What changed in this filing

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Item 1. Financial Statements

2021-05-07 compared with 2020-11-04 · 149 added, 315 removed, 332 unchanged (58% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

Cash and cash equivalents

Restricted cash

Marketable securities

Short-term marketable securities

Accounts receivable, net

Prepaid expenses and other current assets

Discontinued operations - current assets

Total current assets

Marketable securities

Property and equipment, net

12 unchanged sentences

Total liabilities

Commitments and contingencies (Note 17)

Stockholders’ Equity:

Preferred stock, $ 0.00001 par value;

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

10,000,000 shares authorized and no shares issued or outstanding at March 31, 2021 and December 31, 2020

Common stock, $ 0.00001 par value;

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

42,916,387 and 41,485,638 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

100,000,000 shares authorized at March 31, 2021 and December 31, 2020;

52,081,729 and 45,109,314 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid‑in capital

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Contract research

5 unchanged sentences

General and administrative

Goodwill impairment

Revaluation of contingent consideration

Total costs and expenses

Loss from operations

Other expense, net

Other income (expense), net

Loss from continuing operations

4 unchanged sentences

Unrealized gain (loss) on marketable securities, net of tax of $ 0

Foreign currency translation adjustments

Foreign currency translation adjustment

Total other comprehensive income (loss)

7 unchanged sentences

Stockholders’

Income (Loss)

Balance at December 31, 2020

Vesting of restricted stock units

Fair value of warrants issued

Unrealized gain on marketable securities

Foreign currency translation adjustment

Stock-based compensation expense

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

Vesting of restricted stock units

Issuance of common stock in connection with equity purchase agreement

Issuance of common stock in connection with exercise of stock options and warrants and vesting of restricted stock units

Issuance of common stock in connection with public offering, net of offering costs of $ 7,011

Unrealized loss on marketable securities

1 unchanged sentence

Stock-based compensation expense

Balance at September 30, 2020

Balance at March 31, 2021

Comprehensive

3 unchanged sentences

Vesting of restricted stock units

Fair value of warrants issued

Unrealized gain on marketable securities

2 unchanged sentences

Balance at March 31, 2020

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

Exercise of stock options and vesting of restricted stock units

Unrealized loss on marketable securities

Foreign currency translation adjustment

Stock-based compensation expense

Balance at September 30, 2019

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

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities :

2 unchanged sentences

Stock-based compensation expense

Change in fair value of contingent consideration

Goodwill impairment charge

Intangible asset impairment charge

Revaluation of contingent consideration

Changes in operating assets and liabilities:

8 unchanged sentences

Proceeds from sales and maturities of marketable securities

Net cash provided by investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock in connection with public offering, net of issuance costs

Proceeds from debt financing (including warrants), net of issuance costs

Restricted stock unit employee tax withholdings

Finance lease payments

Deferred issuance costs

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

Net cash provided by (used in) financing activities

Net decrease in cash, cash equivalents and restricted cash

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

2 unchanged sentences

Additions to property and equipment included in accounts payable

Operating lease asset recorded as a result of new accounting standard

Fair value of common stock issued in connection with equity purchase agreement

Fair value of warrants issued in connection with debt financing

Offering costs included in accounts payable

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

9 unchanged sentences

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.

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.

In addition to developing its novel drug candidates, 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 novel drug candidates.

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 September 30, 2020, the Company had cash, cash equivalents, restricted cash and marketable securities of $ 55.2 million and an accumulated deficit of $ 491.4 million.

As of March 31, 2021, the Company had cash, cash equivalents and marketable securities of $ 142.7 million and an accumulated deficit of $ 533.3 million.

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

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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.

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 reduced its workforce, 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 $ 11.0 million under a term loan facility with Silicon Valley Bank.

In August 2020, the Company entered into an equity purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $ 15.0 million of shares of its common stock over the 36-month term of the Purchase Agreement.

The Company’s plans to further address its liquidity needs 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.

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.

If the Company is unable to raise sufficient additional capital or generate revenue from transactions with potential 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.

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 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 condensed consolidated financial statements are issued.

As of the report date, the Company does not believe that substantial doubt exists about its ability to continue as a going concern.

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Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 31, 2021, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020, the condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2021 and 2020, and the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 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, 2021 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, 2021, the results of its operations and comprehensive loss for the three months ended March 31, 2021 and 2020, its changes in stockholders’ equity for the three months ended March 31, 2021 and 2020 and its cash flows for the three months ended March 31, 2021 and 2020.

The condensed consolidated balance sheet data as of December 31, 2020 was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”).

The financial data and other information disclosed in these notes related to the three months ended March 31, 2021 and 2020 are unaudited.

The results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, 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, 2020 included in the Company’s annual report on Form 10-K filed with the SEC on February 25, 2021.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”).

The accompanying condensed consolidated financial statements have been prepared in conformity with 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.

All intercompany transactions have been eliminated.

Based upon the Company’s revenue, 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.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.

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

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Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

The COVID-19 pandemic has resulted in a global slowdown in

economic activity.

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

Actual results could differ from the Company’s estimates.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2020, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statement of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the nine months ended September 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 September 30, 2020, the results of its operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, its changes in stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and its cash flows for the nine months ended September 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 nine months ended September 30, 2020 and 2019 are unaudited.

The results for the three and nine months ended September 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.

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.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s annual report on Form 10-K filed with the SEC on February 25, 2021.

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, are stated at fair value.

Total cash, cash equivalents and restricted cash as shown in the condensed consolidated statements of cashflows as of September 30, 2020 and 2019 includes $ 1.8 million and $ 0 , respectively, of restricted cash, consisting of funds in escrow pursuant to the asset purchase agreement with EPI Health, LLC (“EPI Health”) (see Note 13).

In October 2020, the cash in escrow was released to the Company in accordance with the asset purchase agreement.

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 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 and as such, recognizes revenue in the amount which it has the right to invoice.

ASC Topic 606 also provides an optional exemption, which the Company has elected to apply, from disclosing remaining performance obligations when revenue is recognized from the satisfaction of the performance obligation in accordance with the “right to invoice” practical expedient.

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 counterparty, 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 consist of a drug discovery technology platform the Company acquired through the acquisition of Confluence.

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.

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 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 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.

Except as set forth below, there have been no changes to the Company’s significant accounting policies from those disclosed in the annual report.

Contingent Consideration

The Company initially recorded a contingent consideration liability related to future potential payments resulting from the acquisition of Confluence based upon the achievement of certain development, regulatory and commercial milestones, as well as future projected sales performance, 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 payments 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 both achieving regulatory milestones and commencing commercialization, 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 candidate, 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.

The Company initially recorded a contingent consideration liability at fair value on the date of acquisition related to future potential payments resulting from the acquisition of Confluence based upon significant unobservable inputs including the achievement of the development, regulatory and commercial milestones, as well as estimated future sales levels and the discount rates applied to calculate the present value of the potential payments.

Significant judgement was involved in determining the appropriateness of these assumptions.

These assumptions are considered Level 3 inputs.

Revaluation of the contingent consideration liability can result from changes to one or more of these assumptions.

The Company evaluates the fair value estimate of the contingent consideration liability on a quarterly basis with changes, if any, recorded as income or expense in the condensed consolidated statement of operations.

The fair value of contingent consideration is estimated using a probability-weighted expected payment model for regulatory milestone payments and a Monte Carlo simulation model for commercial milestone and royalty payments and then applying a risk-adjusted discount rate to calculate the present value of the potential payments.

Significant assumptions used in the Company’s estimates include the probability of achieving regulatory milestones and commencing commercialization, which are based on an asset’s current stage of development and a review of existing clinical data.

Probability of success assumptions ranged between 4 % and 40 % .

Additionally, estimated future sales levels and the risk-adjusted discount rate applied to the potential payments are also significant assumptions used in calculating the fair value.

The discount rate ranged between 5.9 % and 8.1 % depending on the year of each potential payment.

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 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 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 Company adopted this standard as of January 1, 2020, the impact of which on its consolidated financial statements was not significant.

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:

September 30, 2020

March 31, 2021

(In thousands)

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Marketable securities

Acquisition-related contingent consideration

Contingent consideration

Total liabilities

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Marketable securities

Acquisition-related contingent consideration

Contingent consideration

Total liabilities

As of September 30, 2020 and December 31, 2019, the Company’s cash equivalents consisted of a money market fund, which was valued based upon Level 1 inputs, and corporate debt securities, which were valued based upon Level 2 inputs.

The Company’s marketable securities consisted of investments with maturities of more than three months and included commercial paper and corporate debt, asset-backed and U.S.

As of March 31, 2021 and December 31, 2020, the Company’s cash equivalents consisted of a money market fund, which was valued based upon Level 1 inputs.

The Company’s cash equivalents as of December 31, 2020 also included commercial paper, which was valued based upon Level 2 inputs.

The Company’s marketable securities as of March 31, 2021 and December 31, 2020 consisted of commercial paper and asset-backed and U.S.

government agency debt securities, which were valued based upon Level 2 inputs.

The Company’s marketable securities as of March 31, 2021 also included corporate debt securities, 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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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 nine months ended September 30, 2020 and 2019, there were no transfers between Level 1, Level 2 and Level 3.

The increase in contingent consideration of $ 2.4 million during the nine months ended September 30, 2020 was primarily due to updates to the Company’s assumptions as a result of the successful completion of a Phase 1 clinical trial for ATI-450 and the submission and allowance of an Investigational New Drug Application for ATI-1777.

As of September 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:

September 30, 2020

The Company evaluates whether adjustments to third-party pricing are 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, 2021 and 2020, there were no transfers between Level 1, Level 2 and Level 3.

The increase in contingent consideration of $ 16.4 million during the three months ended March 31, 2021 resulted from updates to the Company’s probability of achieving regulatory milestones and commencing commercialization and estimated future sales level assumptions as a result of the completion of a Phase 2a clinical trial of ATI-450 in subjects with moderate to severe rheumatoid arthritis and the inclusion of estimated future sales related to hidradenitis suppurativa and psoriatic arthritis which are additional planned indications for ATI-450.

As of March 31, 2021 and December 31, 2020, the fair value of the Company’s available for sale marketable securities by type of security was as follows:

March 31, 2021

(In thousands)

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Commercial paper

Asset-backed securities

Asset-backed debt securities

government agency debt securities

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Marketable securities:

Corporate debt securities

Commercial paper

Asset-backed securities

Asset-backed debt securities

government agency debt securities

2 unchanged sentences

Property and equipment, net consisted of the following:

September 30,

(In thousands)

Computer equipment

Finance lease right-of-use assets

Lab equipment

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Property and equipment, net

Depreciation expense was $ 0.3 million for each of the three months ended September 30, 2020 and 2019, and $ 0.9 million for each of the nine months ended September 30, 2020 and 2019.

Depreciation expense was $ 0.2 million and $ 0.3 million for the three months ended March 31, 2021 and 2020, respectively.

Intangible Assets

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Accumulated Amortization

September 30,

(In thousands, except years)

Other intangible assets

In-process research and development

Total intangible assets

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

As of March 31, 2021, estimated future amortization expense is as follows:

(In thousands)

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Accrued expenses consisted of the following:

September 30,

(In thousands)

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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.

As of March 31, 2021 and December 31, 2020 the outstanding principal balance on the SVB Loan and Security Agreement was $ 11.0 million.

Stockholders’ Equity

Preferred Stock

As of September 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 September 30, 2020 or December 31, 2019.

As of September 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.

As of March 31, 2021 and December 31, 2020, 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, 2021 or December 31, 2020.

As of March 31, 2021 and December 31, 2020, 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 September 30, 2020.

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.

No dividends have been declared through March 31, 2021.

The Warrant issued to SVB in March 2020 had 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 $ 0.4 million 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.

In January 2021, SVB net exercised the Warrant in full, and the Company issued to SVB 388,119 shares of common stock.

Equity Purchase Agreement with Lincoln Park Capital Fund, LLC

In August 2020, the Company entered into the Purchase Agreement with Lincoln Park which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park, at its discretion, up to $ 15.0 million of shares of its common stock over the 36-month term of the Purchase Agreement.

In August 2020, the Company entered into an equity purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) which provided that, upon the terms and subject to the conditions and limitations set forth therein, the Company could sell to Lincoln Park, at its discretion, up to $ 15.0 million of shares of its common stock over the 36-month term of the Purchase Agreement.

U pon execution of the Purchase Agreement, the Company issued 121,584 shares of its common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Purchase Agreement.

The commitment shares were valued using the closing price of the Company’s common stock on the effective date of the Purchase Agreement resulting in an aggregate fair value of $ 0.3 million.

As of September 30, 2020, the Company had not sold any shares of its common stock to Lincoln Park under the Purchase Agreement.

Through December 31, 2020, the Company sold 2,111,170 shares of its common stock to Lincoln Park under the Purchase Agreement for net proceeds of $ 7.7 million.

The Company terminated the Purchase Agreement in January 2021 in connection with the public offering of common stock described below.

The Company did not sell any additional shares prior to terminating the Purchase Agreement.

January 2021 Public Offering

In January 2021, the Company closed a public offering in which it sold 6,306,271 shares of common stock at a price to the public of $ 17.50 per share, for aggregate gross proceeds of $ 110.4 million.

The Company paid underwriting discounts and commissions of $ 6.6 million, and also incurred expenses of $ 0.4 million in connection with the offering.

As a result, the net offering proceeds received by the Company, after deducting underwriting discounts, commissions and offering expenses, were $ 103.3 million.

Stock-Based Awards

8 unchanged sentences

As of January 1, 2021, the number of shares of common stock that may be issued under the 2015 Plan was increased by 1,804,372 shares.

As of September 30, 2020, 2,212,858 shares remained available for grant under the 2015 Plan.

As of March 31, 2021,

2,937,121 shares remained available for grant under the 2015 Plan.

The Company had 2,725,405 stock options and 2,385,853 RSUs outstanding as of March 31, 2021 under the 2015 Plan.

2017 Inducement Plan

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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 29,062 RSUs outstanding as of September 30, 2020 under the 2017 Inducement Plan.

The Company had 439,500 stock options and 25,758 RSUs outstanding as of March 31, 2021 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 609,628 and 745,735 were outstanding as of September 30, 2020 and December 31, 2019, respectively.

Stock options granted under the 2012 Plan vested 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 549,561 were outstanding as of March 31, 2021.

Stock options granted under the 2012 Plan 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 nine months ended September 30, 2020 and 2019 were as follows:

Nine Months Ended

September 30,

The weighted average assumptions the Company used to estimate the fair value of stock options granted during the three months ended March 31, 2021 and 2020 were as follows:

Three Months Ended

Risk-free interest rate

5 unchanged sentences

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2020:

The following table summarizes stock option activity for the three months ended March 31, 2021:

(In thousands, except share and per share data and years)

1 unchanged sentence

Forfeited and cancelled

Outstanding as of September 30, 2020

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

Options exercisable as of September 30, 2020

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

Outstanding as of March 31, 2021

Options vested and expected to vest as of March 31, 2021

Options exercisable as of March 31, 2021

The weighted average grant date fair value of stock options granted during the three months ended March 31, 2021 was $ 16.15 per share.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2020:

The following table summarizes RSU activity for the three months ended March 31, 2021:

(In thousands, except share and per share data)

Outstanding as of December 31, 2020

( 1,764,629 )

Forfeited and cancelled

Outstanding as of September 30, 2020

Outstanding as of March 31, 2021

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

3 unchanged sentences

Total stock-based compensation expense

As of September 30, 2020, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 5.6 million and $ 6.7 million, respectively, which is expected to be recognized over weighted average periods of 1.4 years and 2.0 years, respectively.

As of March 31, 2021, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 17.1 million and $ 17.8 million, respectively, each of which is expected to be recognized over a weighted average period of 3.4 years.

Net Loss per Share

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(In thousands, except for share and per share data)

Weighted average shares of common stock outstanding

Weighted average shares of common stock outstanding, basic and diluted

Net loss per share, basic and diluted

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 nine months ended September 30, 2020 and 2019.

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

September 30,

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

The following table presents potential shares of common stock excluded from the calculation

of diluted net loss per share for the three months ended March 31, 2021 and 2020.

All share amounts presented in the table below represent the total number outstanding as of March 31, 2021 and 2020.

Options to purchase common stock

Restricted stock unit awards

Warrants issued to SVB

Total potential shares of common stock

1 unchanged sentence

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 Company has 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.

If for any reason the lease between Chesterbrook Partners, LP (“Landlord”) and Sublandlord is terminated or expires prior to October 2023, the Company’s sublease will automatically terminate.

In December 2020, the Company entered into a sub-sublease agreement under which it sub-subleased 8,115 square feet.

The sub-sublease term runs concurrently with the original sublease agreement.

In February 2019, the Company entered into a sublease agreement with a third party for 20,433 square feet of office and laboratory space in St.

2 unchanged sentences

Supplemental balance sheet information related to operating leases is as follows:

September 30,

(In thousands)

4 unchanged sentences

Total operating lease liabilities

Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 0.3 million for each of the three months ended September 30, 2020 and 2019, and $ 0.8 million and $ 0.6 million for the nine months ended September 30, 2020 and 2019, respectively.

Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 0.3 million for each of the three months ended March 31, 2021 and 2020.

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, and which terms ended in October 2020 and ends in December 2020, respectively.

The Company leased laboratory equipment which it 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, with terms ended in October 2020 and December 2020, respectively.

Related Party Transactions

3 unchanged sentences

Reasons became the Chief Financial Officer of Mallinckrodt plc.

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.

Reasons joining Mallinckrodt plc, the Company entered into a master services agreement with a subsidiary of Mallinckrodt plc, pursuant to which Confluence provides laboratory services to the subsidiary (“Mallinckrodt”) in the ordinary course of business.

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.

During the nine months ended September 30, 2020 and 2019, the Company invoiced Mallinckrodt for $ 0.3 million and $ 0.1 million, respectively, under

the master services agreement.

As of September 30, 2020, the Company had no outstanding accounts receivable balance from Mallinckrodt.

During the three months ended March 31, 2021 and 2020, the Company invoiced Mallinckrodt for $ 20 thousand and $ 0.2 million, respectively, under the master services agreement.

As of March 31, 2021 and December 31, 2020, the Company had $ 20 thousand and $ 24 thousand, respectively, of outstanding accounts receivable balances from Mallinckrodt.

Reasons had no financial interest in these transactions.

1 unchanged sentence

Asset Purchase Agreement – EPI Health, LLC

In October 2019, the Company sold RHOFADE to EPI Health pursuant to an asset purchase agreement.

In October 2019, the Company sold RHOFADE (oxymetazoline hydrochloride) cream, 1 % (“RHOFADE”) to EPI Health, LLC (“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, ten 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 $ 0.5 million and $ 0 during the nine months ended September 30, 2020 and 2019, respectively.

The Company recorded royalty income under the asset purchase agreement of $ 0.2 million during each of the three months ended March 31, 2021 and 2020.

Royalty income is included in other revenue on the condensed consolidated statements of operations and comprehensive loss.

2 unchanged sentences

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 $ 2.5 million in cash and issued them 253,208 shares of its common stock with a fair value of $ 2.2 million.

Under the Confluence Agreement, the Company also agreed to pay the former Confluence equity holders aggregate remaining contingent consideration of up to $ 75.0 million based upon the achievement of specified regulatory and commercial milestones.

In November 2018, a development milestone specified in the Confluence Agreement was achieved, as a result of which the Company paid the former Confluence equity holders $ 2.5 million in cash and issued 253,208 shares of its common stock with a fair value of $ 2.2 million.

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 $ 80.0 million upon the achievement of specified development milestones.

In September 2019, the Company made a milestone payment of $ 4.0 million 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 $ 1.5 million in three installments of $ 0.5 million 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 $ 10.0 million to $ 10.5 million in the aggregate.

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

In addition to the payments described above, 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.

The Company did not record a federal or state income tax benefit for losses incurred during each of the three months ended March 31, 2021 and 2020.

The Company concluded that it is more likely than not that its deferred tax assets will not be realized which resulted in recording a full valuation allowance during those periods.

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

Nine Months Ended

September 30,

(In thousands, except share and per share data)

Product sales, net

Total revenue, net

Costs and expenses:

Cost of revenue

Research and development

Sales and marketing

General and administrative

Intangible asset impairment

Amortization of definite-lived intangible

Total costs and expenses

Loss from discontinued operations

Other expense, net

Net loss from discontinued operations

Net loss from discontinued operations per share, basic and diluted

Weighted average common shares outstanding, basic and diluted

The following table presents the details of product sales, net included in discontinued operations:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Total product sales, net

The following table presents information related to assets and liabilities reported as discontinued operations in the Company’s condensed consolidated balance sheet:

September 30,

The following table presents information related to liabilities reported as discontinued operations in the Company’s condensed consolidated balance sheet:

(In thousands)

Accounts receivable, net

Discontinued operations - current assets

Accounts payable

1 unchanged sentence

Discontinued operations - current liabilities

The Company relied on Allergan Sales, LLC (“Allergan”) to distribute RHOFADE on its behalf during 2019 pursuant to the terms of a transition services agreement.

Accounts receivable, net as of December 31, 2019 related to amounts invoiced by Allergan for sales of RHOFADE.

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:

Nine Months Ended

September 30,

(In thousands)

Depreciation and amortization

Stock-based compensation expense

Intangible asset impairment charge

Loss on disposal of property and equipment

Total non-cash items

Segment Information

1 unchanged sentence

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.

The contract research segment earns revenue from the provision of laboratory services.

Contract research revenue is generally evidenced by contracts with clients which are on an agreed upon fixed-price, fee-for-service basis.

1 unchanged sentence

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 and nine months ended September 30, 2020 and 2019 are summarized in the tables below:

The Company’s results of operations by segment for the three months ended March 31, 2021 and 2020 are summarized in the tables below:

(In thousands)

Three Months Ended September 30, 2020

Total revenue

Cost of revenue

Research and development

General and administrative

Loss from operations

Loss from discontinued operations

Three Months Ended September 30, 2019

Total revenue

Cost of revenue

Research and development

General and administrative

Loss from operations

Loss from discontinued operations

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Total revenue

2 unchanged sentences

General and administrative

Revaluation of contingent consideration

Loss from operations

Loss from discontinued operations

Nine Months Ended September 30, 2019

(In thousands)

Three Months Ended March 31, 2020

Total revenue

2 unchanged sentences

General and administrative

Goodwill impairment

Revaluation of contingent consideration

Loss from operations

1 unchanged sentence

Intersegment Revenue

Revenue for the contract research segment included $ 1.7 million and $ 2.0 million for services performed on behalf of the therapeutics segment for the three months ended September 30, 2020 and 2019, respectively, and $ 5.7 million and $ 8.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Revenue for the contract research segment included $ 1.7 million and $ 2.2 million for services performed on behalf of the therapeutics segment for the three months ended March 31, 2021 and 2020, respectively.

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

4 unchanged sentences

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.

5 unchanged sentences

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.

At this time, the Company cannot reasonably predict the outcome or estimate potential losses, if any, that could result from this matter.

Following briefing and oral argument on February 25, 2021, the motion was granted in part and denied in part on March 29, 2021, and the issues in dispute significantly narrowed.

The defendants filed an answer to the remaining aspects of the consolidated amended complaint on April 19, 2021.

The Company and the other defendants dispute plaintiffs’ claims in the Consolidated Securities Action.

At this time, the Company cannot reasonably predict the outcome or potential loss, if any, that could result from this matter.

Stockholder Derivative Action

9 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’ then-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.

At this time, the Company cannot reasonably predict the outcome or estimate potential losses, if any, that could result from this matter.

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 stay expired on April 27, 2021, but may be reinstated pending further developments in the

Consolidated Securities Action.

No further proceedings have yet occurred or been scheduled in the Consolidated Derivative Action.

At this time, the Company cannot reasonably predict the outcome or potential loss, if any, that could result from this matter.

Product Liability Lawsuit

On December 18, 2020, plaintiff Daurie Mancini filed an amended complaint under the caption Daurie Mancini v.

Aclaris Therapeutics, Inc.

et al in the Superior Court of New Jersey Ocean County against the Company and certain third parties alleging injuries as a result of the plaintiff’s alleged treatment with ESKATA in 2019.

The amended complaint seeks unspecified compensatory and punitive damages.

The Company filed a motion to dismiss the amended complaint on March 15, 2021.

Briefing on the Company’s motion to dismiss has not been completed.

The Company disputes plaintiff’s claims and intends to defend the matter vigorously.

At this time, the Company cannot reasonably predict the outcome or potential loss, if any, that could result from this matter.

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