharmacologic therapy for the reduction of urinary oxalate excretion in patients with hyperoxaluria, either primary or secondary. Existing treatment options for hyperoxaluria generally are non-specific and include high fluid intake to increase urine output to more than two to three liters per day, a diet low in salt and oxalate, oral citrate and/or calcium and/or magnesium supplementation and orthophosphate and Vitamin B6, exclusively for the specific subset of responsive patients with the most severe form of primary hyperoxaluria (PH1).

We are aware of other companies pursuing oxalate reduction in both primary and secondary hyperoxaluria. Alnylam and Dicerna are developing injectable gene-silencing technologies using RNA, with product candidates focused on addressing primary hyperoxaluria. Both are in early-stage clinical development. Oxthera AB (Sweden) and Captozyme (U.S.) are developing orally delivered products to degrade oxalate in the stomach and GI tract. Oxthera is advancing Oxabact, Oxalobacter formigenes, into Phase 3 clinical trials for the treatment of primary hyperoxaluria.

Intellectual Property

We strive to protect the proprietary technologies that we believe are important to our business, including seeking and maintaining patents intended to cover the composition of matter of our product candidates, their methods of use and processes for their manufacture, and any other aspects of inventions that are commercially important to the development of our business. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

We plan to continue to expand our intellectual property estate by filing patent applications directed to compositions, methods of treatment, dosage forms, and dosage regimens that we identify during the course of our business. Our success will depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.

The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and patent scope can be reinterpreted by the courts after issuance. Moreover, many jurisdictions permit third parties to challenge issued patents in administrative proceedings, which may result in further narrowing or even cancellation of patent claims. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any or our issued patents will provide sufficient protection from competitors. Any of our patents may be challenged, circumvented, or invalidated by third parties.

Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months or potentially even longer, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interference proceedings or derivation proceedings declared by the U.S. Patent and Trademark Office, or the USPTO, to determine priority of invention.

Patents

As of July 25, 2017, we own or have rights in 4 issued U.S. patents, 15 issued foreign patents, 4 pending U.S. patent applications, and 7 pending foreign patent applications.

 

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With regard to ALLN-177, we have exclusively licensed from Althea Technologies, Inc. (now known as Ajinomoto Althea, Inc.), or Althea, one issued U.S. patent with method of use claims directed to the reduction of oxalate in a mammal by orally administering a composition containing uncrosslinked oxalate decarboxylase crystals, which is scheduled to expire in 2027, without taking a potential patent term extension into account. This U.S. patent belongs to a family of patents and includes a granted European patent, which has been validated in a number of countries including Denmark, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland, and the UK; and patent applications pending in Canada and China. This patent family also includes a U.S. patent with method of use claims directed to a method of reducing oxalate with oxalate decarboxylase crystals in an extracorporeal device, which is scheduled to expire in 2027, without taking a potential patent term extension into account.

In addition, we own one pending U.S. application with composition of matter claims directed to a pharmaceutical composition comprising biologically active uncrosslinked oxalate decarboxylase crystals, which, if granted, would be scheduled to expire in 2027, without taking a patent term extension into account. We also own one U.S. patent with composition of matter claims directed to a capsule containing crystals of spray-dried oxalate decarboxylase, which is scheduled to expire in 2034, without taking a potential patent term extension into account.

Another family of patent applications that we own are pending in the U.S., Canada, Europe, Israel and Japan with composition of matter claims directed to a composition comprising a peritoneal dialysis solution and uncrosslinked crystals of oxalate decarboxylase for use in reducing oxalate during a dialysis-based treatment, which, if granted, would be scheduled to expire in 2034, without taking a patent term extension into account.

With regard to ALLN-346, we own a U.S. provisional patent application with composition of matter claims directed to novel recombinant uricase enzymes and method of use claims directed to treating certain diseases associated with elevated levels of uric acid with such enzymes. A U.S. patent claiming the benefit of the provisional application, if issued, would be expected to expire in 2038, without taking a patent term extension into account.

In the United States, the term of a patent covering an FDA-approved drug may be eligible for a patent term extension under the Hatch-Waxman Act as compensation for the loss of patent term during the FDA regulatory review process. The period of extension may be up to five years beyond the expiration of the patent, but cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval. Only one patent among those eligible for an extension may be extended. Similar provisions are available in Europe and in certain other jurisdictions to extend the term of a patent that covers an approved drug. For example, it is possible that an issued U.S. patent covering ALLN-177 or its use may be entitled to a patent term extension. If ALLN-177 receives FDA approval, we intend to apply for a patent term extension, if available, to extend the term of a patent that covers the approved product. We also intend to seek patent term extensions in any jurisdictions where they are available, however, there is no guarantee that the applicable authorities, including the FDA, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions.

In addition to patent protection, we also rely on trade secret protection for our proprietary information that is not amenable to, or that we do not consider appropriate for, patent protection, including, for example, certain aspects of our manufacturing procedures. However, trade secrets can be difficult to protect. Although we take steps to protect our proprietary information, including restricting access to our premises and our confidential information, as well as entering into agreements with our employees, consultants, advisors and potential collaborators, third parties may independently develop the same or similar proprietary information or may otherwise gain access to our proprietary information. As a result, we may be unable to meaningfully protect our trade secrets and proprietary information.

 

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Althea License Agreement

In March 2012, we entered into a license agreement with Althea, as amended in March 2016, pursuant to which Althea granted us an exclusive, worldwide, royalty-bearing, sublicensable license under specified intellectual property rights relating to, among other things, oxalate decarboxylase and ALTU-237, now called ALLN-177, to develop, use, make, have made, market, offer to sell, sell, have sold, distribute, import or otherwise exploit licensed products. Althea expressly retains all rights under the licensed patents that are not granted to us under the agreement, which we refer to as Althea’s retained rights. We have the right to sublicense our licensed rights, provided that each sublicense agreement must be in writing and consistent with the terms of the license agreement. We are obligated to use commercially reasonable efforts to develop and commercialize the licensed products for the treatment of hyperoxaluria.

Under the license agreement, we reimbursed Althea for patent-related fees and costs totaling $0.1 million in the aggregate and have issued to Althea a total of 88,186 shares of our common stock. Althea is entitled to receive regulatory milestone payments totaling up to $31.0 million in the aggregate. We are also obligated to make additional payments to Althea of up to an aggregate of $25.0 million based upon the occurrence of certain sales milestones. Althea is entitled to receive mid-single-digit percentage royalties on net sales of licensed products, made by us, our affiliates, or our sublicensees, subject to certain reductions for any royalty payments required to be made by us to acquire patent rights, however, such royalty payments cannot be reduced below an aggregate minimum floor. The milestone payments are not creditable against royalties. The royalty term will expire on a licensed product-by-licensed product and country-by-country basis upon the later of the expiration of the last-to-expire valid patent claim that covers the composition, manufacture, or use of such licensed product in such country, or the tenth anniversary of the date of the first commercial sale of such licensed product in such country.

We have the first right, but not the obligation, to prosecute, defend, maintain and enforce certain product-specific patent rights licensed under the agreement, and Althea has the exclusive right to prosecute, defend, maintain and enforce all other licensed patent rights. If we are controlling any lawsuits regarding the licensed patents, we cannot enter into a settlement without the prior written consent of Althea. Any sums recovered in such lawsuits will be shared between us and Althea. Unless terminated earlier, the term of the license agreement will expire on date of the last-to-expire royalty term. We have the right to terminate the agreement for convenience upon 60 days prior written notice to Althea. Either party may terminate the agreement after a 60-day notice period in the event of an uncured material breach by the other party. If we terminate the agreement for convenience or if Althea terminates the agreement for cause, we grant Althea a right of first negotiation, exercisable for the 30-day period after such termination, to obtain an exclusive license to certain patent rights and data controlled by us that are related to the licensed products and to have all investigational new drug applications, or INDs (other than the IND for ALLN-177), transferred to Althea.

In addition, pursuant to a letter agreement we entered into with Althea in June 2017, and subject to a fully paid-up exclusive worldwide license that we grant to Althea with respect to Althea’s retained rights, Althea assigned certain U.S. patent rights to us. We agreed to continue to comply with our obligations under the license agreement, including our obligation to make milestone and royalty payments to Althea. Upon any termination or expiration of the license agreement, we are obligated to assign such patent rights back to Althea.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products, including biological products. In addition, some jurisdictions regulate the pricing of pharmaceutical products. The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

 

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Licensure and Regulation of Biologics in the United States

In the United States, our candidate products are regulated as biological products, or biologics, under the Public Health Service Act, or PHSA, and the Federal Food, Drug, and Cosmetic Act, or FDCA, and their implementing regulations. The failure to comply with the applicable U.S. requirements at any time during the product development process, including nonclinical testing, clinical testing, the approval process or post-approval process, may subject an applicant to delays in the conduct of a study, regulatory review and approval, and/or administrative or judicial sanctions. These sanctions may include, but are not limited to, the U.S. Food and Drug Administration’s, or FDA’s, refusal to allow an applicant to proceed with clinical testing, refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, warning letters, adverse publicity, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, and civil or criminal investigations and penalties brought by the FDA or the Department of Justice, or DOJ, or other governmental entities.

An applicant seeking approval to market and distribute a new biologic in the United States generally must satisfactorily complete each of the following steps:

 

    nonclinical laboratory tests, animal studies and formulation studies all performed in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations;

 

    submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;

 

    approval by an institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;

 

    performance of adequate and well-controlled human clinical trials to establish the safety, potency, and purity of the product candidate for each proposed indication, in accordance with Good Clinical Practices, or GCP;

 

    preparation and submission to the FDA of a Biologic License Application, or BLA, for a biologic product requesting marketing for one or more proposed indications, including submission of detailed information on the manufacture and composition of the product in clinical development and proposed labeling;

 

    review of the product by an FDA advisory committee, where appropriate or if applicable;

 

    satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities, including those of third parties, at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the facilities, methods, and controls are adequate to preserve the product’s identity, strength, quality, and purity;

 

    satisfactory completion of any FDA audits of the nonclinical and clinical study sites to assure compliance with GLPs and GCPs, respectively, and the integrity of clinical data in support of the BLA;

 

    payment of user fees and securing FDA approval of the BLA and licensure of the new biologic product; and

 

    compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and any post-approval studies required by the FDA.

Nonclinical Studies and Investigational New Drug Application

Before testing any biologic product candidate in humans, the product candidate must undergo nonclinical testing. Nonclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as animal studies to evaluate the potential for efficacy and toxicity. The conduct of the nonclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of

 

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the nonclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. The IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about the product or conduct of the proposed clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In that case, the IND sponsor and the FDA must resolve any outstanding FDA concerns before the clinical trial can begin.

As a result, submission of the IND may result in the FDA not allowing the trial to commence or allowing the trial to commence on the terms originally specified by the sponsor in the IND. If the FDA raises concerns or questions either during this initial 30-day period, or at any time during the IND process, it may choose to impose a partial or complete clinical hold. This order issued by the FDA would delay either a proposed clinical study or cause suspension of an ongoing study, until all outstanding concerns have been adequately addressed and the FDA has notified the company that investigation may proceed. This could cause significant delays or difficulties in completing planned clinical trials in a timely manner. The FDA also may impose clinical holds on a biologic product candidate at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA.

Human Clinical Trials in Support of a BLA

Clinical trials involve the administration of the investigational product candidate to healthy volunteers or patients with the disease to be treated under the supervision of a qualified principal investigator in accordance with GCP requirements. Clinical trials are conducted under study protocols detailing, among other things, the objectives of the study, inclusion and exclusion criteria, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.

A sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of the BLA so long as the clinical trial is well-designed and well-conducted in accordance with GCP, including review and approval by an independent ethics committee, and the FDA is able to validate the study data through an onsite inspection, if necessary.

Further, each clinical trial must be reviewed and approved by an institutional review board, or IRB, either centrally or individually at each institution at which the clinical trial will be conducted. The IRB will consider, among other things, clinical trial design, patient informed consent, ethical factors, and the safety of human subjects. An IRB must operate in compliance with FDA regulations. The FDA, IRB, or the clinical trial sponsor may suspend or discontinue a clinical trial at any time for various reasons, including a finding that the clinical trial is not being conducted in accordance with FDA requirements or the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive GCP rules and the requirements for informed consent. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group may recommend continuation of the study as planned, changes in study conduct, or cessation of the study at designated check points based on access to certain data from the study.

Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Additional studies may be required after approval.

 

    Phase 1 clinical trials are initially conducted in a limited population to test the product candidate for safety, including adverse effects, dose tolerance, absorption, metabolism, distribution, excretion, and pharmacodynamics in healthy humans or, on occasion, in patients, such as cancer patients.

 

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    Phase 2 clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety risks, evaluate the efficacy of the product candidate for specific targeted indications and determine dose tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more costly Phase 3 clinical trials.

 

    Phase 3 clinical trials proceed if the Phase 2 clinical trials demonstrate that a dose range of the product candidate is potentially effective and has an acceptable safety profile. Phase 3 clinical trials are undertaken within an expanded patient population to further evaluate dosage, provide substantial evidence of clinical efficacy, and further test for safety in an expanded and diverse patient population at multiple, geographically dispersed clinical trial sites. A well-controlled, statistically robust Phase 3 trial may be designed to deliver the data that regulatory authorities will use to decide whether or not to approve, and, if approved, how to appropriately label a biologic; such Phase 3 studies are referred to as “pivotal.”

In some cases, the FDA may approve a BLA for a product candidate but require the sponsor to conduct additional clinical trials to further assess the product candidate’s safety and effectiveness after approval. Such post-approval trials are typically referred to as Phase 4 clinical trials. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of biologics approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical trial requirement or to request a change in the product labeling. Failure to exhibit due diligence with regard to conducting Phase 4 clinical trials could result in withdrawal of approval for products.

Compliance with cGMP Requirements

Before approving a BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in full compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The PHSA emphasizes the importance of manufacturing control for products like biologics whose attributes cannot be precisely defined.

Manufacturers and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the FDA upon their initial participation in the manufacturing process. Any product manufactured by or imported from a facility that has not registered, whether foreign or domestic, is deemed misbranded under the FDCA. Establishments may be subject to periodic unannounced inspections by government authorities to ensure compliance with cGMPs and other laws. Manufacturers may have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying, limiting, or refusing inspection by the FDA may lead to a product being deemed to be adulterated.

Review and Approval of a BLA

The results of product candidate development, nonclinical testing, and clinical trials, including negative or ambiguous results as well as positive findings, are submitted to the FDA as part of a BLA requesting license to market the product. The BLA must contain extensive manufacturing information and detailed information on the composition of the product and proposed labeling as well as payment of a user fee.

The FDA has 60 days after submission of the application to conduct an initial review to determine whether it is sufficient to accept for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission has been accepted for filing, the FDA begins an in-depth review of the application. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act,

 

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or the PDUFA, the FDA has ten months in which to complete its initial review of a standard application and respond to the applicant, and six months for a priority review of the application. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs. The review process may often be significantly extended by FDA requests for additional information or clarification. The review process and the PDUFA goal date may be extended by three months if the FDA requests or if the applicant otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.

Under the PHSA, the FDA may approve a BLA if it determines that the product is safe, pure, and potent and the facility where the product will be manufactured meets standards designed to ensure that it continues to be safe, pure, and potent.

On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection of the manufacturing facilities and any FDA audits of nonclinical and clinical study sites to assure compliance with GLPs and GCPs, respectively, the FDA may issue an approval letter, denial letter, or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. If the application is not approved, the FDA may issue a complete response letter, which will contain the conditions that must be met in order to secure final approval of the application, and when possible will outline recommended actions the sponsor might take to obtain approval of the application. Sponsors that receive a complete response letter may submit to the FDA information that represents a complete response to the issues identified by the FDA. Such resubmissions are classified under PDUFA as either Class 1 or Class 2. The classification of a resubmission is based on the information submitted by an applicant in response to an action letter. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has two months to review a Class 1 resubmission and six months to review a Class 2 resubmission. The FDA will not approve an application until issues identified in the complete response letter have been addressed. The FDA issues a denial letter if it determines that the establishment or product does not meet the agency’s requirements.

The FDA may also refer the application to an advisory committee for review, evaluation, and recommendation as to whether the application should be approved. In particular, the FDA may refer applications for novel biologic products or biologic products that present difficult questions of safety or efficacy to an advisory committee. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

If the FDA approves a new product, it may limit the approved indications for use of the product. It may also require that contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may call for post-approval studies, including Phase 4 clinical trials, to further assess the product’s safety after approval. The agency may also require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, to help ensure that the benefits of the product outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patent registries. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

 

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Fast Track, Breakthrough Therapy and Priority Review Designations

The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are referred to as fast track designation, breakthrough therapy designation, and priority review designation.

Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a fast track product’s application before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section of the application is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

Second, in 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act, or FDASIA. This law established a new regulatory scheme allowing for expedited review of products designated as “breakthrough therapies.” A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.

Third, the FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case- by-case basis, whether the proposed product represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.

Accelerated Approval Pathway

The FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Products granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is

 

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not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a product, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a product.

The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and approval of products for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit.

The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the product’s clinical benefit. As a result, a product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the product from the market on an expedited basis. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by the FDA.

The 21st Century Cures Act

The 21st Century Cures Act, which was signed into law in December 2016, requires the FDA to establish a process for the qualification of drug development tools that may be used to support or obtain licensure of a biological product or support of the investigational use of a biological product. A drug development tool includes a biomarker, a clinical outcome assessment, and any other method, material, or measure that the FDA determines aids drug development and regulatory review. A biomarker is a characteristic, such as a physiologic, pathologic, or anatomic characteristic or measurement, that is objectively measured and evaluated as an indicator of normal biological processes, pathologic processes, or biological responses to a therapeutic intervention and includes a surrogate endpoint. A clinical outcome assessment is a measurement of a patient’s symptoms, overall mental state, or the effects of a disease or condition on how the patient functions and includes a patient-reported outcome.

The 21st Century Cures Act also requires that, for approval of any BLAs submitted after June 12, 2017, the FDA shall make public a brief statement regarding the patient experience data and related information, if any, submitted and reviewed as part of the application. Patient experience data includes data that are collected by any persons, including patients, family members and caregivers of patients, patient advocacy organizations, disease research foundations, researchers and drug manufacturers, and are intended to provide information about patients’ experiences with a disease or condition, including the impact of such disease or condition, or a related therapy, on patients’ lives and patient preferences with respect to treatment of such disease or condition.

Post-Approval Regulation

If regulatory approval for marketing of a product or new indication for an existing product is obtained, the sponsor will be required to comply with all regular post-approval regulatory requirements as well as any post-approval requirements that the FDA has imposed as part of the approval process. The sponsor will be required to report certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling requirements. Manufacturers and certain of their subcontractors are required to register their establishments with the FDA and

 

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certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and documentation requirements upon manufacturers. Accordingly, the sponsor and its third-party manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain compliance with cGMP regulations and other regulatory requirements.

A biologic product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official lot release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity, potency, and effectiveness of pharmaceutical products.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

 

    restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

 

    fines, untitled letters or warning letters or holds on post-approval clinical trials;

 

    refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;

 

    product seizure or detention, or refusal to permit the import or export of products; or

 

    injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Pharmaceutical products may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

Orphan Drug Designation

Orphan drug designation in the United States is designed to encourage sponsors to develop products intended for rare diseases or conditions. In the United States, a rare disease or condition is statutorily defined as a condition that affects fewer than 200,000 individuals in the United States or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available the biologic for the disease or condition will be recovered from sales of the product in the United States. The FDA has granted Orphan Drug Designation to ALLN-177 for the treatment of primary hyperoxaluria and pediatric hyperoxaluria. This includes both children with secondary hyperoxaluria, attributable to excess GI absorption of oxalate, as well as the rare condition primary hyperoxaluria, a genetic defect of one of several liver enzymes.

Orphan drug designation qualifies a company for tax credits and market exclusivity for seven years following the date of the product’s marketing approval if granted by the FDA. An application for designation as

 

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an orphan product can be made any time prior to the filing of an application for approval to market the product. A product becomes an orphan when it receives orphan drug designation from the Office of Orphan Products Development, or OOPD, at the FDA based on acceptable confidential requests made under the regulatory provisions. The product must then go through the review and approval process like any other product.

A sponsor may request orphan drug designation of a previously unapproved product or new orphan indication for an already marketed product. In addition, a sponsor of a product that is otherwise the same product as an already approved orphan drug may seek and obtain orphan drug designation for the subsequent product for the same rare disease or condition if it can present a plausible hypothesis that its product may be clinically superior to the first drug. More than one sponsor may receive orphan drug designation for the same product for the same rare disease or condition, but each sponsor seeking orphan drug designation must file a complete request for designation.

The period of exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the indication for which the product has been designated. The FDA may approve a second application for the same product for a different use or a second application for a clinically superior version of the product for the same use. The FDA cannot, however, approve the same product made by another manufacturer for the same indication during the market exclusivity period unless it has the consent of the sponsor or the sponsor is unable to provide sufficient quantities.

Pediatric Studies and Exclusivity

Under the Pediatric Research Equity Act of 2003, a BLA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults