Table of Contents 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, 2020 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 (State or Oth ...

Table of Contents 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, 2019 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 ...

Table of Contents 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, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | --- | --- | --- | --- | |----------------------------------------------------------------------------------------------|--------------------------- ...

Table of Contents 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 June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | --- | --- | --- | |----------------------------------------------------------------------------------------------|-------------------------------------- ...

Table of Contents 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, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------------------------------------|-----------------------------------|---------------------- ...

PART I [Business](index=6&type=section&id=Item%201.%20Business) Aclaris Therapeutics is a biopharmaceutical company focused on dermatological and immuno-inflammatory diseases, with two commercial products and a diverse drug pipeline - The company operates as a physician-led biopharmaceutical firm with a focus on dermatology and immuno-inflammatory diseases, featuring **two commercial products and a pipeline of drug candidates**[11](index=11&type=chunk) - Aclaris acquired Confluence Life Sciences in 2017, which added **in-house small molecule drug discovery and preclinical development capabilities**, including a proprietary KINect drug discovery platform[18](index=18&type=chunk) - As of December 31, 2018, the company had **169 full-time and part-time employees**, all located in the United States[141](index=141&type=chunk) [Our Commercial Products](index=11&type=section&id=Our%20Commercial%20Products) The company markets ESKATA for raised seborrheic keratosis and RHOFADE for persistent facial erythema, both launched in the U.S. in 2018 - ESKATA (hydrogen peroxide topical solution, 40%) was **FDA-approved in December 2017** and **launched in the U.S. in May 2018** for the treatment of raised SKs, also receiving marketing approval in several European countries[12](index=12&type=chunk)[32](index=32&type=chunk) - RHOFADE (oxymetazoline hydrochloride cream, 1%) was **acquired from Allergan in November 2018**, indicated for the topical treatment of persistent facial erythema associated with rosacea in adults[13](index=13&type=chunk)[34](index=34&type=chunk) - The company entered an **exclusive license agreement with Cipher Pharmaceuticals** to commercialize ESKATA in Canada, with a New Drug Submission accepted for review by Health Canada in December 2018[33](index=33&type=chunk) [Our Drug Candidates](index=8&type=section&id=Our%20Drug%20Candidates) Aclaris's pipeline features A-101 45% in Phase 3 for common warts, Phase 2 JAK inhibitors, and preclinical candidates Key Drug Candidate Pipeline Status | Drug Candidate | Indication | Status | Expected Milestone | | :--- | :--- | :--- | :--- | | A-101 45% Topical Solution | Common Warts | Phase 3 | Data in 2H 2019; NDA submission in 1H 2020 | | ATI-501 (oral) | Alopecia Areata (AA) | Phase 2 | Preliminary results in 2H 2019 | | ATI-502 (topical) | AA, Vitiligo, AGA, Atopic Dermatitis | Phase 2 | Preliminary results expected from 2Q 2019 to 2H 2019 | | ATI-450 (MK-2 inhibitor) | Rheumatoid Arthritis | Preclinical | IND submission expected mid-2019 | | ATI-1777 (soft-JAK inhibitor) | Dermatological Conditions | Preclinical | IND submission expected by end of 1H 2020 | [Manufacturing and Supply](index=13&type=section&id=Manufacturing%20and%20Supply) Aclaris relies on third-party contractors for all manufacturing and supply, with exclusive agreements for ESKATA components - The company does not own manufacturing facilities and relies on **third parties for all preclinical, clinical, and commercial manufacturing** of its products, including ESKATA and RHOFADE[36](index=36&type=chunk) - An **exclusive ten-year supply agreement** is in place with PeroxyChem LLC for the hydrogen peroxide API used in ESKATA[37](index=37&type=chunk) - An **exclusive commercial supply agreement** exists with James Alexander Corporation for the finished dosage form of ESKATA, which includes annual minimum purchase requirements through 2022[38](index=38&type=chunk) [Commercialization](index=15&type=section&id=Commercialization) Aclaris commercializes ESKATA and RHOFADE in the U.S. with its own sales force, with ESKATA sold as a cash-pay aesthetic procedure - The company is commercializing ESKATA and RHOFADE in the U.S. with its **own sales force deployed in approximately 50 territories**[41](index=41&type=chunk) - ESKATA is sold to a **single wholesaler, McKesson Specialty Care Distribution**, and is positioned as a cash-pay aesthetic procedure for patients, generally not reimbursed by third-party payors[42](index=42&type=chunk)[43](index=43&type=chunk) - RHOFADE commercialization began in December 2018, with distribution initially handled by Allergan under a transition services agreement, and is sold to wholesalers for distribution to pharmacies[44](index=44&type=chunk) [Competition](index=17&type=section&id=Competition) Aclaris faces intense competition across its product portfolio and pipeline, including established pharmaceutical companies with greater resources - For RHOFADE, the primary competitor is **MIRVASO (brimonidine) topical gel, 0.33%**, marketed by Galderma Laboratories, L.P., also approved for persistent facial erythema due to rosacea[50](index=50&type=chunk) - For ATI-501 and ATI-502 in alopecia areata, competition includes existing treatments like corticosteroids and other companies developing JAK inhibitors, biologics, and other novel therapies[52](index=52&type=chunk) - Many competitors are large, established pharmaceutical and biotechnology companies with **substantially greater financial resources, R&D expertise, and marketing capabilities**[54](index=54&type=chunk) [Intellectual Property](index=19&type=section&id=Intellectual%20Property) Aclaris's IP strategy relies on owned and in-licensed patents for its products and pipeline, with key patents expiring from 2022 to 2035 - ESKATA & A-101 45%: Protected by owned U.S. patents for methods of use (expiring **2022**) and formulations/applicators (expiring **2035**)[57](index=57&type=chunk)[58](index=58&type=chunk) - RHOFADE: Protected by a portfolio of patents exclusively licensed from Allergan covering methods of use and compositions, with expiration dates ranging from **2024 to 2035**[59](index=59&type=chunk) - JAK Inhibitors (ATI-501/502): Composition of matter patents are exclusively licensed from Rigel and expire in **2030**, while method of use patents for hair loss disorders are licensed from Columbia University and expire in **2031**[60](index=60&type=chunk)[63](index=63&type=chunk) [Government Regulation and Product Approval](index=28&type=section&id=Government%20Regulation%20and%20Product%20Approval) Aclaris's products and candidates are subject to extensive FDA and international regulation, requiring rigorous clinical trials and post-market compliance - Drug candidates must undergo a rigorous FDA approval process, including preclinical testing and adequate and well-controlled clinical trials (Phase 1, 2, and 3) to establish safety and efficacy before an NDA can be approved[89](index=89&type=chunk)[93](index=93&type=chunk) - Post-approval, the company is subject to ongoing FDA regulation, including requirements for recordkeeping, reporting of adverse events, cGMP for manufacturing, and strict rules on advertising and promotion[101](index=101&type=chunk)[103](index=103&type=chunk) - The company's commercial operations are subject to various healthcare laws, including the federal Anti-Kickback Statute, the False Claims Act, and transparency laws like the Physician Payments Sunshine Act, which regulate interactions with healthcare providers and payors[112](index=112&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk) [Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including historical losses, dependence on commercial products, uncertain pipeline outcomes, reliance on third parties, and regulatory challenges - The company has a history of significant net losses, incurring **$132.7 million in 2018**, and expects to continue incurring losses for several years, with an accumulated deficit of **$292.2 million** as of December 31, 2018[147](index=147&type=chunk) - Successful commercialization of products like ESKATA and RHOFADE is uncertain and depends on market acceptance, physician adoption, and patient willingness to pay, especially for ESKATA, which is not expected to be covered by third-party payors[193](index=193&type=chunk)[194](index=194&type=chunk)[210](index=210&type=chunk) - The company relies on third parties for manufacturing, clinical trials, and distribution, which introduces risks related to supply chain disruptions, quality control, and regulatory compliance of its partners[220](index=220&type=chunk)[226](index=226&type=chunk) - Clinical drug development is a lengthy, expensive, and uncertain process with a high risk of failure, where delays in trials or failure to demonstrate safety and efficacy could prevent or delay marketing approval and harm the business[174](index=174&type=chunk)[175](index=175&type=chunk) [Properties](index=121&type=section&id=Item%202.%20Properties) Aclaris subleases 33,019 sq ft for its Wayne, PA headquarters and leases 21,056 sq ft for office and lab space in St. Louis - The company's headquarters is located in a **33,019 sq. ft. subleased space in Wayne, PA**, with the term running through October 2023[407](index=407&type=chunk) - Aclaris leases **21,056 sq. ft. of office and laboratory space in St. Louis, MO**, under a 10-year lease set to begin by the end of the first half of 2019[407](index=407&type=chunk) [Legal Proceedings](index=121&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no material legal proceedings as of the report date - The company reports **no material legal proceedings**[408](index=408&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=122&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Aclaris's common stock trades on Nasdaq under 'ACRS', with no dividends paid, and 41.3 million shares outstanding as of March 2019 - The company's common stock is listed on the **Nasdaq Global Select Market under the ticker symbol "ACRS"**[410](index=410&type=chunk) - The company has **never declared or paid dividends** and intends to retain future earnings to fund business operations[410](index=410&type=chunk) - As of March 15, 2019, there were **41,269,643 shares of common stock outstanding**[411](index=411&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=123&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2018, Aclaris's revenue grew to $10.1 million, but net loss widened to $132.7 million due to increased operating expenses, funded by public offerings and debt [Results of Operations](index=143&type=section&id=Results%20of%20Operations) In 2018, total revenue increased to $10.1 million, but net loss expanded to $132.7 million due to significant increases in operating expenses Comparison of Years Ended December 31, 2018 and 2017 (In thousands) | Metric | 2018 | 2017 | Change | | :--- | :--- | :--- | :--- | | **Total revenue, net** | **$10,091** | **$1,683** | **$8,408** | | Gross profit | $3,241 | $476 | $2,765 | | Research and development | $63,009 | $39,790 | $23,219 | | Sales and marketing | $47,997 | $13,769 | $34,228 | | General and administrative | $27,649 | $19,340 | $8,309 | | **Total operating expenses** | **$138,655** | **$72,899** | **$65,756** | | **Net loss** | **$(132,738)** | **$(68,523)** | **$(64,215)** | - 2018 revenue included **$2.8 million from ESKATA sales** and **$1.1 million from RHOFADE sales**, following its acquisition in November 2018[488](index=488&type=chunk) - The increase in R&D expenses was primarily driven by the initiation of Phase 3 trials for A-101 45% Topical Solution and continued Phase 2 trials for the company's JAK inhibitors[491](index=491&type=chunk) [Liquidity and Capital Resources](index=149&type=section&id=Liquidity%20and%20Capital%20Resources) Aclaris had $168.0 million in cash and equivalents as of December 2018, raised $100.2 million from equity and $30.0 million from debt, sufficient for over 12 months - As of December 31, 2018, the company held **$168.0 million in cash, cash equivalents, and marketable securities**[509](index=509&type=chunk) - In October 2018, the company raised **net proceeds of $100.2 million** from a public offering of common stock[514](index=514&type=chunk) - In October 2018, the company entered into a loan and security agreement with Oxford Finance, borrowing an initial **$30.0 million** from a total facility of up to $65.0 million[515](index=515&type=chunk) - Management believes existing cash is sufficient to fund operations for **more than 12 months** from the report date, but will require additional capital to fully fund its long-term development and commercialization strategy[536](index=536&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=136&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Aclaris's critical accounting policies involve significant judgments and estimates, particularly for revenue recognition, intangible assets, contingent consideration, and R&D expenses - Revenue recognition for product sales requires significant estimates for variable consideration, including trade discounts, government and payor rebates, product returns, and patient co-pay assistance programs[463](index=463&type=chunk)[465](index=465&type=chunk)[467](index=467&type=chunk)[468](index=468&type=chunk) - Intangible assets and goodwill are subject to annual impairment testing, with finite-lived intangibles amortized and indefinite-lived assets not amortized until commercialization[475](index=475&type=chunk)[476](index=476&type=chunk)[477](index=477&type=chunk) - Contingent consideration from the Confluence acquisition is recorded at fair value and is subject to changes based on the likelihood and timing of future milestone payments, with changes recorded in the statement of operations[478](index=478&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=162&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Aclaris's primary market risk is interest rate exposure on its investment portfolio and floating-rate debt, with a 100 basis-point increase impacting annual interest expense by $304,000 - The company's investment portfolio is exposed to interest rate risk, but due to the short-term nature of the investments, the impact of a **10% rate change is not expected to be material**[565](index=565&type=chunk) - The **$30.0 million loan from Oxford Finance** has a floating interest rate tied to LIBOR, where a **100 basis-point (1%) increase** in the interest rate would add approximately **$304,000** to the company's annual interest expense[566](index=566&type=chunk) [Financial Statements and Supplementary Data](index=164&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Aclaris's audited consolidated financial statements for 2016-2018, including balance sheets, income statements, equity, and cash flows, with an unqualified audit opinion Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | **Total Assets** | **$275,566** | **$243,509** | | Cash and cash equivalents | $57,019 | $20,202 | | Marketable securities | $110,953 | $188,652 | | **Total Liabilities** | **$60,442** | **$18,247** | | Long-term debt | $29,914 | $0 | | **Total Stockholders' Equity** | **$215,124** | **$225,262** | Consolidated Statement of Operations Data (in thousands) | Account | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Total revenue, net | $10,091 | $1,683 | $0 | | Total operating expenses | $138,655 | $72,899 | $48,567 | | **Net loss** | **$(132,738)** | **$(68,523)** | **$(48,079)** | [Controls and Procedures](index=217&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of December 31, 2018, with no material changes to internal control, and no auditor attestation required as an emerging growth company - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2018[748](index=748&type=chunk) - **No material changes** were identified in the company's internal control over financial reporting during the fourth quarter of 2018[749](index=749&type=chunk) - The company is an emerging growth company, and therefore this annual report does not include an attestation report from its registered public accounting firm regarding internal control over financial reporting[751](index=751&type=chunk) PART III [Directors, Executive Officers, Corporate Governance, Compensation, and Other Matters](index=218&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%2014) Information for Items 10-14, covering directors, executive officers, corporate governance, compensation, and related matters, is incorporated by reference from the forthcoming 2019 Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees and Services (Item 14) is **incorporated by reference from the forthcoming 2019 Proxy Statement**[754](index=754&type=chunk)[755](index=755&type=chunk)[756](index=756&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=219&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K, including key corporate documents and material contracts - This section lists all documents filed as part of the report, including financial statements and exhibits[757](index=757&type=chunk) - Key exhibits filed include the Asset Purchase Agreement for RHOFADE, the Loan and Security Agreement with Oxford Finance, and various license agreements with partners like Rigel and Columbia University[759](index=759&type=chunk)[760](index=760&type=chunk)[762](index=762&type=chunk)