Aclaris Therapeutics(ACRS) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for the period ended September 30, 2021, reflect a significant increase in cash and total assets, primarily due to two public stock offerings during the year, despite widening net losses driven by increased R&D and contingent consideration revaluation Condensed Consolidated Balance Sheets As of September 30, 2021, total assets significantly increased to $263.5 million, driven by cash and marketable securities, while total liabilities rose to $46.9 million due to contingent consideration, and stockholders' equity grew to $216.6 million from stock offerings | Balance Sheet Highlights (In thousands) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $53,602 | $22,063 | | Marketable securities (Short & Long-term) | $190,015 | $32,068 | | Total current assets | $205,782 | $57,493 | | Total assets | $263,494 | $70,784 | | Liabilities & Equity | | | | Total current liabilities | $17,839 | $14,874 | | Long-term debt, net | $0 | $10,653 | | Contingent consideration | $26,200 | $4,061 | | Total liabilities | $46,913 | $33,134 | | Total stockholders' equity | $216,581 | $37,650 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the nine months ended September 30, 2021, revenue slightly increased to $5.3 million, but total expenses surged to $72.1 million due to higher R&D and contingent consideration revaluation, resulting in a net loss of $68.1 million | Statement of Operations (In thousands, except per share data) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total revenue | $5,260 | $4,902 | | Research and development | $29,711 | $20,382 | | General and administrative | $16,676 | $15,632 | | Revaluation of contingent consideration | $22,139 | $2,393 | | Total costs and expenses | $72,090 | $42,254 | | Loss from operations | ($66,830) | ($37,352) | | Net loss | ($68,061) | ($37,842) | | Net loss per share, basic and diluted | ($1.23) | ($0.90) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased from $37.7 million to $216.6 million by September 30, 2021, primarily driven by $238.2 million in net proceeds from two public stock offerings, partially offset by a $68.1 million net loss - The company completed two public offerings in 2021, raising net proceeds of $103.3 million in January and $134.9 million in June, significantly bolstering stockholders' equity[16][53][54] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, operating activities used $35.1 million, investing activities used $158.5 million, and financing activities provided $225.1 million from stock offerings, leading to a $31.5 million net increase in cash | Cash Flow Summary (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($35,059) | ($29,776) | | Net cash provided by (used in) investing activities | ($158,456) | $8,692 | | Net cash provided by financing activities | $225,054 | $10,543 | | Net increase (decrease) in cash | $31,539 | ($10,541) | Notes to Unaudited Condensed Consolidated Financial Statements Key notes highlight the company's strong liquidity, sufficient for over 12 months, and detail the $22.1 million increase in contingent consideration, $238.2 million raised from stock offerings, full debt repayment, and settled legal proceedings - The company believes its existing cash, cash equivalents, and marketable securities of $243.6 million are sufficient to fund operations for more than 12 months from the report's issuance date[22][24] - The contingent consideration liability increased by $22.1 million during the first nine months of 2021 due to updated assumptions on success probability and future sales for zunsemetinib and ATI-1777 after positive Phase 2a clinical trial results[38] - In July 2021, the company fully repaid the $11.0 million outstanding under its Loan and Security Agreement with Silicon Valley Bank, for a total payment of $11.7 million including interest and fees[47] - The company settled a securities class action lawsuit for $2.65 million and a stockholder derivative action for $425 thousand, both expected to be covered by insurance[89][94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's focus as a clinical-stage biopharmaceutical company, highlighting positive Phase 2a results for zunsemetinib and ATI-1777, increased R&D spending, a significant contingent consideration charge, and strengthened liquidity from public offerings Overview and Clinical Programs The company focuses on developing drug candidates for immuno-inflammatory diseases, with lead candidates zunsemetinib and ATI-1777 showing positive Phase 2a results and planned advancement to Phase 2b trials, alongside preclinical programs - Zunsemetinib (ATI-450): Following positive Phase 2a results in moderate to severe rheumatoid arthritis, the company intends to progress to a Phase 2b trial in Q4 2021 and expand into trials for psoriatic arthritis and hidradenitis suppurativa[108][109][110] - ATI-1777: The Phase 2a trial for moderate to severe atopic dermatitis met its primary endpoint with high statistical significance (p<0.001), with a Phase 2b trial planned for the first half of 2022[114][115] - ATI-2138: An IND was submitted in October 2021 for this ITJ inhibitor for psoriasis, with plans for a first-in-human Phase 1 trial if allowed[116] Results of Operations Total revenue slightly increased to $5.3 million, while R&D expenses rose by $9.3 million to $29.7 million, and a significant $22.1 million charge was recorded for contingent consideration revaluation due to positive clinical trial outcomes | R&D Expenses by Program (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Zunsemetinib | $12,532 | $4,925 | | ATI-1777 | $1,894 | $2,553 | | ATI-2138 | $3,330 | $1,753 | | Other & Personnel | $9,955 | $9,351 | | Total R&D Expenses | $29,711 | $20,382 | - The increase in zunsemetinib expenses was primarily due to costs for drug product manufacturing and clinical development activities for upcoming Phase 2b and Phase 2 trials[160] - The revaluation of contingent consideration increased by $19.7 million year-over-year, driven by updated success probabilities and sales estimates for zunsemetinib and ATI-1777 after positive Phase 2a trial results[175] Liquidity and Capital Resources The company's liquidity was significantly strengthened to $243.6 million in cash and marketable securities by two public offerings raising $238.2 million, enabling full debt repayment and ensuring over 12 months of operational funding - The company raised net proceeds of $103.3 million from a public offering in January 2021 and $134.9 million from another in June 2021[179][180] - The company repaid its $11.0 million term loan with SVB in full in July 2021 for a total payment of $11.7 million[182] - Management believes existing cash, cash equivalents, and marketable securities are sufficient to fund operating and capital expenditure requirements for more than 12 months from the date of the report[194] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate sensitivity on its investment portfolio, but due to its short-term, low-risk nature, a significant impact from rate changes is not expected, and debt-related interest rate risk was eliminated upon loan repayment - The company's primary market risk is interest rate sensitivity on its investment portfolio, but due to its short-term, low-risk nature, a significant impact from rate changes is not expected[201] - Interest rate risk from debt was eliminated when the company repaid its Loan and Security Agreement with SVB in full in July 2021[202] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[207] - No changes occurred during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[207] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reached settlement agreements for the Consolidated Securities Action and Consolidated Derivative Action, both preliminarily approved in August 2021, with financial obligations expected to be covered by insurance - In June 2021, the company agreed to settle the Consolidated Securities Action related to its former product ESKATA, with preliminary court approval in August 2021 and final approval pending[212] - The company also agreed to settle the Consolidated Derivative Action in June 2021, involving policy implementation and attorneys' fees, with preliminary court approval in August 2021[217] - The company expects the financial obligations for both settlements to be within the limits of its insurance coverage[212][217] Item 1A. Risk Factors There have been no material changes to the company's 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 disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020[218] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities during the reporting period[219] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the company's articles of incorporation, bylaws, and certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act