What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-07 · 122 added, 99 removed, 465 unchanged (32% of the section changed)

Financial Statements

ACLARIS THERAPEUTICS, INC.

ACLARIS THERAPEUTICS, IN C.

CONDENSED CONSOLIDATED BALANCE SHEET S

1 unchanged sentence

Current assets:

Cash, cash equivalents and restricted cash

Cash and cash equivalents

Marketable securities

19 unchanged sentences

Preferred stock, $ 0.00001 par value;

10,000,000 shares authorized and no shares issued or outstanding at March 31, 2020 and December 31, 2019

10,000,000 shares authorized and no shares issued or outstanding at June 30, 2020 and December 31, 2019

Common stock, $ 0.00001 par value;

100,000,000 shares authorized at March 31, 2020 and December 31, 2019;

41,832,220 and 41,485,638 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

100,000,000 shares authorized at June 30, 2020 and December 31, 2019;

42,691,114 and 41,485,638 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

Additional paid‑in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Contract research

5 unchanged sentences

General and administrative

Goodwill impairment

Total costs and expenses

17 unchanged sentences

Stockholders’

Income (Loss)

Balance at December 31, 2019

Vesting of RSUs

Vesting of restricted stock units

Fair value of warrants issued

3 unchanged sentences

Balance at March 31, 2020

Vesting of restricted stock units

Unrealized loss on marketable securities

Foreign currency translation adjustment

Stock-based compensation expense

Balance at June 30, 2020

Comprehensive

Stockholders’

Income (Loss)

Balance at December 31, 2018

Vesting of RSUs

Vesting of restricted stock units

Unrealized gain on marketable securities

2 unchanged sentences

Balance at March 31, 2019

Exercise of stock options and vesting of restricted stock units

Unrealized gain on marketable securities

Foreign currency translation adjustment

Stock-based compensation expense

Balance at June 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities :

3 unchanged sentences

Change in fair value of contingent consideration

Goodwill impairment charge

Changes in operating assets and liabilities:

12 unchanged sentences

Finance lease payments

Proceeds from the issuance of stock

Net cash (used in) provided by financing activities

Net increase (decrease) in cash and cash equivalents

Proceeds from exercise of employee stock options and the issuance of stock

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Cash, cash equivalents and restricted cash at beginning of period

2 unchanged sentences

Additions to property and equipment included in accounts payable

Offering costs included in accounts payable

Operating lease asset recorded as a result of new accounting standard

10 unchanged sentences

and became a wholly-owned subsidiary thereof.

Aclaris Therapeutics, Inc., ATIL and Confluence are referred to collectively as the “Company.” The Company is a physician-led biopharmaceutical company focused on immuno-inflammatory diseases.

Aclaris Therapeutics, Inc., ATIL and Confluence are referred to collectively as the “Company.” The Company is a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-inflammatory diseases.

The Company currently has a pipeline of drug candidates focused on immuno-inflammatory diseases, as well as one product approved by the U.S.

3 unchanged sentences

The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business.

At March 31, 2020, the Company had cash, cash equivalents and restricted cash and marketable securities of $79,005 and an accumulated deficit of $469,113.

As of June 30, 2020, the Company had cash, cash equivalents and restricted cash and marketable securities of $ 68,115 and an accumulated deficit of $ 480,710 .

Since inception, the Company has incurred net losses and negative cash flows from its operations.

3 unchanged sentences

The future viability of the Company is dependent on its ability to successfully develop its drug candidates and to generate revenue from identifying and consummating transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize its development assets or to raise additional capital to finance its operations.

The Company expects that it will require additional capital to complete the clinical development of ATI-450, to develop its preclinical compounds, and to support its discovery efforts.

The Company will require additional capital to complete the clinical development of ATI-450 and ATI-1777, to develop its preclinical compounds, and to support its discovery efforts.

Additional funds may not be available on a timely basis, on commercially acceptable terms, or at all, and such funds, if raised, may not be sufficient to enable the Company to continue to implement its long-term business strategy.

3 unchanged sentences

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that its consolidated financial statements are issued.

As of the report date, the Company believes the actions described below are probable of being implemented effectively and of alleviating the

conditions or events that exist which raise substantial doubt about its ability to continue as a going concern within one year after the date of the issuance of these condensed consolidated financial statements.

The Company believes its existing cash, cash equivalents and marketable securities are sufficient to fund its operating and capital expenditure requirements for a period greater than 12 months from the date of issuance of these condensed consolidated financial statements.

As of the report date, the Company believes the actions described below are probable of being implemented effectively and of alleviating the conditions or events that exist which raise substantial doubt about its ability to continue as a going concern within one year after the date of the issuance of these condensed consolidated financial statements.

The Company believes its existing

cash, cash equivalents and marketable securities are sufficient to fund its operating and capital expenditure requirements for a period greater than 12 months from the date of issuance of these condensed consolidated financial statements.

The Company has taken a number of actions to support its operations and meet its liquidity needs.

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(1) raising additional capital through debt or equity financings;

(2) identification of third-party partners to further develop, obtain marketing approval for and/or commercialize its drug candidates and ESKATA, which may generate revenue and/or milestone payments;

(2) identifying third-party partners to further develop, obtain marketing approval for and/or commercialize its drug candidates and ESKATA, which may generate revenue and/or milestone payments;

(3) reducing spending on one or more research and development programs by delaying or discontinuing development;

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In September 2019, the Company announced the completion of a strategic review and its decision to refocus its resources on its immuno-inflammatory development programs and to actively seek partners for its commercial products.

The Company also announced a plan to terminate 86 employees (see Note 6).

The accompanying condensed consolidated financial statements have been recast for all periods presented to reflect the assets, liabilities, revenue and expenses related to the Company’s commercial products as discontinued operations (see Note 15).

Use of Estimates

the date of the financial statements and the reported amounts of expenses during the reporting periods.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods.

Significant estimates and assumptions reflected in these financial statements include, but are not limited to, research and development expenses, contingent consideration and the valuation of stock-based awards.

1 unchanged sentence

The COVID-19 pandemic has resulted in a global slowdown of economic activity.

As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require an update to its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities.

As of the date of issuance of these financial statements, the Company is not aware of any specific event

or circumstance that would require an update to its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities.

Actual results could differ from the Company’s estimates.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 31, 2020, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2020 and 2019, the condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2020 and 2019, and the condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 are unaudited.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements contained in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2020 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of March 31, 2020, the results of its operations and comprehensive loss for the three months ended March 31, 2020 and 2019, its changes in stockholders’ equity for the three months ended March 31, 2020 and 2019 and its cash flows for the three months ended March 31, 2020 and 2019.

The accompanying condensed consolidated balance sheet as of June 30, 2020, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020 and 2019, the condensed consolidated statement of stockholders’ equity for the three and six months ended June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 are unaudited.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements contained in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2020 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2020, the results of its operations and comprehensive loss for the three and six months ended June 30, 2020 and 2019, its changes in stockholders’ equity for the three and six months ended June 30, 2020 and 2019 and its cash flows for the six months ended June 30, 2020 and 2019.

The condensed consolidated balance sheet data as of December 31, 2019 was derived from audited financial statements but does not include all disclosures required by GAAP.

The financial data and other information disclosed in these notes related to the three months ended March 31, 2020 and 2019 are unaudited.

The results for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2020 and 2019 are unaudited.

The results for the three and six months ended June 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

The unaudited interim financial statements of the Company included herein have been prepared, pursuant to the rules and regulations of the SEC.

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Cash equivalents, which have consisted of money market accounts, commercial paper and corporate debt securities with original maturities of less than three months, are stated at fair value.

Restricted cash as of March 31, 2020 consisted of $1,750 placed in escrow pursuant to the asset purchase agreement with EPI Health, LLC.

Restricted cash as of June 30, 2020 consisted of $ 1,753 placed in escrow pursuant to the asset purchase agreement with EPI Health, LLC (“EPI Health”) (see Note 13 for additional information).

Revenue Recognition

4 unchanged sentences

At contract inception, the Company assesses the goods or services promised within a contract with a customer to identify the performance obligations, and to determine if they are distinct.

The Company recognizes the revenue that is allocated to each distinct performance obligation when (or as) that performance obligation is satisfied.

The Company recognizes the revenue that is allocated to each distinct performance obligation when (or as) that

performance obligation is satisfied.

The Company only recognizes revenue when collection of the consideration it is entitled to under a contract with a customer is probable.

24 unchanged sentences

A lease is accounted for as a finance lease if it meets one of the following five criteria:

the lease has a purchase option that is reasonably certain of being exercised, the present value of the future cash flows are substantially all of the fair market value of the underlying asset, the lease term is for a significant portion of the remaining economic life of the underlying asset, the title to the underlying asset transfers at the end of the lease term, or if the underlying asset is of such a specialized nature that it is expected to have no alternative uses to the lessor at the end of the term.

underlying asset is of such a specialized nature that it is expected to have no alternative uses to the lessor at the end of the term.

Leases that do not meet the finance lease criteria are accounted for as an operating lease.

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The following tables present information about the fair value measurements of the Company’s financial assets and liabilities which are measured at fair value on a recurring and non-recurring basis, and indicate the level of the fair value hierarchy utilized to determine such fair values:

March 31, 2020

June 30, 2020

Cash equivalents

7 unchanged sentences

Total liabilities

As of March 31, 2020 and December 31, 2019, the Company’s cash equivalents consisted of investments with maturities of less than three months and included a money market fund, which was valued based upon Level 1 inputs, and the Company’s marketable securities consisted of investments with maturities of more than three months and included commercial paper, corporate debt, asset-backed securities and government obligations, which were valued based upon Level 2 inputs.

As of June 30, 2020 and December 31, 2019, the Company’s cash equivalents consisted of investments with maturities of less than three months and included a money market fund, which was valued based upon Level 1 inputs, and the Company’s marketable securities consisted of investments with maturities of more than three months and included commercial paper, corporate debt, asset-backed securities and government obligations, which were valued based upon Level 2 inputs.

In determining the fair value of its Level 2 investments, the Company relied on quoted prices for identical securities in markets that are not active.

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The Company evaluates whether adjustments to third-party pricing is necessary and, historically, the Company has not made adjustments to quoted prices obtained from the third-party pricing service.

During the three months ended March 31, 2020 and 2019, there were no transfers between Level 1, Level 2 and Level 3.

The increase in contingent consideration of $1,767 during the three months ended March 31, 2020 was the result of updates to the Company’s assumptions as a result of the successful completion of a Phase 1 clinical trial for ATI-450.

As of March 31, 2020 and December 31, 2019, the fair value of the Company’s available for sale marketable securities by type of security was as follows:

March 31, 2020

During the six months ended June 30, 2020 and 2019, there were no transfers between Level 1, Level 2 and Level 3.

The increase in contingent consideration of $ 1,767 during the six months ended June 30, 2020 was the result of updates to the Company’s assumptions as a result of the successful completion of a Phase 1 clinical trial for ATI-450.

As of June 30, 2020 and December 31, 2019, the fair value of the Company’s available for sale marketable securities by type of security was as follows:

June 30, 2020

Marketable securities:

21 unchanged sentences

Property and equipment, net

Depreciation expense was $298 and $402 for the three months ended March 31, 2020 and 2019, respectively.

Depreciation expense was $ 297 and $ 393 for the three months ended June 30, 2020 and 2019, respectively, and $ 595 and $ 795 for the six months ended June 30, 2020 and 2019, respectively.

Intangible Assets

4 unchanged sentences

Total intangible assets

As of March 31, 2020, estimated future amortization expense is as follows:

As of June 30, 2020, estimated future amortization expense is as follows:

Year Ending December 31,

6 unchanged sentences

Total accrued expenses

Restructuring Charges

In September 2019, the Company announced the completion of a strategic review and its decision to refocus on its immuno-inflammatory development programs and to actively seek partners for its commercial products.

As a result, the Company terminated 63 employees (“terminated employees”) and gave notice to an additional 23 employees (“noticed employees”) who were asked to provide transition services through termination dates ranging between 4 to 10 months from the date notice was given.

The terminated employees were entitled to receive cash severance payments as well as cash payments in lieu of sixty days’ notice required by the Worker Adjustment and Retraining Notification Act (the “WARN Act”).

The noticed employees were entitled to receive one-time cash severance payments which were not contingent upon providing additional services to the Company.

In addition, certain noticed employees earned retention bonuses if they continued to be employed by the Company through certain termination dates.

The Company recorded a restructuring charge for the one-time severance and WARN Act payments, which was triggered immediately upon either terminating or giving notice to the impacted employees.

The Company expensed the cost of retention bonuses for noticed employees over their respective service terms.

During the three months ended March 31, 2020, the Company recognized expense of $79 related to retention bonuses for noticed employees, and made cash payments of $343 related to severance and retention bonuses to noticed employees.

Payable to EPI Health

As of March 31, 2020, the Company had $5,241 payable to EPI Health, LLC (“EPI Health”) (see Note 15 for additional information).

As of June 30, 2020, the Company had $ 4,950 payable to EPI Health (see Note 15 for additional information).

Loan and Security Agreement – Silicon Valley Bank

5 unchanged sentences

The term loan repayment schedule provides for interest only payments beginning April 1, 2020 and continuing through March 1, 2022, followed by 24 consecutive equal monthly installments of principal, plus monthly payments of accrued interest, starting on April 1, 2022 and continuing through the maturity date of March 1, 2024.

All outstanding

principal and accrued and unpaid interest will be due and payable on the maturity date.

All outstanding principal and accrued and unpaid interest will be due and payable on the maturity date.

The Loan and Security Agreement provides for an annual interest rate equal to the greater of (i) the prime rate then in effect as reported in The Wall Street Journal plus 2 % and (ii) 6.75 %.

3 unchanged sentences

Preferred Stock

As of March 31, 2020 and December 31, 2019, the Company’s amended and restated certificate of incorporation authorized the Company to issue 10,000,000 shares of undesignated preferred stock.

There were no shares of preferred stock outstanding as of March 31, 2020 or December 31, 2019.

As of March 31, 2020 and December 31, 2019, the Company’s amended and restated certificate of incorporation authorized the Company to issue 100,000,000 shares of $0.00001 par value common stock.

As of June 30, 2020 and December 31, 2019, the Company’s amended and restated certificate of incorporation authorized the Company to issue 10,000,000 shares of undesignated preferred stock.

There were no shares of preferred stock outstanding as of June 30, 2020 or December 31, 2019.

As of June 30, 2020 and December 31, 2019, the Company’s amended and restated certificate of incorporation authorized the Company to issue 100,000,000 shares of $ 0.00001 par value common stock.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.

Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to any preferential dividend rights of any series of preferred stock that may be outstanding.

No dividends have been declared through March 31, 2020.

No dividends have been declared through June 30, 2020.

In connection with the Loan and Security Agreement with SVB, the Company issued the Warrant to SVB.

2 unchanged sentences

The Warrant will terminate, if not earlier exercised, on the earlier of March 29, 2030 and the closing of certain merger or other transactions in which the consideration is cash, stock of a publicly-traded acquirer or a combination thereof.

The Company assigned a fair value of $378 to the Warrant using a Black-Scholes valuation methodology, and also concluded that the Warrant was indexed to its own stock and therefore classified the Warrant as an equity instrument.

The Company assigned a fair value of

$ 378 to the Warrant using a Black-Scholes valuation methodology, and also concluded that the Warrant was indexed to its own stock and therefore classified the Warrant as an equity instrument.

Stock-Based Awards

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Beginning at the time the 2015 Plan became effective, no further grants may be made under the Company’s 2012 Equity Compensation Plan, as amended and restated (the “2012 Plan”).

The 2015 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit (“RSU”) awards, performance stock awards, cash-based awards and other

stock-based awards.

The number of shares initially reserved for issuance under the 2015 Plan was 1,643,872 shares of common stock.

2 unchanged sentences

As of January 1, 2020, the number of shares of common stock that may be issued under the 2015 Plan was increased by 1,451,997 shares.

As of March 31, 2020, 1,299,002 shares remained available for grant under the 2015 Plan.

As of June 30, 2020, 1,922,147 shares remained available for grant under the 2015 Plan.

2017 Inducement Plan

In July 2017, the Company’s board of directors adopted the 2017 Inducement Plan (the “2017 Inducement Plan”).

The 2017 Inducement Plan is a non-shareholder approved stock plan adopted pursuant to the “inducement exception” provided under Nasdaq listing rules.

The Company had 451,850 stock options and 47,590 RSUs outstanding as of March 31, 2020 under the 2017 Inducement Plan.

The 2017 Inducement Plan is a non-stockholder approved stock plan adopted pursuant to the “inducement exception” provided under Nasdaq listing rules.

The Company had 443,000 stock options and 44,390 RSUs outstanding as of June 30, 2020 under the 2017 Inducement Plan.

All shares of common stock that were eligible for issuance under the 2017 Inducement Plan after October 1, 2018, including any shares underlying any awards that expire or are otherwise terminated, reacquired to satisfy tax withholding obligations, settled in cash or repurchased by the Company in the future that would have been eligible for re-issuance under the 2017 Inducement Plan, were retired.

1 unchanged sentence

Upon the 2015 Plan becoming effective, no further grants can be made under the 2012 Plan.

The Company granted stock options to purchase a total of 1,140,524 shares under the 2012 Plan, of which 679,264 and 745,735 were outstanding as of March 31, 2020 and December 31, 2019, respectively.

Stock options granted under the 2012 Plan vest over four years and expire after ten years.

The Company granted stock options to purchase a total of 1,140,524 shares under the 2012 Plan, of which 609,628 and 745,735 were outstanding as of June 30, 2020 and December 31, 2019, respectively.

Stock options granted under the 2012 Plan vested over four years and expire after ten years .

Stock Option Valuation

The weighted average assumptions the Company used to estimate the fair value of stock options granted during the three months ended March 31, 2020 and 2019 were as follows:

Three Months Ended

The weighted average assumptions the Company used to estimate the fair value of stock options granted during the six months ended June 30, 2020 and 2019 were as follows:

Six Months Ended

Risk-free interest rate

5 unchanged sentences

Stock Options

The following table summarizes stock option activity for the three months ended March 31, 2020:

The following table summarizes stock option activity for the six months ended June 30, 2020:

Outstanding as of December 31, 2019

Forfeited and cancelled

Outstanding as of March 31, 2020

Options vested and expected to vest as of March 31, 2020

Options exercisable as of March 31, 2020

(1) All options granted under the 2012 Plan are exercisable immediately, subject to a repurchase right in the Company’s favor that lapses as the option vests.

This amount reflects the number of shares under options that were vested, as opposed to exercisable, as of March 31, 2020.

The weighted average grant date fair value of stock options granted during the three months ended March 31, 2020 was $0.93 per share.

Outstanding as of June 30, 2020

Options vested and expected to vest as of June 30, 2020

Options exercisable as of June 30, 2020

The weighted average grant date fair value of stock options granted during the six months ended June 30, 2020 was $ 0.93 per share.

Restricted Stock Units

The following table summarizes RSU activity for the three months ended March 31, 2020:

The following table summarizes RSU activity for the six months ended June 30, 2020:

Outstanding as of December 31, 2019

( 1,618,634 )

Forfeited and cancelled

Outstanding as of March 31, 2020

Outstanding as of June 30, 2020

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

Six Months Ended

Cost of revenue

2 unchanged sentences

Total stock-based compensation expense

As of March 31, 2020, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $10,292 and $10,689, respectively, which is expected to be recognized over weighted average periods of 1.72 years and 2.27 years, respectively.

As of June 30, 2020, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 8,195 and $ 8,604 , respectively, which is expected to be recognized over weighted average periods of 1.52 years and 2.13 years, respectively.

Net Loss per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

Weighted average shares of common stock outstanding

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Therefore, the weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

The following table presents potential shares of common stock excluded from the calculation of diluted net loss per share attributable to common stockholders for the three months ended March 31, 2020 and 2019.

All share amounts presented in the table below represent the total number outstanding as of March 31, 2020 and 2019.

The following table presents potential shares of common stock excluded from the calculation of diluted net loss per share attributable to common stockholders for the three and six months ended June 30, 2020 and 2019.

All share amounts presented in the table below represent the total number outstanding as of June 30, 2020 and 2019.

Options to purchase common stock

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Total operating lease liabilities

Amortization expense related to operating lease right-of-use assets and liabilities was $257 and $143 for the three months ended March 31, 2020 and 2019, respectively.

Amortization expense related to operating lease right-of-use assets and liabilities was $ 253 and $ 143 for the three months ended June 30, 2020 and 2019, respectively, and $ 510 and $ 286 for the six months ended June 30, 2020 and 2019, respectively.

Finance Leases

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Reasons was not involved in the negotiation or execution of the agreement, but may be deemed to have an interest in the ongoing transactions based on his employment as an executive officer of Mallinckrodt plc.

As of March 31, 2020 and December 31, 2019, the Company had invoiced Mallinckrodt for $228 and $57, respectively, under the master services agreement.

Reasons had no financial interest in this transaction.

As of June 30, 2020 and December 31, 2019, the Company had invoiced Mallinckrodt for $ 292 and $ 57 , respectively, under the master services agreement.

Reasons had no financial interest in these transactions.

Agreements Related to Intellectual Property

2 unchanged sentences

EPI Health agreed to pay the Company a high single-digit royalty calculated as a percentage of net sales on a country-by-country basis until the date that the patent rights related to RHOFADE have expired or, if later, 10 years from the date of the first commercial sale of RHOFADE in such country.

The Company recorded royalty income under the asset purchase agreement of $218 and $0 during the three months ended March 31, 2020 and 2019, respectively.

milestone, maintenance or fixed payment received by EPI Health in connection with any license or sublicense of the assets transferred in the disposition in any territory outside of the United States, subject to specified exceptions.

The Company recorded royalty income under the asset purchase agreement of $ 411 and $ 0 during the six months ended June 30, 2020 and 2019, respectively.

EPI Health has also agreed to pay the Company potential sales milestone payments of up to $ 20,000 in the aggregate upon the achievement of specified levels of net sales of products covered by the asset purchase agreement, and 25 % of any upfront, license, milestone, maintenance or fixed payment received by EPI Health in connection with any license or sublicense of the assets transferred in the disposition in any territory outside of the United States, subject to specified exceptions.

Agreement and Plan of Merger – Confluence

In August 2017, the Company entered into an Agreement and Plan of Merger, pursuant to which it acquired Confluence (the “Confluence Agreement”).

In November 2018, the Company achieved a development milestone specified in the Confluence Agreement which was comprised of $2,500 in cash and 253,208 shares of its common stock with a fair value of $2,200.

The Company also agreed to pay the former Confluence equity holders aggregate remaining contingent consideration of up to $75,000, based upon the achievement of specified regulatory and commercial milestones set forth in the Confluence Agreement.

In November 2018, the Company achieved a development milestone specified in the Confluence Agreement, as a result of which the Company paid the former Confluence equity holders $ 2,500 in cash and issued them 253,208 shares of its common stock with a fair value of $ 2,200 .

Under the Confluence Agreement, the Company also agreed to pay the former Confluence equity holders aggregate remaining contingent consideration of up to $ 75,000 based upon the achievement of specified regulatory and commercial milestones.

In addition, the Company agreed to pay the former Confluence equity holders future royalty payments calculated as a low single-digit percentage of annual net sales, subject to specified reductions, limitations and other adjustments, until the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first commercial sale of such product.

In addition, if the Company sells, licenses or transfers any of the intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party, the Company will be obligated to pay the former Confluence equity holders a portion of any incremental consideration (in excess of the development and milestone payments described above) received from such sale, license or transfer in specified circumstances.

In addition, if the Company sells, licenses or transfers any of the intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party, the Company will be obligated to pay the former Confluence equity holders a portion of any consideration received from such sale, license or transfer in specified circumstances.

License and Collaboration Agreement – Rigel Pharmaceuticals, Inc.

2 unchanged sentences

Under the agreement, the Company agreed to make aggregate payments of up to $ 80,000 upon the achievement of specified development milestones.

During the three months ended September 30, 2019, the Company made a milestone payment of $4,000 to Rigel upon the achievement of a specified development milestone.

In September 2019, the Company made a milestone payment of $ 4,000 to Rigel upon the achievement of a specified development milestone.

With respect to any products the Company commercializes under the agreement, the Company will pay Rigel quarterly tiered royalties on its annual net sales of each product at a high single-digit percentage of annual net sales, subject to specified reductions, until the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in specified countries under specified circumstances, ten years from the first commercial sale of such product.

In connection with an amendment of the agreement with Rigel in October 2019, the Company agreed to pay Rigel an amendment fee of $1,500 in three installments of $500 in January 2020, April 2020 and July 2020.

In connection with an amendment of the agreement with Rigel in October 2019, the Company paid Rigel an amendment fee of $ 1,500 in three installments of $ 500 in each of January 2020, April 2020 and July 2020.

In addition, the parties modified certain other development milestones, and the Company agreed to increase the potential payments payable upon the achievement of such milestones from $ 10,000 to $ 10,500 in the aggregate.

The Company did not record a federal or state income tax benefit for losses incurred during the three months ended March 31, 2020 and 2019 due to the Company’s conclusion that a valuation allowance was required for those periods.

The Company did not record a federal or state income tax benefit for losses incurred during the six months ended June 30, 2020 and 2019 due to the Company’s conclusion that a valuation allowance was required for those periods.

Discontinued Operations

1 unchanged sentence

Three Months Ended

Six Months Ended

Product sales, net

12 unchanged sentences

Three Months Ended

Six Months Ended

Total product sales, net

6 unchanged sentences

The following table presents certain non-cash items related to discontinued operations, which are included in the Company’s condensed consolidated statement of cash flows:

Three Months Ended

Six Months Ended

Depreciation and amortization

2 unchanged sentences

The Company relied on Allergan Sales, LLC (“Allergan”) to distribute RHOFADE on its behalf pursuant to the terms of a transition services agreement.

Accounts receivable, net as of March 31, 2020 and December 31, 2019 included $0 and $4,966, respectively, related to amounts invoiced by Allergan for sales of RHOFADE.

In addition, during the three months ended March 31, 2020, in accordance with the asset purchase agreement with EPI Health, the Company received $5,241 from Allergan related to sales of RHOFADE that occurred after the date the Company sold RHOFADE to EPI Health.

Accordingly, the $5,241 is payable to EPI Health and is included in accrued expenses on the Company’s condensed consolidated balance sheet as of March 31, 2020.

Accounts receivable, net as of June 30, 2020 and December 31, 2019 included $ 0 and $ 4,966 , respectively, related to amounts invoiced by Allergan for sales of RHOFADE.

In addition, during the three months ended June 30, 2020, in accordance with the asset purchase agreement with EPI Health (see Note 13 for additional information), the Company received cash from Allergan related to sales of RHOFADE that occurred after the date the Company sold RHOFADE to EPI Health.

Accordingly, the Company had $ 4,950 payable to EPI Health, which is included in accrued expenses on the Company’s condensed consolidated balance sheet as of June 30, 2020.

Segment Information

5 unchanged sentences

The Company does not report balance sheet information by segment since it is not reviewed by the chief operating decision maker, and all of the Company’s tangible assets are held in the United States.

The Company’s results of operations by segment for the three months ended March 31, 2020 and 2019 are summarized in the tables below:

Three Months Ended March 31, 2020

The Company’s results of operations by segment for the three and six months ended June 30, 2020 and 2019 are summarized in the tables below:

Three Months Ended June 30, 2020

Total revenue

4 unchanged sentences

Loss from discontinued operations

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

Total revenue

2 unchanged sentences

General and administrative

Goodwill impairment

Loss from operations

Loss from discontinued operations

Six Months Ended June 30, 2020

Total revenue

Cost of revenue

Research and development

General and administrative

Loss from operations

Loss from discontinued operations

Six Months Ended June 30, 2019

Total revenue

Cost of revenue

Research and development

General and administrative

Goodwill impairment

Loss from operations

Loss from discontinued operations

Intersegment Revenue

Revenue for the contract research segment included $2,218 and $3,927 for services performed on behalf of the therapeutics segment for the three months ended March 31, 2020 and 2019, respectively.

Revenue for the contract research segment included $ 4,022 and $ 6,846 for services performed on behalf of the therapeutics segment for the six months ended June 30, 2020 and 2019, respectively.

All intersegment revenue has been eliminated in the Company’s condensed consolidated statement of operations.

11 unchanged sentences

On January 24, 2020, Fulcher filed a consolidated amended complaint in the Consolidated Securities Action, naming two additional executive officers as defendants, extending the putative class period to August 12, 2019, and adding allegations concerning, among other things, alleged statements and omissions throughout the putative class period concerning ESKATA’s risks, tolerability and effectiveness.

The defendants’ deadline to answer, move against or otherwise respond to the consolidated amended complaint was originally scheduled for March 27, 2020, but was extended until April 17, 2020.

The defendants filed a motion to dismiss the consolidated amended complaint on April 17, 2020.

Fulcher filed an opposition to the defendants’ motion on June 15, 2020, and the defendants filed a reply to such opposition on August 4, 2020.

The motion remains under judicial consideration.

The Company and the other defendants dispute plaintiffs’ claims in the Consolidated Securities Action and intend to defend the matter vigorously.

10 unchanged sentences

Derivative Litigation (the “Consolidated Derivative Action”) and directed that future derivative cases filed in or transferred to the court arising out of substantially the same transactions or events be similarly consolidated.

Thereafter, on January 11, 2020, the court stayed – subject to certain conditions – all deadlines in the

Consolidated Derivative Action pending resolution of the defendants’ anticipated motion to dismiss the Consolidated Securities Action.

Thereafter, on January 11, 2020, the court stayed – subject to certain conditions – all deadlines in the Consolidated Derivative Action pending resolution of the defendants’ anticipated motion to dismiss the Consolidated Securities Action.

The defendants dispute plaintiffs’ claims in the Consolidated Derivative Action and intend to defend the matter vigorously.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements