Aclaris Therapeutics(ACRS) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk, and internal controls Item 1. Financial Statements The company's financial position strengthened significantly due to public offerings, increasing cash and assets, despite continued operating losses from a non-cash contingent consideration charge Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $113,447 | $22,063 | | Total marketable securities | $152,730 | $32,068 | | Total Assets | $288,046 | $70,784 | | Liabilities & Equity | | | | Contingent consideration | $25,300 | $4,061 | | Total liabilities | $54,231 | $33,134 | | Total stockholders' equity | $233,815 | $37,650 | | Total Liabilities and Stockholders' Equity | $288,046 | $70,784 | Condensed Consolidated Statements of Operations and Comprehensive Loss This section outlines the company's revenues, expenses, and net loss over specified periods Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,824 | $2,046 | $3,601 | $3,453 | | Research and development | $7,897 | $6,466 | $15,735 | $14,142 | | Revaluation of contingent consideration | $4,800 | $— | $21,239 | $1,767 | | Loss from operations | $(18,006) | $(11,381) | $(46,535) | $(26,887) | | Net loss | $(18,161) | $(11,597) | $(46,915) | $(27,183) | | Net loss per share | $(0.34) | $(0.28) | $(0.90) | $(0.65) | Condensed Consolidated Statements of Cash Flows This section details the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(24,453) | $(17,626) | | Net cash (used in) provided by investing activities | $(120,784) | $3,455 | | Net cash provided by financing activities | $236,621 | $10,821 | | Net increase (decrease) in cash | $91,384 | $(3,350) | Notes to Unaudited Condensed Consolidated Financial Statements This section provides additional details and explanations for the figures presented in the financial statements - The company believes its existing cash, cash equivalents, and marketable securities of $266.2 million are sufficient to fund its operating and capital expenditure requirements for more than 12 months from the issuance date of the financial statements[21][23] - The contingent consideration liability increased by $21.2 million during the first six months of 2021, reaching $25.3 million. This was due to updated assumptions on the probability of success and future sales levels following positive Phase 2a clinical trial results for ATI-450 and ATI-1777[37][82] - The company significantly boosted its liquidity through two public offerings in 2021: a January offering raised $103.3 million in net proceeds, and a June offering raised $134.9 million in net proceeds[55][56] - In June 2021, the company agreed to settle a securities class action and a stockholder derivative action. It accrued liabilities of $2.65 million and $425,000, respectively, which are expected to be covered by insurance[92][95] - As a subsequent event in July 2021, the company repaid its $11.0 million term loan with Silicon Valley Bank (SVB) in full, for a total payment of $11.7 million including interest and fees[98][46] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's drug pipeline and positive clinical trial results, noting a wider net loss due to contingent consideration revaluation, while liquidity significantly improved from public offerings Drug Pipeline and Development Programs This section details the company's ongoing drug development initiatives and clinical trial progress - ATI-450 (Oral MK2 Inhibitor): Following a successful Phase 2a trial in moderate to severe rheumatoid arthritis that demonstrated durable clinical activity, the company plans to initiate a Phase 2b trial in Q4 2021. Development is also planned for hidradenitis suppurativa and psoriatic arthritis[109][110][111] - ATI-1777 (Topical JAK 1/3 Inhibitor): The Phase 2a trial in moderate to severe atopic dermatitis met its primary endpoint with high statistical significance (p<0.001), showing a 74.4% reduction in mEASI score. A Phase 2b trial is planned[113][115][116] - ATI-2138 (Oral ITJ Inhibitor): The company is developing ATI-2138 for T-cell mediated autoimmune diseases like psoriasis and/or inflammatory bowel disease and expects to submit an IND in the second half of 2021[117] Results of Operations This section analyzes the company's financial performance, including revenue, expenses, and net loss trends Comparison of Operating Results (in thousands) | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,824 | $2,046 | $3,601 | $3,453 | | R&D Expenses | $7,897 | $6,466 | $15,735 | $14,142 | | G&A Expenses | $5,870 | $5,572 | $10,697 | $11,773 | | Revaluation of contingent consideration | $4,800 | $— | $21,239 | $1,767 | | Net Loss | $(18,161) | $(11,597) | $(46,915) | $(27,183) | - The increase in net loss for the three and six months ended June 30, 2021 was primarily driven by charges of $4.8 million and $21.2 million, respectively, for the revaluation of contingent consideration. This was a result of positive clinical trial outcomes for ATI-450 and ATI-1777, which increased the probability of future milestone payments[168][169] - R&D expenses increased by $1.4 million in Q2 2021 compared to Q2 2020, mainly due to costs for ATI-450 clinical trial preparations and development activities for ATI-2138[158][159][161] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations and funding sources - As of June 30, 2021, the company had $266.2 million in cash, cash equivalents, and marketable securities[173] - Net cash provided by financing activities was $236.6 million for the first six months of 2021, primarily from two public offerings that raised net proceeds of $103.3 million (January) and $134.9 million (June)[174][175][187] - Management believes that existing cash, cash equivalents, and marketable securities are sufficient to fund operating and capital requirements for more than 12 months from the filing date of this report[190] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate sensitivity on its short-term, low-risk cash and marketable securities - The company's main market risk is interest rate sensitivity for its cash and marketable securities, but due to the short-term, low-risk profile of the portfolio, a 10% change in rates is not expected to be material[197] Item 4. Controls and Procedures The company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[204] - No changes occurred during the fiscal quarter ended June 30, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[204] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and filed exhibits Item 1. Legal Proceedings The company reached agreements in June 2021 to settle a Securities Class Action and a Stockholder Derivative Action, with expected financial obligations covered by insurance and subject to court approval - In June 2021, the company agreed to settle the Consolidated Securities Action. The settlement is subject to court approval, and the company expects its financial obligation to be within its insurance coverage limits[210][92] - In June 2021, the company also agreed to settle the Consolidated Derivative Action. The terms include implementing certain policies and paying attorneys' fees, which are expected to be covered by insurance. This settlement is also subject to court approval[213][95] Item 1A. Risk Factors The company reports no material changes to its risk factors from those described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - Risk factors have not changed materially from those described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020[214] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for the period - None reported[214] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications required by the Sarbanes-Oxley Act - The report includes a list of filed exhibits, such as corporate governance documents and officer certifications (Sections 302 and 906 of the Sarbanes-Oxley Act)[216]