- ATI-1777 2% BID Achieved a Statistically Significant Result in the Primary Efficacy Endpoint at Week 4 - - Minimal Systemic Exposure Supports "Soft" Topical JAK Inhibitor Approach - - ATI-1777 Was Well Tolerated - WAYNE, Pa., Jan. 10, 2024 (GLOBE NEWSWIRE) -- Aclaris Therapeutics, Inc. (NASDAQ:ACRS), a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-inflammatory diseases, today announced top-line results from its Phase 2b study of ATI-1777, an investigationa ...

The Medical group has plenty of great stocks, but investors should always be looking for companies that are outperforming their peers. Is Aclaris Therapeutics (ACRS) one of those stocks right now? By taking a look at the stock's year-to-date performance in comparison to its Medical peers, we might be able to answer that question.Aclaris Therapeutics is a member of our Medical group, which includes 1077 different companies and currently sits at #5 in the Zacks Sector Rank. The Zacks Sector Rank gauges the st ...

7 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37581 Aclaris Therapeutics, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 46-0571712 (State or Othe ...

PART I. FINANCIAL INFORMATION This section provides the company's unaudited financial statements and management's analysis of its financial condition and operations [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Aclaris Therapeutics' unaudited condensed consolidated financial statements for Q2 and H1 2023, including balance sheets and cash flows [Unaudited Condensed Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets decreased to $235.6 million, driven by reduced cash and marketable securities Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $31,150 | $45,277 | | Total current assets | $132,935 | $231,550 | | **Total Assets** | **$235,649** | **$254,596** | | Total current liabilities | $22,829 | $21,938 | | **Total Liabilities** | **$55,899** | **$56,975** | | **Total Stockholders' Equity** | **$179,750** | **$197,621** | [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Total revenue increased to $4.4 million, but rising R&D expenses led to a net loss of $57.7 million for H1 2023 Statement of Operations Highlights (in thousands, except per share data) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Total Revenue | $4,397 | $2,981 | | Research and development | $47,862 | $33,085 | | Total costs and expenses | $66,130 | $42,882 | | Loss from operations | $(61,733) | $(39,901) | | **Net Loss** | **$(57,729)** | **$(39,321)** | | Net loss per share | $(0.84) | $(0.62) | [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity decreased to $179.8 million due to net loss, partially offset by stock issuance and compensation - Total stockholders' equity decreased from **$197.6 million** on Dec 31, 2022, to **$179.8 million** on June 30, 2023[23](index=23&type=chunk) - The decrease was driven by a net loss of **$57.7 million** (sum of Q1 and Q2 net losses), partially offset by **$26.7 million** in net proceeds from an at-the-market stock sale and **$13.3 million** in stock-based compensation[23](index=23&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations was $47.0 million, with a net decrease in cash of $14.1 million for H1 2023 Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(47,007) | $(40,635) | | Net cash provided by investing activities | $6,136 | $8,709 | | Net cash provided by financing activities | $26,744 | $72,841 | | **Net (decrease) increase in cash** | **$(14,127)** | **$40,915** | | Cash and cash equivalents at end of period | $31,150 | $68,264 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the company's focus on immuno-inflammatory diseases, liquidity, fair value adjustments, and segment reporting - The company is a clinical-stage biopharmaceutical firm focused on immuno-inflammatory diseases[30](index=30&type=chunk) - As of June 30, 2023, the company had **$210.8 million** in cash, cash equivalents, and marketable securities and believes this is sufficient to fund operations for more than 12 months[31](index=31&type=chunk)[33](index=33&type=chunk) - The fair value of the contingent consideration liability related to the Confluence acquisition decreased by **$2.3 million** during the first six months of 2023, primarily due to ceasing the pursuit of zunsemetinib for hidradenitis suppurativa[54](index=54&type=chunk) - In April 2023, the company sold **3.4 million shares** of common stock for gross proceeds of **$27.5 million** through its at-the-market (ATM) facility[64](index=64&type=chunk) - The company recorded licensing revenue of **$2.3 million** from its agreement with Eli Lilly for the six months ended June 30, 2023[82](index=82&type=chunk) - The company operates in two segments: Therapeutics, which focuses on drug development, and Contract Research, which provides laboratory services[90](index=90&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operational results, and clinical program progress, confirming sufficient capital for over 12 months [Development Programs](index=28&type=section&id=Development%20Programs) The company provides updates on zunsemetinib, ATI-1777, and ATI-2138 clinical trials, including expected data readouts - **Zunsemetinib (oral MK2 inhibitor):** Topline data for the Phase 2b trial in rheumatoid arthritis is expected in Q4 2023. Topline data for the Phase 2a trial in psoriatic arthritis is expected in H1 2024[100](index=100&type=chunk)[103](index=103&type=chunk) - **ATI-1777 (topical JAK 1/3 inhibitor):** Topline data for the Phase 2b trial in mild to severe atopic dermatitis is expected in H2 2023[106](index=106&type=chunk) - **ATI-2138 (oral ITK/JAK3 inhibitor):** A Phase 1 trial in healthy volunteers was completed, with data supporting progression to Phase 2 development in ulcerative colitis. Data is expected to be reported in September 2023[108](index=108&type=chunk) - The company has ceased development of zunsemetinib for moderate to severe hidradenitis suppurativa after a Phase 2a study failed to meet its primary or secondary endpoints[104](index=104&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Total revenue increased to $4.4 million, but higher R&D and G&A expenses led to a larger operating loss Comparison of Results of Operations (in thousands) | Line Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Total revenue | $4,397 | $2,981 | $1,416 | | Research and development | $47,862 | $33,085 | $14,777 | | General and administrative | $17,107 | $12,174 | $4,933 | | **Loss from operations** | **$(61,733)** | **$(39,901)** | **$(21,832)** | Research & Development Expenses by Program (Six Months Ended June 30, in thousands) | Program | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Zunsemetinib | $15,450 | $11,318 | $4,132 | | ATI-1777 | $5,292 | $5,866 | $(574) | | ATI-2138 | $6,631 | $2,267 | $4,364 | | ATI-2231 | $520 | $3,089 | $(2,569) | - A bad debt expense of **$1.0 million** was recorded for the three and six months ended June 30, 2023, due to the bankruptcy filing of EPI Health[86](index=86&type=chunk)[121](index=121&type=chunk)[169](index=169&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) The company held $210.8 million in cash and marketable securities, believing it has sufficient funds for over 12 months - The company had cash, cash equivalents, and marketable securities of **$210.8 million** as of June 30, 2023[175](index=175&type=chunk) - Management believes existing cash is sufficient to fund operations for a period greater than 12 months from the date of the 10-Q issuance[190](index=190&type=chunk) Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(47,007) | $(40,635) | | Net cash provided by investing activities | $6,136 | $8,709 | | Net cash provided by financing activities | $26,744 | $72,841 | - In April 2023, the company sold **3.4 million shares** of common stock for gross proceeds of **$27.5 million** under its ATM facility[179](index=179&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate sensitivity, but it expects no material effect due to short-term investments - The primary market risk is interest rate sensitivity on cash equivalents and marketable securities, but the company does not expect a **10%** change in rates to have a material effect due to the short-term nature of its portfolio[199](index=199&type=chunk) - The company does not believe that inflation has had a material effect on its business, financial condition, or results of operations during the six months ended June 30, 2023[200](index=200&type=chunk) [Item 4. Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes - Based on an evaluation as of June 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[203](index=203&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[204](index=204&type=chunk) PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=59&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings or aware of any pending actions - The company is not currently a party to any material legal proceedings[212](index=212&type=chunk) [Item 1A. Risk Factors](index=59&type=section&id=Item%201A.%20Risk%20Factors) The company reports no material changes to its risk factors since its 2022 Annual Report on Form 10-K - There have been no material changes to the company's risk factors since its 2022 Annual Report on Form 10-K[213](index=213&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[213](index=213&type=chunk) [Item 6. Exhibits](index=59&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Certificate of Amendment to the Certificate of Incorporation, certifications by the CEO and CFO, and XBRL data files

Financial Data and Key Metrics Changes - The company ended Q1 2023 with cash, cash equivalents, and marketable securities of $204 million, down from $230 million at year-end 2022 [36] - The net loss for Q1 2023 was $28.2 million, compared to $18.8 million in Q1 2022, primarily due to advancements in ongoing clinical programs [37] - Total revenue for the quarter was $2.5 million, an increase from $1.5 million in the prior year's quarter, driven by higher licensing revenue [37] Business Line Data and Key Metrics Changes - The Phase 2a trial of ATI-450 in hidradenitis suppurativa (HS) did not meet primary or secondary efficacy endpoints, but provided valuable safety and pharmacodynamic data [10][18] - The Phase 2b study of ATI-1777 in atopic dermatitis is ongoing, with an expanded protocol to include mild patients, and top-line results are now expected in the second half of 2023 [14][35] - The company is advancing its Phase 1 clinical asset ATI-2138 and plans to initiate a Phase 2a proof-of-concept study in ulcerative colitis [12][34] Market Data and Key Metrics Changes - The company is positioned in the immune-inflammatory disease space, which has seen significant transactions, indicating a competitive landscape with opportunities for shareholder value creation [7] - The competitive landscape in atopic dermatitis is evolving, with the company focusing on differentiators for ATI-1777 [76] Company Strategy and Development Direction - The company aims to complete and report results from ongoing trials in rheumatoid arthritis and psoriatic arthritis, while exploring the MK2 mechanism in other indications [39] - The leadership team emphasizes a fiscally prudent approach to executing clinical programs, with a focus on advancing key assets [39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the safety profile of ATI-450, noting that the drug's performance in HS does not raise red flags for the upcoming rheumatoid arthritis study [43] - The team remains optimistic about the potential of ATI-450 and is focused on timely reporting of ongoing trials [39] Other Important Information - The company completed chronic toxicology studies for ATI-450, with no issues of concern identified [25] - The data safety monitoring committee for the rheumatoid arthritis trial has not raised any safety concerns to date [34] Q&A Session Summary Question: Read-through from HS to RA study and CK levels - Management expressed confidence in the safety profile of ATI-450, indicating no red flags and a positive outlook for the RA study [43][44] Question: Atopic dermatitis enrollment challenges - Management acknowledged enrollment challenges due to a mild winter and noted that expanding criteria to include mild patients should enhance recruitment [45] Question: Choice of ulcerative colitis as first indication - Management highlighted the attractiveness of ATI-238 in ulcerative colitis and the competitive landscape in inflammatory bowel disease [46] Question: CK elevations compared to other therapies - Management noted that asymptomatic CK elevations are common and not a concern among clinicians, with no evidence of significant pathology [49][50] Question: CNS adverse events in HS study - Management indicated that the etiology of CNS events like dizziness and headache remains unclear, but they are generally transient [55][56] Question: Discontinuation rates in RA study - Management stated that discontinuation rates in the RA study are tracking at or below those seen in competitive studies [59][60]

7 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37581 Aclaris Therapeutics, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 46-0571712 (State or Other Ju ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 Commission file number 001-37581 ACLARIS THERAPEUTICS, INC. Incorporated under the Laws of the I.R.S. Employer Identification No. State of Delaware 46-0571712 640 Lee Road, Suite 200 Wayne, PA 19087 (484) 324-7933 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class: Tradin ...

EMPOWERING PATIENTS THROUGH KINOME INNOVATION 41st Annual J.P. Morgan Healthcare Conference January 2023 ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and notes for the period ended September 30, 2022 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $267.6 million while total liabilities decreased, boosting stockholders' equity to $219.8 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $61,653 | $27,349 | | Total current assets | $256,573 | $205,032 | | **Total assets** | **$267,632** | **$251,211** | | **Liabilities & Equity** | | | | Total current liabilities | $19,789 | $22,931 | | **Total liabilities** | **$47,794** | **$53,870** | | **Total stockholders' equity** | **$219,838** | **$197,341** | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company's net loss narrowed year-over-year for both the third quarter and nine-month period, driven by higher licensing revenue Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $19,018 | $1,659 | $21,999 | $5,260 | | Research and development | $23,656 | $13,976 | $56,741 | $29,711 | | Total costs and expenses | $39,892 | $21,954 | $82,774 | $72,090 | | Loss from operations | $(20,874) | $(20,295) | $(60,775) | $(66,830) | | **Net loss** | **$(19,952)** | **$(21,146)** | **$(59,273)** | **$(68,061)** | | Net loss per share | $(0.30) | $(0.35) | $(0.92) | $(1.23) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Financing activities provided $72.8 million in cash, contributing to a net cash increase of $34.3 million for the nine-month period Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(48,452) | $(35,059) | | Net cash provided by (used in) investing activities | $9,926 | $(158,456) | | Net cash provided by financing activities | $72,830 | $225,054 | | **Net increase in cash and cash equivalents** | **$34,304** | **$31,539** | | Cash and cash equivalents at end of period | $61,653 | $53,602 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, segment information, and a significant licensing agreement with Eli Lilly - The company believes its existing cash, cash equivalents, and marketable securities of **$248.1 million** are sufficient to fund operations for more than 12 months from the report's issuance date[23](index=23&type=chunk)[25](index=25&type=chunk) - In August 2022, the company entered into a non-exclusive patent license agreement with Eli Lilly and Company, recognizing **$17.6 million in licensing revenue** and recording **$7.3 million in related licensing expenses** during Q3 2022[76](index=76&type=chunk)[78](index=78&type=chunk) - The company operates in two reportable segments: **Therapeutics**, focused on developing therapies for immuno-inflammatory diseases, and **Contract Research**, which provides laboratory services[84](index=84&type=chunk) - The fair value of the contingent consideration liability related to the Confluence acquisition **decreased by $2.4 million** during the first nine months of 2022, primarily due to higher discount rates[41](index=41&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial performance, clinical program progress, and confirms sufficient liquidity for the next 12 months [Clinical Programs](index=32&type=section&id=Clinical%20Programs) The company provides updates on its key clinical trials, with topline data for several programs expected in 2023 - **Zunsemetinib:** Topline data for the Phase 2b trial in rheumatoid arthritis and the Phase 2a trial in psoriatic arthritis are expected in the **second half of 2023**[105](index=105&type=chunk)[106](index=106&type=chunk)[109](index=109&type=chunk) - **ATI-1777:** Topline data from the Phase 2b trial for moderate to severe atopic dermatitis is expected in the **first half of 2023**[113](index=113&type=chunk) - **ATI-2138:** A Phase 1 single ascending dose (SAD) trial was completed and the company plans to initiate a Phase 1 multiple ascending dose (MAD) trial for ulcerative colitis by the **end of 2022**[115](index=115&type=chunk)[118](index=118&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) A significant increase in licensing revenue drove Q3 2022 results, offsetting higher R&D expenses from clinical trial activities - Licensing revenue increased to **$17.9 million in Q3 2022** from $0.2 million in Q3 2021, primarily due to the upfront and milestone payments from the Eli Lilly agreement[162](index=162&type=chunk) Research & Development Expenses by Program (Nine Months Ended Sep 30, in thousands) | Program | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Zunsemetinib | $21,500 | $12,532 | $8,968 | | ATI-1777 | $9,220 | $1,894 | $7,326 | | ATI-2138 | $4,060 | $3,330 | $730 | | ATI-2231 | $4,397 | $333 | $4,064 | | **Total R&D Expenses** | **$56,741** | **$29,711** | **$27,030** | - The fair value of the contingent consideration liability **decreased by $2.4 million** in the first nine months of 2022, compared to an increase of $22.1 million in the same period of 2021[181](index=181&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) The company holds $248.1 million in cash and equivalents, deemed sufficient to fund operations for over 12 months - The company had cash, cash equivalents, and marketable securities totaling **$248.1 million** as of September 30, 2022[184](index=184&type=chunk) - In April 2022, the company raised gross proceeds of **$75.0 million** by selling 4.8 million shares of common stock through its at-the-market facility[54](index=54&type=chunk)[187](index=187&type=chunk) - Management believes existing capital is **sufficient to fund operating and capital expenditure requirements** for more than 12 months from the date of the report[207](index=207&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk from interest rate fluctuations is considered immaterial to its financial condition - The company's main market risk is interest rate sensitivity on its investment portfolio, but it is **not expected to have a material effect** due to the short-term, low-risk nature of the securities[216](index=216&type=chunk) [Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2022[221](index=221&type=chunk) - **No changes occurred** during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[221](index=221&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - The company is **not currently a party** to any material legal proceedings[226](index=226&type=chunk) [Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's previously disclosed risk factors have occurred - The company's risk factors have **not changed materially** from those described in its 2021 Annual Report on Form 10-K[227](index=227&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=66&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities during the reporting period - There were **no unregistered sales of equity securities** to report for the period[229](index=229&type=chunk) [Exhibits](index=66&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including required certifications and corporate documents

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2022 [Unaudited Condensed Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show an increase in total assets and a decrease in total liabilities as of June 30, 2022 Condensed Consolidated Balance Sheets (in thousands) | Asset/Liability/Equity | June 30, 2022 | December 31, 2021 | | :--------------------- | :------------ | :------------------ | | **Assets** | | | | Cash and cash equivalents | $68,264 | $27,349 | | Short-term marketable securities | $180,339 | $164,065 | | Total current assets | $259,354 | $205,032 | | Total assets | $277,976 | $251,211 | | **Liabilities** | | | | Total current liabilities | $16,217 | $22,931 | | Contingent consideration | $23,800 | $28,400 | | Total liabilities | $42,224 | $53,870 | | **Stockholders' Equity** | | | | Total stockholders' equity | $235,752 | $197,341 | - Total assets increased by **$26.765 million (10.65%)** from December 31, 2021, to June 30, 2022, primarily driven by an increase in cash and cash equivalents and short-term marketable securities[9](index=9&type=chunk) - Total liabilities decreased by **$11.646 million (21.62%)** from December 31, 2021, to June 30, 2022, mainly due to a reduction in current liabilities and contingent consideration[9](index=9&type=chunk) [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The statements detail revenue, expenses, and net loss, highlighting increased R&D spending and a higher net loss for the quarter Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $1,528 | $1,824 | $2,981 | $3,601 | | Total costs and expenses | $22,522 | $19,830 | $42,882 | $50,136 | | Loss from operations | $(20,994) | $(18,006) | $(39,901) | $(46,535) | | Net loss | $(20,532) | $(18,161) | $(39,321) | $(46,915) | | Net loss per share, basic and diluted | $(0.31) | $(0.34) | $(0.62) | $(0.90) | | Comprehensive loss | $(20,886) | $(18,205) | $(40,422) | $(47,005) | - Net loss for the three months ended June 30, 2022, was **$(20.5) million**, an increase from $(18.2) million in the prior year period, while the six-month net loss improved to **$(39.3) million** from $(46.9) million[13](index=13&type=chunk) - **Research and development expenses significantly increased** to $18.8 million for the three months ended June 30, 2022, from $7.9 million in the prior year, and to $33.1 million for the six-month period from $15.7 million[13](index=13&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) The statements show an increase in stockholders' equity driven by common stock issuance, offsetting the net loss Changes in Stockholders' Equity (in thousands, except share data) | Item | Six Months Ended June 30, 2022 (Shares) | Six Months Ended June 30, 2022 (Total Equity) | Six Months Ended June 30, 2021 (Shares) | Six Months Ended June 30, 2021 (Total Equity) | | :---------------------------------------------------------------- | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------- | :-------------------------------------------- | | Balance at December 31, 2021 / March 31, 2021 | 61,228,446 | $197,341 | 52,081,729 | $112,294 | | Issuance of common stock (options/RSUs) | 600,425 | $137 | 1,690,810 | $(1,538) | | Issuance of common stock (at-the-market/public offerings) | 4,838,709 | $72,659 | 8,098,592 | $134,852 | | Unrealized loss/gain on marketable securities | — | $(1,102) | — | $(44) | | Stock-based compensation expense | — | $6,038 | — | $6,507 | | Net loss | — | $(39,321) | — | $(46,915) | | Balance at June 30, 2022 / June 30, 2021 | 66,667,580 | $235,752 | 61,204,987 | $233,815 | - Total stockholders' equity increased by **$38.411 million** to $235.752 million as of June 30, 2022, primarily due to proceeds from common stock issuance and stock-based compensation, partially offset by net loss and unrealized losses[15](index=15&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The statements reflect increased cash used in operations and a significant shift in investing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(40,635) | $(24,453) | | Net cash provided by (used in) investing activities | $8,709 | $(120,784) | | Net cash provided by financing activities | $72,841 | $236,621 | | Net increase in cash and cash equivalents | $40,915 | $91,384 | | Cash and cash equivalents at end of period | $68,264 | $113,447 | - Net cash used in operating activities increased to **$(40.6) million** for the six months ended June 30, 2022, from $(24.5) million in the prior year period[19](index=19&type=chunk) - Net cash provided by investing activities significantly improved to **$8.7 million** for the six months ended June 30, 2022, compared to net cash used of $(120.8) million in the prior year, primarily due to increased proceeds from sales and maturities of marketable securities[19](index=19&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on accounting policies, fair value, and other financial information [1. Organization and Nature of Business](index=8&type=section&id=1.%20Organization%20and%20Nature%20of%20Business) The Company is a clinical-stage biopharmaceutical firm focused on immuno-inflammatory diseases - Aclaris Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-inflammatory diseases, also pursuing strategic alternatives with third-party partners[22](index=22&type=chunk) - As of June 30, 2022, the Company had **$255.8 million** in cash, cash equivalents, and marketable securities, with an accumulated deficit of **$634.7 million**[23](index=23&type=chunk) - The Company believes its existing cash and marketable securities are sufficient to fund operations for **more than 12 months**, alleviating substantial doubt about its going concern ability[25](index=25&type=chunk) [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the basis of preparation and key accounting policies for the financial statements - The unaudited interim condensed consolidated financial statements are prepared on the same basis as audited annual statements, reflecting normal recurring adjustments necessary for fair statement[26](index=26&type=chunk) - The Company's financial statements are prepared in conformity with GAAP, consolidating accounts of Aclaris Therapeutics, Inc. and its wholly-owned subsidiaries, ATIL and Confluence[27](index=27&type=chunk) - Contingent consideration liability is initially recorded at fair value based on unobservable inputs (Level 3) and re-evaluated quarterly, with changes recorded as income or expense[31](index=31&type=chunk) [3. Fair Value of Financial Assets and Liabilities](index=12&type=section&id=3.%20Fair%20Value%20of%20Financial%20Assets%20and%20Liabilities) This note details the fair value measurements of the Company's financial instruments Fair Value Measurements (in thousands) as of June 30, 2022 | Item | Level 1 | Level 2 | Level 3 | Total | | :----------------------- | :------ | :--------- | :------ | :--------- | | **Assets** | | | | | | Cash equivalents | $63,838 | $— | $— | $63,838 | | Marketable securities | $— | $187,560 | $— | $187,560 | | Total assets | $63,838 | $187,560 | $— | $251,398 | | **Liabilities** | | | | | | Contingent consideration | $— | $— | $23,800 | $23,800 | | Total liabilities | $— | $— | $23,800 | $23,800 | - A decrease of **$4.6 million** in the fair value of contingent consideration liability during the six months ended June 30, 2022, was primarily due to higher discount rates, partially offset by the impact of the passage of time[38](index=38&type=chunk) Marketable Securities by Type (in thousands) as of June 30, 2022 | Security Type | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | | :--------------------------- | :------------- | :-------------------- | :-------------------- | :--------- | | Corporate debt securities | $47,201 | $— | $(398) | $46,803 | | Commercial paper | $56,053 | $— | $— | $56,053 | | Asset-backed debt securities | $28,423 | $— | $(175) | $28,248 | | U.S. government agency debt securities | $57,211 | $— | $(755) | $56,456 | | Total marketable securities | $188,888 | $— | $(1,328) | $187,560 | [4. Property and Equipment, Net](index=15&type=section&id=4.%20Property%20and%20Equipment%2C%20Net) This note provides a breakdown of the Company's property and equipment and related depreciation Property and Equipment, Net (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :------------------------- | :------------ | :---------------- | | Property and equipment, gross | $4,977 | $4,728 | | Accumulated depreciation | $(3,701) | $(3,393) | | Property and equipment, net | $1,276 | $1,335 | - Depreciation expense was **$0.2 million** for each of the three months ended June 30, 2022 and 2021, and **$0.4 million** for each of the six-month periods[42](index=42&type=chunk) [5. Intangible Assets](index=15&type=section&id=5.%20Intangible%20Assets) This note details the Company's intangible assets, including in-process R&D and amortization schedules Intangible Assets (in thousands) | Item | June 30, 2022 (Gross Cost) | December 31, 2021 (Gross Cost) | June 30, 2022 (Accumulated Amortization) | December 31, 2021 (Accumulated Amortization) | | :--------------------------------- | :------------------------- | :----------------------------- | :--------------------------------------- | :--------------------------------------------- | | Other intangible assets | $751 | $751 | $369 | $332 | | In-process research and development | $6,629 | $6,629 | $— | $— | | Total intangible assets | $7,380 | $7,380 | $369 | $332 | - Amortization expense was **$19 thousand** for each of the three months ended June 30, 2022 and 2021, and **$38 thousand** for each of the six-month periods[43](index=43&type=chunk) Estimated Future Amortization Expense (in thousands) | Year | Amount | | :--- | :----- | | 2022 | $37 | | 2023 | $75 | | 2024 | $75 | | 2025 | $75 | | 2026 | $75 | | Thereafter | $45 | | Total | $382 | [6. Accrued Expenses](index=16&type=section&id=6.%20Accrued%20Expenses) This note provides a breakdown of the Company's accrued expenses as of the reporting dates Accrued Expenses (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :----------------------------- | :------------ | :---------------- | | Employee compensation expenses | $2,885 | $4,389 | | Research and development expenses | $2,771 | $1,278 | | Litigation settlements | $— | $2,650 | | Other | $1,915 | $1,734 | | Total accrued expenses | $7,571 | $10,051 | - Total accrued expenses decreased by **$2.48 million** from December 31, 2021, to June 30, 2022, primarily due to the settlement of litigation and a decrease in employee compensation expenses[46](index=46&type=chunk) [7. Debt](index=16&type=section&id=7.%20Debt) This note discloses information regarding the Company's historical debt arrangements - The Company fully repaid its **$11.0 million** term loan from Silicon Valley Bank in July 2021, including accrued interest and fees, totaling **$11.7 million**[47](index=47&type=chunk) [8. Stockholders' Equity](index=16&type=section&id=8.%20Stockholders'%20Equity) This note details changes in the Company's stockholders' equity, including stock issuances - As of June 30, 2022, the Company had **66,667,580 shares** of common stock issued and outstanding, an increase from 61,228,446 shares at December 31, 2021[49](index=49&type=chunk) - In April 2022, the Company sold **4,838,709 shares** of common stock through an at-the-market facility, generating gross proceeds of **$75.0 million**[54](index=54&type=chunk) - The Company completed public offerings in January and June 2021, raising net proceeds of **$103.3 million** and **$134.9 million**, respectively[52](index=52&type=chunk)[53](index=53&type=chunk) [9. Stock-Based Awards](index=18&type=section&id=9.%20Stock-Based%20Awards) This note provides details on the Company's stock-based compensation plans and expenses - As of June 30, 2022, **3,372,766 shares** remained available for grant under the 2015 Equity Incentive Plan[55](index=55&type=chunk) Stock Option Activity for Six Months Ended June 30, 2022 | Item | Number of Shares | Weighted Average Exercise Price | | :------------------------- | :--------------- | :------------------------------ | | Outstanding Dec 31, 2021 | 3,792,450 | $17.50 | | Granted | 1,891,950 | $14.40 | | Exercised | (85,672) | $1.40 | | Forfeited and cancelled | (583,775) | $15.70 | | Outstanding June 30, 2022 | 5,014,953 | $16.81 | Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $335 | $530 | $582 | $582 | | Research and development | $1,154 | $828 | $2,030 | $2,030 | | General and administrative | $2,449 | $2,343 | $4,680 | $3,895 | | Total stock-based compensation expense | $3,692 | $3,832 | $6,038 | $6,507 | [10. Net Loss per Share](index=21&type=section&id=10.%20Net%20Loss%20per%20Share) This note explains the calculation of net loss per share and details potentially dilutive securities Net Loss per Share (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(20,532) | $(18,161) | $(39,321) | $(46,915) | | Weighted average common shares outstanding | 65,990,031 | 53,968,405 | 63,723,123 | 52,163,136 | | Net loss per share, basic and diluted | $(0.31) | $(0.34) | $(0.62) | $(0.90) | - Potentially dilutive securities (stock options and RSUs) were excluded from diluted net loss per share calculation as their effect would be **anti-dilutive**[70](index=70&type=chunk) Potential Shares of Common Stock Excluded from Diluted EPS Calculation | Item | June 30, 2022 | June 30, 2021 | | :--------------------------------- | :------------ | :------------ | | Options to purchase common stock | 5,014,953 | 3,738,625 | | Restricted stock unit awards | 1,457,309 | 1,498,716 | | Total potential shares of common stock | 6,472,262 | 5,237,341 | [11. Leases](index=23&type=section&id=11.%20Leases) This note provides information on the Company's operating lease agreements and related liabilities - The Company has sublease agreements for office and laboratory space in Wayne, PA (through Oct 2023) and St. Louis, MO (through June 2029)[73](index=73&type=chunk) Operating Lease Supplemental Balance Sheet Information (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :--------------------------------- | :------------ | :---------------- | | Other assets (Gross cost) | $5,240 | $5,240 | | Other assets (Accumulated amortization) | $(2,173) | $(1,803) | | Other assets | $3,067 | $3,437 | | Current portion of lease liabilities | $741 | $693 | | Other liabilities | $1,820 | $2,151 | | Total operating lease liabilities | $2,561 | $2,844 | [12. Agreements Related to Intellectual Property](index=23&type=section&id=12.%20Agreements%20Related%20to%20Intellectual%20Property) This note details royalty and contingent consideration agreements related to intellectual property - The Company receives **high single-digit royalties** from EPI Health on net sales of RHOFADE, totaling $0.3 million and $0.5 million for the three and six months ended June 30, 2022, respectively[75](index=75&type=chunk)[77](index=77&type=chunk) - Under the Confluence Agreement, the Company has agreed to pay former equity holders up to **$75.0 million** in contingent consideration based on future milestones, plus low single-digit royalty payments[78](index=78&type=chunk) - The contingent consideration liability related to Confluence was **$23.8 million** as of June 30, 2022, down from $28.4 million at December 31, 2021[79](index=79&type=chunk) [13. Income Taxes](index=25&type=section&id=13.%20Income%20Taxes) This note explains the Company's income tax position and the status of its deferred tax assets - The Company did not record a federal or state income tax benefit for losses incurred due to a **full valuation allowance** on deferred tax assets[80](index=80&type=chunk) [14. Discontinued Operations](index=25&type=section&id=14.%20Discontinued%20Operations) This note provides information on liabilities associated with the Company's discontinued operations Liabilities from Discontinued Operations (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Accrued expenses | $2,202 | $2,202 | | Discontinued operations - current liabilities | $2,202 | $2,202 | [15. Segment Information](index=25&type=section&id=15.%20Segment%20Information) This note details the Company's reportable operating segments and their financial performance - The Company operates in two reportable segments: **therapeutics** (focused on immuno-inflammatory diseases) and **contract research** (providing laboratory services)[83](index=83&type=chunk) Segment Results of Operations (in thousands) for Three Months Ended June 30, 2022 | Metric | Therapeutics | Contract Research | Corporate and Other | Total Company | | :--------------------- | :----------- | :---------------- | :------------------ | :------------ | | Total revenue | $309 | $4,399 | $(3,180) | $1,528 | | Loss from operations | $(15,277) | $(496) | $(5,221) | $(20,994) | - Intersegment revenue from contract research to therapeutics was **$3.2 million** and **$6.1 million** for the three and six months ended June 30, 2022, respectively, which is eliminated in consolidated statements[87](index=87&type=chunk) [16. Legal Proceedings](index=27&type=section&id=16.%20Legal%20Proceedings) This note discloses the status of significant legal matters involving the Company - The Company settled a securities class action lawsuit in December 2021 for **$2.7 million**, which was covered by insurance[91](index=91&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and operational results [Overview](index=29&type=section&id=2.1%20Overview) The Company is a clinical-stage biopharmaceutical firm focused on immuno-inflammatory diseases - Aclaris Therapeutics is a clinical-stage biopharmaceutical company developing novel drug candidates for immuno-inflammatory diseases and exploring strategic partnerships[95](index=95&type=chunk) [Clinical Programs](index=29&type=section&id=2.2%20Clinical%20Programs) This section details the progress of the Company's key drug candidates in clinical development [Zunsemetinib, an Investigational Oral MK2 Inhibitor](index=29&type=section&id=2.2.1%20Zunsemetinib%2C%20an%20Investigational%20Oral%20MK2%20Inhibitor) Zunsemetinib is being developed for multiple inflammatory conditions, with several Phase 2 trials underway - Zunsemetinib (ATI-450) is an oral MK2 inhibitor being developed for rheumatoid arthritis, hidradenitis suppurativa, and psoriatic arthritis[96](index=96&type=chunk) - Phase 2a trial (ATI-450-RA-201) in moderate to severe rheumatoid arthritis showed **durable clinical activity** and was generally well-tolerated[103](index=103&type=chunk) - Phase 2b trials for rheumatoid arthritis, hidradenitis suppurativa, and psoriatic arthritis were initiated, with topline data expected in the **first half of 2023**[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) [ATI-1777, an Investigational Topical "Soft" JAK 1/3 Inhibitor](index=33&type=section&id=2.2.2%20ATI-1777%2C%20an%20Investigational%20Topical%20%22Soft%22%20JAK%201%2F3%20Inhibitor) ATI-1777 is a topical inhibitor for atopic dermatitis that has shown positive Phase 2a results - ATI-1777 is a topical 'soft' JAK 1/3 inhibitor for moderate to severe atopic dermatitis, designed for skin activity with **minimal systemic exposure**[110](index=110&type=chunk) - Phase 2a trial (ATI-1777-AD-201) achieved its primary endpoint with a **74.4% reduction in mEASI score** at week 4 (p<0.001)[111](index=111&type=chunk) - A Phase 2b trial (ATI-1777-AD-202) for atopic dermatitis was initiated in May 2022, with topline data expected in the **first half of 2023**[113](index=113&type=chunk) [ATI-2138, an Investigational Oral ITJ Inhibitor](index=33&type=section&id=2.2.3%20ATI-2138%2C%20an%20Investigational%20Oral%20ITJ%20Inhibitor) ATI-2138 is an oral inhibitor for T cell-mediated autoimmune diseases currently in Phase 1 trials - ATI-2138 is an oral ITK/TXK/JAK3 (ITJ) inhibitor for T cell-mediated autoimmune diseases, with an IND allowed by the FDA in November 2021[114](index=114&type=chunk) - A Phase 1 SAD trial for ATI-2138 in healthy subjects was initiated in December 2021, with topline data expected in **2022**[114](index=114&type=chunk)[115](index=115&type=chunk)[117](index=117&type=chunk) [Preclinical Programs](index=35&type=section&id=2.3%20Preclinical%20Programs) The Company is advancing ATI-2231, an oral MK2 inhibitor, toward clinical development - ATI-2231, an oral MK2 inhibitor, is being explored for cancer and bone loss, with an IND submission expected by **end of 2022**[118](index=118&type=chunk) [Discovery Programs](index=35&type=section&id=2.4%20Discovery%20Programs) The Company's discovery efforts focus on novel inhibitors for inflammatory and neurodegenerative diseases - The Company is developing oral gut-biased JAK inhibitors for inflammatory bowel disease and brain penetrant kinase inhibitor candidates for neurodegenerative diseases[119](index=119&type=chunk) [Financial Overview](index=35&type=section&id=2.5%20Financial%20Overview) The Company has a history of net losses and expects to require substantial additional funding for its operations - The Company has incurred significant net losses since inception, with a net loss of **$39.3 million** for the six months ended June 30, 2022, and an accumulated deficit of **$634.7 million**[120](index=120&type=chunk) - **Significant expenses and operating losses** are expected to continue as drug candidates advance through development, requiring substantial additional funding[120](index=120&type=chunk) - Operations have historically been financed through equity sales and debt, with future funding expected from these sources and potential partnerships[121](index=121&type=chunk) [Impacts of COVID-19 on Our Business](index=35&type=section&id=2.6%20Impacts%20of%20COVID-19%20on%20Our%20Business) The COVID-19 pandemic has caused business disruptions, and its future impact remains uncertain - The Company implemented a virtual operations strategy to protect employee health and ensure business continuity, but COVID-19 has caused disruptions[122](index=122&type=chunk) - Ongoing COVID-19 spread could lead to further disruptions in development programs, clinical trials, and supply chains, with the full extent of impact remaining uncertain[125](index=125&type=chunk) [Acquisition and License Agreements](index=37&type=section&id=2.7%20Acquisition%20and%20License%20Agreements) The Company has ongoing financial obligations related to past acquisitions and licensing deals - Under the Confluence Agreement, the Company is obligated to pay up to **$75.0 million** in contingent consideration for milestones and low single-digit royalties on net sales[127](index=127&type=chunk) - The asset purchase agreement with EPI Health for RHOFADE includes potential sales milestone payments up to **$20.0 million** and high single-digit royalties on net sales[129](index=129&type=chunk) [Components of Our Results of Operations](index=38&type=section&id=2.8%20Components%20of%20Our%20Results%20of%20Operations) This section breaks down the key drivers of the Company's revenue and expenses - Revenue is primarily derived from contract research services and royalties on RHOFADE sales[130](index=130&type=chunk)[131](index=131&type=chunk) - **Research and development expenses**, which are central to the business, include costs for CROs, clinical trials, manufacturing, and personnel, and are expensed as incurred[132](index=132&type=chunk)[133](index=133&type=chunk) - General and administrative expenses cover executive, administrative, finance, and legal functions, including salaries, professional fees, and facility costs[137](index=137&type=chunk) [Critical Accounting Estimates](index=40&type=section&id=2.9%20Critical%20Accounting%20Estimates) This section highlights the significant judgments and estimates used in financial reporting - The **contingent consideration liability** is a critical estimate, valued quarterly using a probability-weighted model with significant judgment involved in assumptions like probability of success (10-40%) and discount rates (10.2-10.9%)[144](index=144&type=chunk)[145](index=145&type=chunk) - During the six months ended June 30, 2022, a **$4.6 million decrease** in contingent consideration was recorded due to higher discount rates, partially offset by the passage of time[146](index=146&type=chunk) [Results of Operations](index=43&type=section&id=2.10%20Results%20of%20Operations) This section provides a detailed comparison of financial results for the current and prior year periods [Comparison of Three and Six Months Ended June 30, 2022 and 2021](index=43&type=section&id=2.10.1%20Comparison%20of%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021) The Company's financial performance shows decreased revenue and increased operating loss for the quarter Key Financial Results (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (3 Months) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (6 Months) | | :--------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------------------------- | :--------------------------- | :---------------- | | Total revenue | $1,528 | $1,824 | $(296) | $2,981 | $3,601 | $(620) | | Total costs and expenses | $22,522 | $19,830 | $2,692 | $42,882 | $50,136 | $(7,254) | | Loss from operations | $(20,994) | $(18,006) | $(2,988) | $(39,901) | $(46,535) | $6,634 | | Net loss | $(20,532) | $(18,161) | $(2,371) | $(39,321) | $(46,915) | $7,594 | [Revenue](index=43&type=section&id=2.10.2%20Revenue) Revenue decreased due to lower contract research activity, partially offset by higher royalty income - Contract research revenue decreased by **$0.4 million (24.9%)** for the three months and **$0.7 million (20.0%)** for the six months ended June 30, 2022, due to lower billed hours[151](index=151&type=chunk) - Other revenue, primarily RHOFADE royalties, increased to **$0.3 million** for the three months and **$0.5 million** for the six months ended June 30, 2022[151](index=151&type=chunk) [Cost of Revenue](index=43&type=section&id=2.10.3%20Cost%20of%20Revenue) The cost of revenue declined in line with the decrease in contract research revenue - Cost of revenue decreased by **$0.195 million (15.4%)** for the three months and **$0.242 million (9.8%)** for the six months ended June 30, 2022, correlating with the decrease in contract research revenue[152](index=152&type=chunk) [Research and Development Expenses](index=44&type=section&id=2.10.4%20Research%20and%20Development%20Expenses) R&D expenses increased substantially, driven by advancing clinical trials for key drug candidates Research and Development Expenses by Program (in thousands) | Program | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (3 Months) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (6 Months) | | :----------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------------------------- | :--------------------------- | :---------------- | | Zunsemetinib | $6,606 | $2,252 | $4,354 | $11,318 | $4,325 | $6,993 | | ATI-1777 | $3,510 | $497 | $3,013 | $5,866 | $1,444 | $4,422 | | ATI-2138 | $1,141 | $967 | $174 | $2,267 | $2,350 | $(83) | | ATI-2231 | $1,503 | $70 | $1,433 | $3,089 | $70 | $3,019 | | Discovery | $1,183 | $774 | $409 | $2,272 | $1,466 | $806 | | Personnel | $3,552 | $1,798 | $1,754 | $6,780 | $3,250 | $3,530 | | Stock-based compensation | $941 | $1,154 | $(213) | $828 | $2,030 | $(1,202) | | Total R&D expenses | $18,779 | $7,897 | $10,882 | $33,085 | $15,735 | $17,350 | - **Zunsemetinib R&D expenses increased significantly** due to clinical development activities for multiple Phase 2 trials[155](index=155&type=chunk) - **ATI-1777 R&D expenses rose** due to manufacturing, preclinical activities, and start-up costs for a Phase 2b trial[156](index=156&type=chunk) [General and Administrative Expenses](index=46&type=section&id=2.10.5%20General%20and%20Administrative%20Expenses) G&A expenses increased primarily due to higher personnel costs and stock-based compensation General and Administrative Expenses (in thousands) | Category | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (3 Months) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (6 Months) | | :--------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------------------------- | :--------------------------- | :---------------- | | Personnel | $1,365 | $1,147 | $218 | $2,938 | $2,106 | $832 | | Professional and legal fees | $1,160 | $1,336 | $(176) | $2,289 | $2,691 | $(402) | | Facility and support services | $482 | $414 | $68 | $1,091 | $812 | $279 | | Other G&A | $619 | $630 | $(11) | $1,176 | $1,193 | $(17) | | Stock-based compensation | $2,449 | $2,343 | $106 | $4,680 | $3,895 | $785 | | Total G&A expenses | $6,075 | $5,870 | $205 | $12,174 | $10,697 | $1,477 | - Personnel and stock-based compensation expenses increased due to **higher average headcount** and new equity awards[164](index=164&type=chunk) - Professional and legal fees decreased due to lower legal fees, partially offset by higher Sarbanes-Oxley and other accounting compliance expenses[165](index=165&type=chunk) [Revaluation of Contingent Consideration](index=46&type=section&id=2.10.6%20Revaluation%20of%20Contingent%20Consideration) The fair value of contingent consideration decreased due to changes in discount rates - The decrease in contingent consideration fair value for the six months ended June 30, 2022, was mainly due to **higher discount rates** applied to potential payments[167](index=167&type=chunk)[168](index=168&type=chunk)[170](index=170&type=chunk) - The prior year's increase was due to updated probability of success and estimated sales levels for zunsemetinib and ATI-1777[170](index=170&type=chunk) [Other Income (Expense), net](index=48&type=section&id=2.10.7%20Other%20Income%20(Expense)%2C%20net) Other income increased due to lower interest expense and higher interest income - Other income (expense), net, increased for both three and six months ended June 30, 2022, due to **lower interest expense** from the repaid SVB loan and **higher interest income** on investments[171](index=171&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=2.11%20Liquidity%20and%20Capital%20Resources) This section discusses the Company's financial position, cash flows, and funding requirements [Overview](index=48&type=section&id=2.11.1%20Overview) The Company has historically financed its operations through equity sales and loans - The Company has historically incurred net losses and negative cash flows, financing operations primarily through equity sales and commercial loans[172](index=172&type=chunk) - As of June 30, 2022, cash, cash equivalents, and marketable securities totaled **$255.8 million**[173](index=173&type=chunk) [Equity Financing](index=48&type=section&id=2.11.2%20Equity%20Financing) The Company has recently raised significant capital through at-the-market and public offerings - In April 2022, the Company sold **4,838,709 shares** of common stock for **$75.0 million** gross proceeds through an at-the-market facility[174](index=174&type=chunk) - Public offerings in June 2021 and January 2021 generated net proceeds of **$134.9 million** and **$103.3 million**, respectively[175](index=175&type=chunk)[177](index=177&type=chunk) [Debt Financing](index=50&type=section&id=2.11.3%20Debt%20Financing) The Company's term loan from Silicon Valley Bank was fully repaid in 2021 - The **$11.0 million** term loan from Silicon Valley Bank, borrowed in March 2020, was fully repaid in July 2021 for a total of **$11.7 million**[178](index=178&type=chunk) [Cash Flows](index=50&type=section&id=2.11.4%20Cash%20Flows) Cash flow analysis shows increased operating outflow and a positive shift in investing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(40,635) | $(24,453) | | Net cash provided by (used in) investing activities | $8,709 | $(120,784) | | Net cash provided by financing activities | $72,841 | $236,621 | - Operating cash outflow increased due to higher net losses (after non-cash adjustments) and increased cash paid for accounts payable and accrued expenses[182](index=182&type=chunk) - Investing activities shifted from a net use of **$120.8 million** in 2021 to a net provision of **$8.7 million** in 2022, driven by changes in marketable securities transactions[186](index=186&type=chunk) [Funding Requirements](index=54&type=section&id=2.11.5%20Funding%20Requirements) The Company anticipates continued net losses and will require additional capital for future development - The Company anticipates continued net losses due to ongoing clinical development of zunsemetinib, ATI-1777, and ATI-2138, as well as preclinical and discovery efforts[190](index=190&type=chunk) - Existing cash and marketable securities are believed to be sufficient for **over 12 months**, but additional capital will be required to complete clinical development[192](index=192&type=chunk) - Future funding requirements are highly dependent on the scope and success of drug candidate development, regulatory outcomes, and the ability to secure partnerships[193](index=193&type=chunk) [Leases](index=56&type=section&id=2.11.6%20Leases) The Company has ongoing lease obligations for its office and laboratory facilities - Aggregate remaining lease payment obligations for office and laboratory spaces totaled **$3.3 million** as of June 30, 2022[196](index=196&type=chunk) [Agreement and Plan of Merger – Confluence](index=56&type=section&id=2.11.7%20Agreement%20and%20Plan%20of%20Merger%20%E2%80%93%20Confluence) The Company has future payment obligations related to the Confluence acquisition - The Company has contingent consideration obligations up to **$75.0 million** and future royalty payments to former Confluence equity holders[197](index=197&type=chunk) [R&D Obligations](index=56&type=section&id=2.11.8%20R&D%20Obligations) The Company's non-cancelable R&D contract obligations are not considered material - The Company's non-cancelable obligations under R&D contracts with CROs and other service providers are not material, as contracts generally allow for termination upon notice[198](index=198&type=chunk) [Segment Information](index=56&type=section&id=2.11.9%20Segment%20Information) The Company operates through its therapeutics and contract research segments - The Company's two reportable segments are **therapeutics** and **contract research**, with the therapeutics segment focused on immuno-inflammatory diseases and contract research providing laboratory services[199](index=199&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the Company's exposure to market risks, primarily interest rate sensitivity - The Company's primary market risk exposure is **interest rate sensitivity** on its cash equivalents and marketable securities[200](index=200&type=chunk) - Due to the short-term and low-risk nature of its investment portfolio, an immediate **10% change in market interest rates** is not expected to materially affect the fair market value of investments[200](index=200&type=chunk) - The economic impact of the COVID-19 pandemic and ongoing geopolitical tensions have introduced significant volatility in financial markets[201](index=201&type=chunk) [Item 4. Controls and Procedures](index=58&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and internal financial reporting controls - As of June 30, 2022, management concluded that the Company's disclosure controls and procedures were **effective** at a reasonable assurance level[203](index=203&type=chunk) - **No changes** in internal control over financial reporting were identified during the quarter that materially affected or are reasonably likely to materially affect internal controls[204](index=204&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=59&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not currently involved in any material legal proceedings - The Company is not currently a party to any material legal proceedings and is unaware of any pending or threatened legal proceedings that could have a material adverse effect on its business[206](index=206&type=chunk) [Item 1A. Risk Factors](index=59&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the Company's risk factors since its last annual report - The Company's risk factors have **not materially changed** from those described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021[207](index=207&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section is listed in the report's table of contents but contains no specific content [Item 6. Exhibits](index=59&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q - Exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, employment agreements, Section 302 and 906 certifications, and various XBRL interactive data files[208](index=208&type=chunk)[210](index=210&type=chunk) [Signatures](index=62&type=section&id=Signatures) This section contains the signatures of the authorized officers certifying the report - The report is signed by Neal Walker, Chief Executive Officer, and Frank Ruffo, Chief Financial Officer, on **August 3, 2022**[213](index=213&type=chunk)