Aclaris Therapeutics, Inc. 10-Q

Item 1. Financial Statements ACLARIS THERAPEUTICS, IN C. CONDENSED CONSOLIDATED BALANCE SHEET S (Unaudited) ​ (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2020 2019 ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 32,587 ​ $ 35,937 ​ Marketable securities ​ 35,528 ​ 39,078 ​ Accounts receivable, net ​ ​ 775 ​ ​ 704 ​ Prepaid expenses and other current assets ​ 2,065 ​ 3,118 ​ Discontinued operations - current assets ​ ​ — ​ ​ 4,966 ​ Total current assets ​ 70,955 ​ 83,803 ​ Property and equipment, net ​ 2,230 ​ 2,470 ​ Intangible assets ​ ​ 7,161 ​ ​ 7,199 ​ Other assets ​ 4,653 ​ 4,825 ​ Total assets ​ $ 84,999 ​ $ 98,297 ​ Liabilities and Stockholders’ Equity ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 5,502 ​ $ 9,917 ​ Accrued expenses ​ 9,344 ​ 7,721 ​ Current portion of lease liabilities ​ ​ 610 ​ ​ 637 ​ Discontinued operations - current liabilities ​ ​ 2,289 ​ ​ 4,157 ​ Total current liabilities ​ 17,745 ​ 22,432 ​ Other liabilities ​ ​ 3,331 ​ 3,736 ​ Long-term debt, net ​ ​ 10,573 ​ ​ — ​ Contingent consideration ​ ​ 3,435 ​ ​ 1,668 ​ Deferred tax liability ​ 549 ​ 549 ​ Total liabilities ​ 35,633 ​ 28,385 ​ Stockholders’ Equity: ​ ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.00001 par value; 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 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 ​ 530,061 ​ 523,505 ​ Accumulated other comprehensive income (loss) ​ 15 ​ ( 66 ) ​ Accumulated deficit ​ ( 480,710 ) ​ ( 453,527 ) ​ Total stockholders’ equity ​ 49,366 ​ 69,912 ​ Total liabilities and stockholders’ equity ​ $ 84,999 ​ $ 98,297 ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 2 Table of Contents ACLARIS THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) ​ (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2020 2019 2020 2019 ​ Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract research ​ $ 1,853 ​ $ 886 ​ $ 3,042 ​ $ 2,149 ​ Other revenue ​ ​ 193 ​ ​ — ​ ​ 411 ​ ​ — ​ Total revenue ​ ​ 2,046 ​ ​ 886 ​ ​ 3,453 ​ ​ 2,149 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenue ​ ​ 1,389 ​ ​ 994 ​ ​ 2,658 ​ ​ 2,201 ​ Research and development ​ 6,466 ​ ​ 17,519 ​ 15,909 ​ 37,161 ​ General and administrative ​ 5,572 ​ ​ 7,469 ​ 11,773 ​ 14,926 ​ Goodwill impairment ​ ​ — ​ ​ 18,504 ​ ​ — ​ ​ 18,504 ​ Total costs and expenses ​ 13,427 ​ 44,486 ​ 30,340 ​ 72,792 ​ Loss from operations ​ ( 11,381 ) ​ ( 43,600 ) ​ ( 26,887 ) ​ ( 70,643 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense), net ​ ( 189 ) ​ ( 85 ) ​ ( 11 ) ​ ( 315 ) ​ Loss from continuing operations ​ ​ ( 11,570 ) ​ ​ ( 43,685 ) ​ ​ ( 26,898 ) ​ ​ ( 70,958 ) ​ Loss from discontinued operations ​ ​ ( 27 ) ​ ​ ( 6,191 ) ​ ​ ( 285 ) ​ ​ ( 16,483 ) ​ Net loss ​ $ ( 11,597 ) ​ $ ( 49,876 ) ​ $ ( 27,183 ) ​ $ ( 87,441 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per share, basic and diluted ​ $ ( 0.28 ) ​ $ ( 1.21 ) ​ $ ( 0.65 ) ​ $ ( 2.12 ) ​ Weighted average common shares outstanding, basic and diluted ​ 42,133,646 ​ 41,274,808 ​ 41,876,037 ​ 41,261,808 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain (loss) on marketable securities, net of tax of $ 0 ​ $ ( 37 ) ​ $ 30 ​ $ 23 ​ $ 64 ​ Foreign currency translation adjustments ​ ​ 5 ​ ​ 27 ​ ​ 58 ​ ​ 13 ​ Total other comprehensive income (loss) ​ ( 32 ) ​ 57 ​ 81 ​ 77 ​ Comprehensive loss ​ $ ( 11,629 ) ​ $ ( 49,819 ) ​ $ ( 27,102 ) ​ $ ( 87,364 ) ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 3 Table of Contents ACLARIS THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) ​ (In thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ Other ​ ​ ​ Total ​ ​ ​ ​ Par ​ Paid ‑ in ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Value Capital Income (Loss) Deficit Equity Balance at December 31, 2019 ​ 41,485,638 ​ $ — ​ $ 523,505 ​ $ ( 66 ) ​ $ ( 453,527 ) ​ $ 69,912 ​ Vesting of restricted stock units ​ 346,582 ​ ​ — ​ ​ ( 121 ) ​ ​ — ​ ​ — ​ ​ ( 121 ) ​ Fair value of warrants issued ​ — ​ ​ — ​ ​ 378 ​ ​ — ​ ​ — ​ ​ 378 ​ Unrealized gain on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ 60 ​ ​ — ​ ​ 60 ​ Foreign currency translation adjustment ​ — ​ ​ — ​ ​ — ​ ​ 53 ​ ​ — ​ ​ 53 ​ Stock-based compensation expense ​ — ​ ​ — ​ ​ 3,453 ​ ​ — ​ ​ — ​ ​ 3,453 ​ Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 15,586 ) ​ ​ ( 15,586 ) ​ Balance at March 31, 2020 ​ 41,832,220 ​ $ — ​ $ 527,215 ​ $ 47 ​ $ ( 469,113 ) ​ $ 58,149 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Vesting of restricted stock units ​ 858,894 ​ ​ — ​ ​ ( 463 ) ​ ​ — ​ ​ — ​ ​ ( 463 ) ​ Unrealized loss on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ ( 37 ) ​ ​ — ​ ​ ( 37 ) ​ Foreign currency translation adjustment ​ — ​ ​ — ​ ​ — ​ ​ 5 ​ ​ — ​ ​ 5 ​ Stock-based compensation expense ​ — ​ ​ — ​ ​ 3,309 ​ ​ — ​ ​ — ​ ​ 3,309 ​ Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 11,597 ) ​ ​ ( 11,597 ) ​ Balance at June 30, 2020 ​ 42,691,114 ​ $ — ​ $ 530,061 ​ $ 15 ​ $ ( 480,710 ) ​ $ 49,366 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ Other ​ ​ ​ Total ​ ​ ​ ​ Par ​ Paid ‑ in ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Value Capital Income (Loss) Deficit Equity Balance at December 31, 2018 ​ 41,210,725 ​ $ — ​ $ 507,366 ​ $ ( 69 ) ​ $ ( 292,173 ) ​ $ 215,124 Vesting of restricted stock units ​ 58,918 ​ ​ — ​ ​ ( 188 ) ​ ​ — ​ ​ — ​ ​ ( 188 ) Unrealized gain on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ 34 ​ ​ — ​ ​ 34 Foreign currency translation adjustment ​ — ​ ​ — ​ ​ — ​ ​ ( 14 ) ​ ​ — ​ ​ ( 14 ) Stock-based compensation expense ​ — ​ ​ — ​ ​ 4,862 ​ ​ — ​ ​ — ​ ​ 4,862 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 37,565 ) ​ ​ ( 37,565 ) Balance at March 31, 2019 ​ 41,269,643 ​ $ — ​ $ 512,040 ​ $ ( 49 ) ​ $ ( 329,738 ) ​ $ 182,253 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercise of stock options and vesting of restricted stock units ​ 8,927 ​ ​ — ​ ​ ( 18 ) ​ ​ — ​ ​ — ​ ​ ( 18 ) Unrealized gain on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ 30 ​ ​ — ​ ​ 30 Foreign currency translation adjustment ​ — ​ ​ — ​ ​ — ​ ​ 27 ​ ​ — ​ ​ 27 Stock-based compensation expense ​ — ​ ​ — ​ ​ 4,814 ​ ​ — ​ ​ — ​ ​ 4,814 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 49,876 ) ​ ​ ( 49,876 ) Balance at June 30, 2019 ​ 41,278,570 ​ $ — ​ $ 516,836 ​ $ 8 ​ $ ( 379,614 ) ​ $ 137,230 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents ACLARIS THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ​ (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ June 30, ​ ​ 2020 2019 Cash flows from operating activities : ​ ​ ​ Net loss ​ $ ( 27,183 ) ​ $ ( 87,441 ) ​ Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 1,182 ​ 4,457 ​ Stock-based compensation expense ​ 6,762 ​ 9,676 ​ Change in fair value of contingent consideration ​ ​ 1,767 ​ ​ 734 ​ Goodwill impairment charge ​ ​ — ​ ​ 18,504 ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 4,895 ​ ​ ( 14,509 ) ​ Prepaid expenses and other assets ​ 890 ​ 2,579 ​ Accounts payable ​ ( 6,026 ) ​ ( 583 ) ​ Accrued expenses ​ 87 ​ 13,887 ​ Net cash used in operating activities ​ ( 17,626 ) ​ ( 52,696 ) ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ( 141 ) ​ ( 525 ) ​ Purchases of marketable securities ​ ( 27,139 ) ​ ( 89,407 ) ​ Proceeds from sales and maturities of marketable securities ​ 30,735 ​ 117,500 ​ Net cash provided by (used in) investing activities ​ 3,455 ​ 27,568 ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ Proceeds from debt financing (including warrants), net of issuance costs ​ ​ 10,913 ​ ​ — ​ Finance lease payments ​ ​ ( 92 ) ​ ​ ( 240 ) ​ Proceeds from exercise of employee stock options and the issuance of stock ​ ​ — ​ ​ 3 ​ Net cash provided by (used in) financing activities ​ 10,821 ​ ( 237 ) ​ Net decrease in cash and cash equivalents ​ ( 3,350 ) ​ ( 25,365 ) ​ Cash, cash equivalents and restricted cash at beginning of period ​ 35,937 ​ 57,019 ​ Cash, cash equivalents and restricted cash at end of period ​ $ 32,587 ​ $ 31,654 ​ Supplemental disclosure of non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ Additions to property and equipment included in accounts payable ​ $ 339 ​ $ 392 ​ Operating lease asset recorded as a result of new accounting standard ​ $ — ​ $ 2,132 ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 5 Table of Contents ACLARIS THERAPEUTICS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ​ (Amounts in thousands, except share and per share data) ​ 1. Organization and Nature of Business ​ Overview ​ Aclaris Therapeutics, Inc. was incorporated under the laws of the State of Delaware in 2012. In July 2015, Aclaris Therapeutics International Limited (“ATIL”) was established under the laws of the United Kingdom as a wholly-owned subsidiary of Aclaris Therapeutics, Inc. In August 2017, Confluence Life Sciences, Inc. (now known as Aclaris Life Sciences, Inc.) (“Confluence”) was acquired by Aclaris Therapeutics, Inc. and became a wholly-owned subsidiary thereof. 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. Food and Drug Administration (“FDA”) that it is not currently distributing, marketing or selling, and other investigational drug candidates. In September 2019, the Company announced the completion of a strategic review of its business, as a result of which it refocused its resources on its immuno-inflammatory development programs. The Company is pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize its drug candidates and ESKATA (hydrogen peroxide) topical solution, 40% (w/w) (“ESKATA”), the Company’s non-marketed FDA-approved product. ​ Liquidity ​ 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. 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. Prior to the acquisition of Confluence in August 2017, the Company had never generated revenue. There can be no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. In addition, development activities, including clinical and preclinical testing of the Company’s drug candidates, will require significant additional financing. 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 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. The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If the Company is unable to raise sufficient additional capital or generate revenue from transactions with third-party partners for the development and/or commercialization of its drug candidates, it may need to substantially curtail planned operations. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. ​ 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 6 Table of Contents 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. 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 pursue strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize its drug candidates and ESKATA. As a result of this decision, the Company restructured its operations and terminated employees, which lowered operating costs. In October 2019, the Company sold the worldwide rights to RHOFADE (oxymetazoline hydrochloride) cream, 1% (“RHOFADE”) to further its focus on its development programs and improve cash flow. In March 2020, the Company borrowed $ 11,000 under a term loan facility with Silicon Valley Bank. ​ The Company’s plans to further alleviate the substantial doubt about its going concern, which are probable of effectively being implemented and mitigating these conditions, primarily include its ability to control the timing and spending on its research and development programs. The Company may also consider other plans to fund its operations including: (1) raising additional capital through debt or equity financings; (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; and/or (4) further restructuring its operations to change its overhead structure. Finally, 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. ​ ​ 2. Summary of Significant Accounting Policies ​ Basis of Presentation ​ The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements of the Company include the accounts of the operating parent company, Aclaris Therapeutics, Inc., and its wholly-owned subsidiaries, ATIL and Confluence. All significant intercompany transactions have been eliminated. Based upon the revenue from contract research services, the Company believes that gross profit does not provide a meaningful measure of profitability and, therefore, has not included a line item for gross profit on the condensed consolidated statement of operations. ​ Discontinued Operations ​ 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 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 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. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. 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 7 Table of Contents 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 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 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s annual report on Form 10-K filed with the SEC on February 25, 2020. ​ Significant Accounting Policies ​ The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2019 included in the Company’s annual report on Form 10-K filed with the SEC on February 25, 2020. ​ Cash, Cash Equivalents and Restricted Cash ​ The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents. 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 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 ​ The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Under ASC Topic 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ​ To determine revenue recognition in accordance with ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) performance obligations are satisfied. 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 8 Table of Contents 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. ​ Contract Research ​ The Company earns contract research revenue from the provision of laboratory services to clients through Confluence, its wholly-owned subsidiary. Contract research revenue is generally evidenced by contracts with clients which are on an agreed upon fixed-price, fee-for-service basis and are generally billed on a monthly basis in arrears for services rendered. Revenue related to these contracts is generally recognized as the laboratory services are performed, based upon the rates specified in the contracts. Under ASC Topic 606, the Company elected to apply the “right to invoice” practical expedient when recognizing contract research revenue. The Company recognizes contract research revenue in the amount to which it has the right to invoice. ​ Other Revenue ​ Licenses of Intellectual Property – The Company recognizes revenue received from non-refundable, upfront fees related to the licensing of intellectual property when the intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the license has been transferred to the customer, and the customer is able to use and benefit from the license. ​ Milestone Payments – At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the amount allocated to the license of intellectual property. Milestone payments that are not within the control of the Company or the customer, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. ​ Intangible Assets ​ Intangible assets include both definite-lived and indefinite-lived assets. Definite-lived intangible assets are amortized over their estimated useful life based on the pattern over which the intangible assets are consumed or otherwise used up. If that pattern cannot be reliably determined, the straight-line method of amortization is used. Definite-lived intangible assets consist of a research technology platform the Company acquired through the acquisition of Confluence. Indefinite-lived intangible assets consist of an in-process research and development (“IPR&D”) drug candidate acquired through the acquisition of Confluence. IPR&D assets are considered indefinite-lived until the completion or abandonment of the associated research and development efforts. The cost of IPR&D is either amortized over its estimated useful life beginning when the underlying drug candidate is approved and launched commercially, or expensed immediately if development of the drug candidate is abandoned. ​ Definite-lived intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Indefinite-lived intangible assets are tested for impairment at least annually, which the Company performs during the fourth quarter, or when indicators of an impairment are present. The Company recognizes impairment losses when and to the extent that the estimated fair value of an intangible asset is less than its carrying value. ​ Leases ​ Leases represent a company’s right to use an underlying asset and a corresponding obligation to make payments to a lessor for the right to use those assets. The Company evaluates leases at their inception to determine if they are an operating lease or a finance lease. 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 9 Table of Contents 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. ​ The Company recognizes assets and liabilities for leases at their inception based upon the present value of all payments due under the lease. The Company uses an implicit interest rate to determine the present value of finance leases, and its incremental borrowing rate to determine the present value of operating leases. The Company determines incremental borrowing rates by referencing collateralized borrowing rates for debt instruments with terms similar to the respective lease. The Company recognizes expense for operating and finance leases on a straight-line basis over the term of each lease, and interest expense related to finance leases is recognized over the lease term based on the effective interest method. The Company includes estimates for any residual value guarantee obligations under its leases in lease liabilities recorded on its condensed consolidated balance sheet. ​ Right-of-use assets are included in other assets and property and equipment, net on the Company’s condensed consolidated balance sheet for operating and finance leases, respectively. Obligations for lease payments are included in current portion of lease liabilities and other liabilities on the Company’s condensed consolidated balance sheet for both operating and finance leases. ​ Contingent Consideration ​ The Company initially recorded a contingent consideration liability related to future potential payments based upon the achievement of certain development, regulatory and commercial milestones, as well as future projected sales performance, resulting from the acquisition of Confluence, at its estimated fair value on the date of acquisition. The ultimate amount of future payments, if any, is based on criteria such as sales performance and the achievement of certain regulatory and sales milestones. The Company estimates the fair value of the contingent consideration liability related to the achievement of regulatory milestones by assigning an achievement probability to each potential milestone and discounting the associated cash payment to its present value using a risk-adjusted rate of return. The Company estimates the fair value of the contingent consideration liability associated with sales milestones and royalties by estimating future sales levels, assigning an achievement probability and discounting the associated cash payment amounts to their present values using a credit-risk-adjusted interest rate. Significant assumptions used in the Company’s estimates include the probability of success of achieving regulatory and sales milestones, which are based upon an asset’s current stage of development and ranged between 4 % and 15 %. The Company evaluates fair value estimates of contingent consideration liabilities on a periodic basis. Any change in fair value reflects new information about the likelihood of the payment of the contingent consideration and the passage of time. For example, if the timing of the development of an acquired drug candidate, or the size of potential commercial opportunities related to an acquired drug, differ from the Company’s assumptions, then the fair value of contingent consideration would be adjusted accordingly. Future changes in the fair value of the contingent consideration, if any, will be recorded as income or expense in the Company’s condensed consolidated statement of operations. ​ Concentration of Credit Risk and of Significant Suppliers ​ Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company holds all cash, cash equivalents and marketable securities balances at one accredited financial institution, in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. ​ The Company is dependent on third-party manufacturers to supply drug product, including all underlying components, for its research and development activities, including preclinical and clinical testing. These activities could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients or other components. ​ 10 Table of Contents Recently Issued Accounting Pronouncements ​ In November 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this standard as of January 1, 2020, the impact of which on its consolidated financial statements was not significant. ​ In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years. The Company adopted this standard as of January 1, 2020, the impact of which on its consolidated financial statements was not significant. ​ In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The FASB developed the amendments to ASC 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. This update eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some of the existing disclosure requirements. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years. The Company adopted this standard as of January 1, 2020, the impact of which on its consolidated financial statements was not significant. ​ ​ ​ ​ 3. Fair Value of Financial Assets and Liabilities ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ ​ Cash equivalents ​ $ 16,754 ​ $ — ​ $ — ​ $ 16,754 ​ Marketable securities ​ — ​ ​ 35,528 ​ ​ — ​ ​ 35,528 ​ Total assets ​ $ 16,754 ​ $ 35,528 ​ $ — ​ $ 52,282 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition-related contingent consideration ​ $ — ​ $ — ​ $ 3,435 ​ $ 3,435 ​ Total liabilities ​ $ — ​ $ — ​ $ 3,435 ​ $ 3,435 ​ ​ 11 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ ​ Cash equivalents ​ $ 21,277 ​ $ — ​ $ — ​ $ 21,277 ​ Marketable securities ​ — ​ ​ 39,078 ​ ​ — ​ ​ 39,078 ​ Total assets ​ $ 21,277 ​ $ 39,078 ​ $ — ​ $ 60,355 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition-related contingent consideration ​ $ — ​ $ — ​ $ 1,668 ​ $ 1,668 ​ Total liabilities ​ $ — ​ $ — ​ $ 1,668 ​ $ 1,668 ​ ​ 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. These quoted prices were obtained by the Company with the assistance of a third-party pricing service based on available trade, bid and other observable market data for identical securities. Quarterly, the Company compares the quoted prices obtained from the third-party pricing service to other available independent pricing information to validate the reasonableness of the quoted prices provided. 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 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 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ ​ Cost ​ Gain ​ Loss ​ Value Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities ​ $ 5,688 ​ $ 2 ​ $ — ​ $ 5,690 ​ Commercial paper ​ ​ 15,768 ​ ​ — ​ ​ — ​ ​ 15,768 ​ Asset-backed securities ​ ​ 1,408 ​ ​ — ​ ​ ( 1 ) ​ ​ 1,407 ​ U.S. government agency debt securities ​ ​ 12,637 ​ ​ 26 ​ ​ — ​ ​ 12,663 ​ Total marketable securities ​ $ 35,501 ​ $ 28 ​ $ ( 1 ) ​ $ 35,528 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ ​ Cost ​ Gain ​ Loss ​ Value Marketable securities: ​ ​ ​ ​ ​ Corporate debt securities ​ $ 7,815 ​ $ 2 ​ $ — ​ $ 7,817 ​ Commercial paper ​ ​ 15,129 ​ ​ — ​ ​ — ​ ​ 15,129 ​ Asset-backed securities ​ ​ 8,004 ​ ​ 4 ​ ​ — ​ ​ 8,008 ​ U.S. government agency debt securities ​ 8,126 ​ ​ 1 ​ ​ ( 3 ) ​ 8,124 ​ Total marketable securities ​ $ 39,074 ​ $ 7 ​ $ ( 3 ) ​ $ 39,078 ​ ​ ​ ​ 12 Table of Contents 4. Property and Equipment, Net ​ Property and equipment, net consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ ​ December 31, ​ ​ ​ 2020 ​ 2019 Computer equipment $ 1,317 $ 1,315 ​ Finance lease right-of-use assets ​ ​ 435 ​ ​ 435 ​ Lab equipment ​ ​ 1,292 ​ ​ 1,250 ​ Furniture and fixtures ​ ​ 647 ​ ​ 647 ​ Leasehold improvements ​ ​ 1,200 ​ ​ 889 ​ Property and equipment, gross ​ 4,891 ​ 4,536 ​ Accumulated depreciation ​ ( 2,661 ) ​ ( 2,066 ) ​ Property and equipment, net ​ $ 2,230 ​ $ 2,470 ​ ​ 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. ​ 5. Intangible Assets ​ Intangible assets consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Cost ​ Accumulated Amortization ​ ​ ​ Remaining ​ ​ June 30, ​ ​ December 31, ​ ​ June 30, ​ ​ December 31, ​ ​ ​ Life (years) ​ 2020 ​ 2019 2020 ​ 2019 Other intangible assets ​ ​ 7.1 ​ ​ 751 ​ ​ 751 ​ ​ 219 ​ ​ 181 Total definite-lived intangible assets ​ ​ ​ ​ ​ 751 ​ ​ 751 ​ ​ 219 ​ ​ 181 IPR&D ​ ​ na ​ ​ 6,629 ​ ​ 6,629 ​ ​ — ​ ​ — Total intangible assets ​ ​ ​ ​ $ 7,380 ​ $ 7,380 ​ $ 219 ​ $ 181 ​ As of June 30, 2020, estimated future amortization expense is as follows: ​ ​ ​ ​ ​ ​ Year Ending December 31, ​ ​ 2020 ​ $ 37 ​ 2021 ​ 75 ​ 2022 ​ 75 ​ 2023 ​ ​ 75 ​ 2024 ​ ​ 75 ​ Thereafter ​ ​ 195 ​ Total ​ $ 532 ​ ​ 6. Accrued Expenses ​ Accrued expenses consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ ​ December 31, ​ ​ ​ 2020 ​ 2019 Employee compensation expenses ​ $ 2,489 ​ $ 3,321 ​ Research and development expenses ​ ​ 1,134 ​ ​ 2,857 ​ Professional fees ​ ​ 112 ​ ​ 168 ​ Payable to EPI Health ​ ​ 4,950 ​ ​ — ​ Other ​ 659 ​ 1,375 ​ Total accrued expenses ​ $ 9,344 ​ $ 7,721 ​ ​ 13 Table of Contents Payable to EPI Health ​ As of June 30, 2020, the Company had $ 4,950 payable to EPI Health (see Note 15 for additional information). ​ ​ 7. Debt ​ Loan and Security Agreement – Silicon Valley Bank ​ In March 2020, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”). The Loan and Security Agreement provides for $ 11,000 in term loans, of which the Company borrowed the entire amount on March 30, 2020. The Loan and Security Agreement is secured by substantially all of the assets of the Company other than intellectual property. In connection with the Loan and Security Agreement, the Company issued to SVB a warrant to purchase up to 460,251 shares of common stock (the “Warrant”). The proceeds of the Loan and Security Agreement were allocated to the term loan and Warrant using a relative fair value approach. ​ 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. 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 %. ​ The Loan and Security Agreement includes a final payment fee equal to 5 % of the original principal amount borrowed. The Company has the option to prepay the outstanding balance of the term loans in full, subject to a prepayment premium of (i) 3 % of the original principal amount borrowed for any prepayment on or prior to the first anniversary of March 30, 2020, (ii) 2 % of the original principal amount borrowed for any prepayment after the first anniversary and on or before the second anniversary of March 30, 2020 or (iii) 1 % of the original principal amount borrowed for any prepayment after the second anniversary of March 30, 2020 but before March 1, 2024. ​ ​ 8. Stockholders’ Equity ​ Preferred 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. ​ 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 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 June 30, 2020. ​ Warrants ​ In connection with the Loan and Security Agreement with SVB, the Company issued the Warrant to SVB. The Warrant has an initial exercise price of $ 0.956 per share, subject to adjustment as provided in the Warrant. The Warrant became immediately exercisable in full upon the funding of the term loan facility. 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 14 Table of Contents $ 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. ​ ​ 9. Stock-Based Awards ​ 2015 Equity Incentive Plan ​ In September 2015, the Company’s board of directors adopted the 2015 Equity Incentive Plan (the “2015 Plan”), and the Company’s stockholders approved the 2015 Plan. The 2015 Plan became effective in connection with the Company’s initial public offering in October 2015. 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. The number of shares of common stock that may be issued under the 2015 Plan will automatically increase on January 1 of each year ending on January 1, 2025, in an amount equal to the lesser of (i) 4.0 % of the shares of the Company’s common stock outstanding on December 31 of the preceding calendar year or (ii) an amount determined by the Company’s board of directors. The shares of common stock underlying any awards that expire, are otherwise terminated, settled in cash or repurchased by the Company under the 2015 Plan and the 2012 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan. 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 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-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. ​ 2012 Equity Compensation Plan ​ 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 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 six months ended June 30, 2020 and 2019 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ June 30, ​ ​ ​ ​ 2020 ​ ​ 2019 ​ Risk-free interest rate 0.87 % ​ 2.53 % ​ Expected term (in years) 6.1 ​ ​ 6.3 ​ ​ Expected volatility 85.19 % ​ 101.70 % ​ Expected dividend yield 0 % ​ 0 % ​ ​ 15 Table of Contents The Company recognizes compensation expense for awards over their vesting period. Compensation expense for awards includes the impact of forfeitures in the period when they occur. ​ Stock Options ​ The following table summarizes stock option activity for the six months ended June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ Aggregate ​ ​ Number ​ Exercise ​ Contractual ​ Intrinsic ​ ​ of Shares ​ Price ​ Term ​ Value ​ ​ ​ ​ ​ ​ ​ (in years) ​ ​ ​ Outstanding as of December 31, 2019 3,102,221 ​ $ 20.33 6.55 ​ $ 148 ​ Granted 734,800 ​ ​ 1.30 ​ ​ ​ ​ ​ ​ Exercised — ​ ​ — ​ ​ ​ ​ ​ ​ Forfeited and cancelled ( 557,222 ) ​ ​ 21.33 ​ ​ ​ ​ ​ ​ Outstanding as of June 30, 2020 3,279,799 ​ $ 15.90 6.99 ​ $ 316 ​ Options vested and expected to vest as of June 30, 2020 3,279,799 ​ $ 15.90 6.99 ​ $ 316 ​ Options exercisable as of June 30, 2020 1,897,671 ​ $ 19.16 5.79 ​ $ 79 ​ 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 six months ended June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ Grant Date ​ ​ ​ Number ​ Fair Value ​ ​ ​ of Shares ​ Per Share ​ ​ ​ ​ ​ ​ ​ ​ Outstanding as of December 31, 2019 ​ 3,592,915 ​ $ 4.62 ​ Granted ​ 998,385 ​ ​ 1.26 ​ Vested ​ ( 1,618,634 ) ​ ​ 3.09 ​ Forfeited and cancelled ​ ( 444,265 ) ​ ​ 4.12 ​ Outstanding as of June 30, 2020 ​ 2,528,401 ​ $ 4.36 ​ ​ 16 Table of Contents Stock-Based Compensation ​ Stock-based compensation expense included in total costs and expenses on the condensed consolidated statement of operations included the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2020 2019 2020 2019 Cost of revenue $ 252 $ 223 $ 512 $ 429 ​ Research and development ​ ​ 939 ​ ​ 1,721 ​ ​ 1,755 ​ ​ 3,315 ​ General and administrative ​ 2,118 ​ 2,654 ​ 4,495 ​ 5,126 ​ Total stock-based compensation expense ​ $ 3,309 ​ $ 4,598 ​ $ 6,762 ​ $ 8,870 ​ ​ 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. ​ ​ 10. Net Loss per Share ​ Basic and diluted net loss per share is summarized in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ ​ 2020 ​ 2019 2020 2019 ​ Numerator: ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 11,597 ) ​ $ ( 49,876 ) ​ $ ( 27,183 ) ​ $ ( 87,441 ) ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares of common stock outstanding ​ 42,133,646 ​ 41,274,808 ​ 41,876,037 ​ 41,261,808 ​ Net loss per share, basic and diluted ​ $ ( 0.28 ) ​ $ ( 1.21 ) ​ $ ( 0.65 ) ​ $ ( 2.12 ) ​ ​ The Company’s potentially dilutive securities, which included stock options, RSUs and warrants, have been excluded from the computation of diluted net loss per share since the effect would be to reduce the net loss per share. 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 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ ​ ​ 2020 ​ 2019 Options to purchase common stock ​ 3,279,799 ​ 4,010,423 ​ Restricted stock unit awards ​ 2,528,401 ​ 1,959,587 ​ Warrants issued to SVB ​ 460,251 ​ — ​ Total potential shares of common stock ​ 6,268,451 ​ 5,970,010 ​ ​ ​ ​ 17 Table of Contents 11. Leases ​ Operating Leases ​ Agreements for Office Space ​ In November 2017, the Company entered into a sublease agreement with Auxilium Pharmaceuticals, LLC (the “Sublandlord”) pursuant to which it subleases 33,019 square feet of office space for its headquarters in Wayne, Pennsylvania. The sublease has a term that runs through October 2023. If for any reason the lease between Chesterbrook Partners, LP (“the Landlord”) and Sublandlord is terminated or expires prior to October 2023, the Company’s sublease will automatically terminate. ​ In February 2019, the Company entered into a sublease agreement with a third party for 21,056 square feet of office and laboratory space in St. Louis, Missouri. The lease commenced in June 2019 and has a term that runs through June 2029. ​ Supplemental balance sheet information related to operating leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ ​ December 31, Operating Leases: ​ 2020 ​ 2019 Gross cost ​ $ 5,213 ​ $ 5,213 Accumulated amortization ​ ​ ( 789 ) ​ ​ ( 480 ) Other assets ​ $ 4,424 ​ $ 4,733 ​ ​ ​ ​ ​ ​ ​ Other current liabilities ​ $ 567 ​ $ 526 Other liabilities ​ ​ 3,253 ​ ​ 3,548 Total operating lease liabilities ​ $ 3,820 ​ $ 4,074 ​ 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 ​ Laboratory Equipment ​ The Company leases laboratory equipment which is used in its laboratory space in St. Louis, Missouri under two finance lease financing arrangements which the Company entered into in August 2017 and October 2017. The leases have terms which end in October 2020 and December 2020, respectively. ​ ​ 12. Related Party Transactions ​ Mallinckrodt plc ​ In April 2018, Bryan Reasons was appointed to the Company’s board of directors. Subsequently, in March 2019, Mr. Reasons became the Chief Financial Officer of Mallinckrodt plc. Prior to Mr. Reasons joining Mallinckrodt plc, the Company entered into a master services agreement with a subsidiary (“Mallinckrodt”) of Mallinckrodt plc in November 2018, pursuant to which Confluence provides laboratory services to Mallinckrodt in the ordinary course of business. Mr. 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 June 30, 2020 and December 31, 2019, the Company had invoiced Mallinckrodt for $ 292 and $ 57 , respectively, under the master services agreement. Mr. Reasons had no financial interest in these transactions. 18 Table of Contents ​ ​ 13. Agreements Related to Intellectual Property ​ Asset Purchase Agreement – EPI Health, LLC ​ In October 2019, the Company sold RHOFADE to EPI Health pursuant to an asset purchase agreement. 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 $ 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, 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 consideration received from such sale, license or transfer in specified circumstances. ​ License and Collaboration Agreement – Rigel Pharmaceuticals, Inc. ​ In August 2015, the Company entered into an exclusive, worldwide license and collaboration agreement with Rigel Pharmaceuticals, Inc. (“Rigel”) for the development and commercialization of products containing two specified JAK inhibitors, which the Company refers to as ATI-501 and ATI-502. Under the agreement, the Company agreed to make aggregate payments of up to $ 80,000 upon the achievement of specified development milestones. 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 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. ​ ​ 19 Table of Contents 14. Income Taxes ​ 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. ​ ​ 15. Discontinued Operations ​ The components of loss from discontinued operations as reported in the Company’s condensed consolidated statement of operations were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2020 2019 ​ 2020 2019 Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product sales, net $ — $ 4,979 $ — $ 8,757 Total revenue, net ​ ​ — ​ ​ 4,979 ​ ​ — ​ ​ 8,757 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenue ​ ​ — ​ ​ 1,709 ​ ​ — ​ ​ 3,279 Research and development ​ — ​ ​ 103 ​ ​ 1 ​ ​ 380 Sales and marketing ​ ​ 27 ​ ​ 6,805 ​ ​ 283 ​ ​ 16,499 General and administrative ​ — ​ ​ 893 ​ ​ 1 ​ ​ 1,763 Amortization of definite-lived intangible ​ ​ — ​ ​ 1,660 ​ ​ — ​ ​ 3,319 Total costs and expenses ​ 27 ​ 11,170 ​ ​ 285 ​ ​ 25,240 Loss from discontinued operations $ ( 27 ) ​ $ ( 6,191 ) ​ $ ( 285 ) ​ $ ( 16,483 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss from discontinued operations per share, basic and diluted ​ $ ( 0.00 ) ​ $ ( 0.15 ) ​ $ ( 0.01 ) ​ $ ( 0.40 ) Weighted average common shares outstanding, basic and diluted ​ 42,133,646 ​ 41,274,808 ​ 41,876,037 ​ 41,261,808 ​ ​ The following table presents the details of product sales, net included in discontinued operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2020 2019 ​ 2020 2019 ESKATA $ — $ 272 ​ $ — $ 344 RHOFADE ​ ​ — ​ ​ 4,707 ​ ​ — ​ ​ 8,413 Total product sales, net ​ $ — ​ $ 4,979 ​ $ — ​ $ 8,757 ​ ​ 20 Table of Contents The following table presents information related to assets and liabilities reported as discontinued operations in the Company’s condensed consolidated balance sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ ​ ​ ​ ​ ​ ​ 2020 2019 Accounts receivable, net ​ ​ ​ ​ ​ ​ $ — $ 4,966 Discontinued operations - current assets ​ ​ ​ ​ ​ ​ ​ $ — ​ $ 4,966 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ ​ ​ ​ ​ ​ ​ $ 36 ​ $ 1,705 Accrued expenses ​ ​ ​ ​ ​ ​ ​ 2,253 ​ ​ 2,452 Discontinued operations - current liabilities ​ ​ ​ ​ ​ ​ ​ $ 2,289 ​ $ 4,157 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ ​ ​ ​ ​ ​ ​ ​ 2020 2019 Depreciation and amortization ​ ​ ​ ​ ​ ​ ​ $ — $ 3,552 Stock-based compensation expense ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ 806 Total non-cash items ​ ​ ​ ​ ​ ​ ​ $ — ​ $ 4,358 ​ 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 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. ​ ​ 16. Segment Information ​ The Company has two reportable segments, therapeutics and contract research. The therapeutics segment is focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases. The contract research segment earns revenue from the provision of laboratory services to clients through Confluence, the Company’s wholly-owned subsidiary. Contract research revenue is generally evidenced by contracts with clients which are on an agreed upon fixed-price, fee-for-service basis. Corporate and other includes general and administrative expenses as well as eliminations of intercompany transactions. 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. ​ 21 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract ​ Corporate ​ Total Three Months Ended June 30, 2020 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ 193 ​ $ 3,657 ​ $ ( 1,804 ) ​ $ 2,046 Cost of revenue ​ ​ — ​ ​ 3,082 ​ ​ ( 1,693 ) ​ ​ 1,389 Research and development ​ ​ 6,577 ​ ​ — ​ ​ ( 111 ) ​ ​ 6,466 General and administrative ​ ​ — ​ ​ 688 ​ ​ 4,884 ​ ​ 5,572 Loss from operations ​ $ ( 6,384 ) ​ $ ( 113 ) ​ $ ( 4,884 ) ​ $ ( 11,381 ) Loss from discontinued operations ​ $ ( 27 ) ​ $ — ​ $ — ​ $ ( 27 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract ​ Corporate ​ Total Three Months Ended June 30, 2019 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ — ​ $ 3,807 ​ $ ( 2,921 ) ​ $ 886 Cost of revenue ​ ​ — ​ ​ 3,819 ​ ​ ( 2,825 ) ​ ​ 994 Research and development ​ ​ 17,615 ​ ​ — ​ ​ ( 96 ) ​ ​ 17,519 General and administrative ​ ​ 359 ​ ​ 613 ​ ​ 6,497 ​ ​ 7,469 Goodwill impairment ​ ​ 18,504 ​ ​ — ​ ​ — ​ ​ 18,504 Loss from operations ​ $ ( 36,478 ) ​ $ ( 625 ) ​ $ ( 6,497 ) ​ $ ( 43,600 ) Loss from discontinued operations ​ $ ( 5,298 ) ​ $ — ​ $ ( 893 ) ​ $ ( 6,191 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract ​ Corporate ​ Total Six Months Ended June 30, 2020 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ 411 ​ $ 7,064 ​ $ ( 4,022 ) ​ $ 3,453 Cost of revenue ​ ​ — ​ ​ 6,468 ​ ​ ( 3,810 ) ​ ​ 2,658 Research and development ​ ​ 16,121 ​ ​ — ​ ​ ( 212 ) ​ ​ 15,909 General and administrative ​ ​ — ​ ​ 1,440 ​ ​ 10,333 ​ ​ 11,773 Loss from operations ​ $ ( 15,710 ) ​ $ ( 844 ) ​ $ ( 10,333 ) ​ $ ( 26,887 ) Loss from discontinued operations ​ $ ( 284 ) ​ $ — ​ $ ( 1 ) ​ $ ( 285 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract ​ Corporate ​ Total Six Months Ended June 30, 2019 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ — ​ $ 8,995 ​ $ ( 6,846 ) ​ $ 2,149 Cost of revenue ​ ​ — ​ ​ 8,856 ​ ​ ( 6,655 ) ​ ​ 2,201 Research and development ​ ​ 37,352 ​ ​ — ​ ​ ( 191 ) ​ ​ 37,161 General and administrative ​ ​ 477 ​ ​ 1,145 ​ ​ 13,304 ​ ​ 14,926 Goodwill impairment ​ ​ 18,504 ​ ​ — ​ ​ — ​ ​ 18,504 Loss from operations ​ $ ( 56,333 ) ​ $ ( 1,006 ) ​ $ ( 13,304 ) ​ $ ( 70,643 ) Loss from discontinued operations ​ $ ( 14,720 ) ​ $ — ​ $ ( 1,763 ) ​ $ ( 16,483 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Intersegment Revenue ​ 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. ​ ​ ​ ​ ​ 22 Table of Contents 17. Legal Proceedings ​ Securities Class Action ​ On July 30, 2019, plaintiff Linda Rosi (“Rosi”) filed a putative class action complaint captioned Rosi v. Aclaris Therapeutics, Inc., et al. in the U.S. District Court for the Southern District of New York against the Company and certain of its executive officers. The complaint alleges that the defendants violated federal securities laws by, among other things, failing to disclose an alleged likelihood that regulators would scrutinize advertising materials related to ESKATA and find that the materials minimized the risks or overstated the efficacy of the product. The complaint seeks unspecified compensatory damages on behalf of Rosi and all other persons and entities that purchased or otherwise acquired the Company’s securities between May 8, 2018 and June 20, 2019. ​ On September 5, 2019, an additional plaintiff, Robert Fulcher (“Fulcher”), filed a substantially identical putative class action complaint captioned Fulcher v. Aclaris Therapeutics, Inc., et al. in the same court against the same defendants. ​ On November 6, 2019, the court consolidated the Rosi and Fulcher actions (together, the “Consolidated Securities Action”) and appointed Fulcher “lead plaintiff” for the putative class. ​ 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 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. ​ Stockholder Derivative Action ​ On November 15, 2019, plaintiff Keith Allred (“Allred”) filed a derivative stockholder complaint captioned Allred v. Walker et al. in the U.S. District Court for the Southern District of New York against certain of the Company’s directors and executive officers. The complaint alleges that the defendants, among other things, breached their fiduciary duties as directors and/or officers in connection with the claims alleged in the Consolidated Securities Action. The complaint seeks, among other things, unspecified compensatory damages on behalf of the Company. ​ On November 25, 2019, an additional plaintiff, Bruce Brown (“Brown”), filed a substantially identical complaint captioned Brown v. Walker et al. in the same court against the same defendants. ​ On December 12, 2019, the court consolidated the Allred and Brown actions under the caption In re Aclaris Therapeutics, Inc. 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. ​ The defendants dispute plaintiffs’ claims in the Consolidated Derivative Action and intend to defend the matter vigorously. ​ ​ ​ 23 Table of Contents