What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-02 · 89 added, 212 removed, 348 unchanged (46% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

12 unchanged sentences

Current portion of lease liabilities

Discontinued operations - current liabilities

Discontinued operations

Total current liabilities

Other liabilities

Long-term debt, net

Contingent consideration

4 unchanged sentences

Preferred stock, $ 0.00001 par value;

10,000,000 shares authorized and no shares issued or outstanding at September 30, 2021 and December 31, 2020

10,000,000 shares authorized and no shares issued or outstanding at March 31, 2022 and December 31, 2021

Common stock, $ 0.00001 par value;

100,000,000 shares authorized at September 30, 2021 and December 31, 2020;

61,226,750 and 45,109,314 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

100,000,000 shares authorized at March 31, 2022 and December 31, 2021;

61,737,483 and 61,228,446 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Additional paid‑in capital

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Contract research

8 unchanged sentences

Loss from operations

Other expense, net

Loss from continuing operations

Loss from discontinued operations

Other income (expense), net

Net loss per share, basic and diluted

Weighted average common shares outstanding, basic and diluted

Other comprehensive income (loss):

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

Other comprehensive loss:

Unrealized loss on marketable securities, net of tax of $ 0

Foreign currency translation adjustment

Total other comprehensive income (loss)

Total other comprehensive loss

Comprehensive loss

7 unchanged sentences

Balance at December 31, 2021

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

Issuance of common stock in connection with 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 March 31, 2022

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

Issuance of common stock in connection with public offering, net of offering costs of $ 8,899

Unrealized gain on marketable securities

Foreign currency translation adjustment

Stock-based compensation expense

Balance at June 30, 2021

Issuance of common stock in connection with vesting of restricted stock units

Unrealized gain on marketable securities

Foreign currency translation adjustment

Stock-based compensation expense

Balance at September 30, 2021

Comprehensive

2 unchanged sentences

Balance at December 31, 2020

Issuance of common stock in connection with 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

Issuance of common stock in connection with vesting of restricted stock units

Unrealized loss on marketable securities

Foreign currency translation adjustment

Stock-based compensation expense

Balance at June 30, 2020

Issuance of common stock in connection with 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

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 :

3 unchanged sentences

Revaluation of contingent consideration

Loss on extinguishment of debt

Changes in operating assets and liabilities:

11 unchanged sentences

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

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

Repayment of debt

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 financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosure of non-cash investing and financing activities:

Fair value of warrants issued in connection with debt financing

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

Additions to property and equipment included in accounts payable

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

11 unchanged sentences

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

As of September 30, 2021, the Company had cash, cash equivalents and marketable securities of $ 243.6 million and an accumulated deficit of $ 572.6 million.

As of March 31, 2022, the Company had cash, cash equivalents and marketable securities of $ 203.6 million and an accumulated deficit of $ 614.2 million.

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

3 unchanged sentences

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

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

The Company will require additional capital to complete the clinical development of zunsemetinib (ATI-450), ATI-1777 and ATI-2138, 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.

7 unchanged sentences

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statement of stockholders’ equity for the three and nine months ended September 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the nine months ended September 30, 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 September 30, 2021, the results of its operations and comprehensive loss for the three and nine months ended September 30, 2021 and 2020, its changes in stockholders’ equity for the three and nine months ended September 30, 2021 and 2020 and its cash flows for the nine months ended September 30, 2021 and 2020.

The accompanying condensed consolidated balance sheet as of March 31, 2022, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 and 2021, the condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2022 and 2021, and the condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 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 24, 2022 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, 2022, the results of its operations and comprehensive loss for the three months ended March 31, 2022 and 2021, its changes in stockholders’ equity for the three months ended March 31, 2022 and 2021 and its cash flows for the three months ended March 31, 2022 and 2021.

The condensed consolidated balance sheet data as of December 31, 2021 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 and nine months ended September 30, 2021 and 2020 are unaudited.

The results for the three and nine months ended September 30, 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 financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and 2021 are unaudited.

The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, 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.

8 unchanged sentences

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.

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

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

15 unchanged sentences

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 %.

Probability of success assumptions ranged between 10 % and 40 % at March 31, 2022.

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.

2 unchanged sentences

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, 2021

March 31, 2022

(In thousands)

9 unchanged sentences

Total liabilities

As of September 30, 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 September 30, 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 September 30, 2021 also included corporate debt securities and foreign government agency debt securities, which were valued based upon Level 2 inputs.

As of March 31, 2022 and December 31, 2021, the Company’s cash equivalents consisted of a money market fund, which was valued based upon Level 1 inputs.

The Company’s marketable securities as of March 31, 2022 and December 31, 2021 consisted of commercial paper and corporate, asset-backed, foreign government agency and U.S.

government agency debt securities, which were all 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.

2 unchanged sentences

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 nine months ended September 30, 2021 and 2020, there were no transfers between Level 1, Level 2 and Level 3.

The increase in contingent consideration of $ 22.1 million during the nine months ended September 30, 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 zunsemetinib in subjects with moderate to severe rheumatoid arthritis and the inclusion of estimated future sales of zunsemetinib for the potential treatment of psoriatic arthritis and moderate to severe hidradenitis suppurativa, which are additional planned indications for zunsemetinib, as well as a result of the completion of a Phase 2a clinical trial of ATI-1777 in subjects with moderate to severe atopic dermatitis.

As of September 30, 2021 and December 31, 2020, the fair value of the Company’s available for sale marketable securities by type of security was as follows:

September 30, 2021

During the three months ended March 31, 2022 and 2021, there were no transfers into or out of Level 3.

The decrease in contingent consideration of $ 1.2 million during the three months ended March 31, 2022 was mainly due to higher discount rates, resulting from higher risk-free rates and wider credit spreads, being applied to potential payments relative to prior periods.

The overall decrease in contingent consideration was partially offset by the impact of the passage of time.

As of March 31, 2022 and December 31, 2021, the fair value of the Company’s available-for-sale marketable securities by type of security was as follows:

March 31, 2022

(In thousands)

6 unchanged sentences

Total marketable securities

(1) Included in Corporate debt securities is $ 9.1 million with maturity dates between one and five years.

(2) Included in US government agency debt securities is $ 14.9 million with maturity dates between one and five years.

December 31, 2021

1 unchanged sentence

Marketable securities:

Corporate debt securities (1)

Commercial paper

Asset-backed debt securities

Foreign government agency debt securities

government agency debt securities (2)

Total marketable securities

(1) Included in Corporate debt securities is $ 9.2 million with maturity dates between one and five years.

(2) Included in US government agency debt securities is $ 25.0 million with maturity dates between one and five years.

Property and Equipment, Net

Property and equipment, net consisted of the following:

September 30,

(In thousands)

6 unchanged sentences

Property and equipment, net

Depreciation expense was $ 0.2 million and $ 0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $ 0.6 million and $ 0.9 million for the nine months ended September 30, 2021 and 2020, respectively.

Depreciation expense was $ 0.2 million for each of the three months ended March 31, 2022 and 2021.

Intangible Assets

1 unchanged sentence

Accumulated Amortization

September 30,

(In thousands, except years)

2 unchanged sentences

Total intangible assets

As of September 30, 2021, estimated future amortization expense was as follows:

Amortization expense was $ 19 thousand for each of the three months ended March 31, 2022 and 2021.

As of March 31, 2022, estimated future amortization expense was as follows:

(In thousands)

1 unchanged sentence

Accrued expenses consisted of the following:

September 30,

(In thousands)

12 unchanged sentences

Preferred Stock

As of September 30, 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 September 30, 2021 or December 31, 2020.

As of September 30, 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.

As of March 31, 2022 and December 31, 2021, 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, 2022 or December 31, 2021.

As of March 31, 2022 and December 31, 2021, 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.

There were 61,737,483 and 61,228,446 shares of common stock issued and outstanding as of March 31, 2022 and December 31, 2021, respectively.

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, 2021.

No dividends have been declared through March 31, 2022.

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.

2 unchanged sentences

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 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.

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

2 unchanged sentences

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

June 2021 Public Offering

In June 2021, the Company closed a public offering in which it sold 8,098,592 shares of common stock at a price to the public of $ 17.75 per share, for aggregate gross proceeds of $ 143.8 million.

The Company paid underwriting discounts and commissions of $ 8.6 million, and also incurred expenses of $ 0.3 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 $ 134.9 million.

Stock-Based Awards

7 unchanged sentences

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, 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, 2021, 2,795,696 shares remained available for grant under the 2015 Plan.

The Company had 2,843,205 stock options and 1,458,483 RSUs outstanding as of September 30, 2021 under the 2015 Plan.

As of January 1, 2022, the number of shares of common stock that may be issued under the 2015 Plan was automatically increased by 2,449,137 shares.

As of March 31, 2022, 3,685,011 shares remained available for grant under the 2015 Plan.

The Company had 3,957,556 stock options and 1,394,476 RSUs outstanding as of March 31, 2022 under the 2015 Plan.

2017 Inducement Plan

1 unchanged sentence

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 416,375 stock options and 7,480 RSUs outstanding as of September 30, 2021 under the 2017 Inducement Plan.

The Company had 410,600 stock options and 5,575 RSUs outstanding as of March

31, 2022 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 484,145 were outstanding as of September 30, 2021.

The Company granted stock options to purchase a total of 1,140,524 shares under the 2012 Plan, of which 484,145 were outstanding as of March 31, 2022.

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, 2021 and 2020 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, 2022 and 2021 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, 2021:

The following table summarizes stock option activity for the three months ended March 31, 2022:

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

1 unchanged sentence

Forfeited and cancelled

Outstanding as of September 30, 2021

Options vested and expected to vest as of September 30, 2021

Options exercisable as of September 30, 2021

The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2021 was $ 15.86 per share.

Outstanding as of March 31, 2022

Options vested and expected to vest as of March 31, 2022

Options exercisable as of March 31, 2022

The weighted average grant date fair value of stock options granted during the three months ended March 31, 2022 was $ 9.97 per share.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2021:

The following table summarizes RSU activity for the three months ended March 31, 2022:

(In thousands, except share and per share data)

Outstanding as of December 31, 2021

( 1,339,625 )

Forfeited and cancelled

Outstanding as of September 30, 2021

Outstanding as of March 31, 2022

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, 2021, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 14.7 million and $ 15.0 million, respectively, each of which is expected to be recognized over a weighted average period of 3.0 years.

As of March 31, 2022, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 23.2 million and $ 18.6 million, respectively, which is expected to be recognized over weighted average periods of 3.5 years and 3.2 years, respectively.

Net Loss per Share

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

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

1 unchanged sentence

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.

The Company’s potentially dilutive securities, which included stock options and RSUs, 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 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 and nine months ended September 30, 2021 and 2020.

All share amounts presented in the table below represent the total number outstanding as of September 30, 2021 and 2020.

September 30,

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, 2022 and 2021.

All share amounts presented in the table below represent the total number outstanding as of March 31, 2022 and 2021.

Options to purchase common stock

2 unchanged sentences

Operating Leases

Agreements for Office Space

Agreements for Office and Laboratory Space

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.

1 unchanged sentence

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.

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

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

3 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, 2021 and 2020 and $ 0.8 million for each of the nine months ended September 30, 2021 and 2020.

Finance Leases

Laboratory Equipment

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

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.

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, 2021 and 2020, the Company invoiced Mallinckrodt for $ 24 thousand and $ 0.3 million, respectively, under the master services agreement.

As of September 30, 2021 and December 31, 2020, the Company had $ 0 and $ 24 thousand, respectively, of outstanding accounts receivable balances from Mallinckrodt.

Reasons had no financial interest in these transactions.

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, 2022 and 2021.

Agreements Related to Intellectual Property

2 unchanged sentences

EPI Health agreed to pay the Company a high single-digit royalty calculated as a percentage of net sales on a country-by-country basis until the date that the patent rights related to RHOFADE have expired or, if later, 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 $ 0.6 million and $ 0.5 million during the nine months ended September 30, 2021 and 2020, respectively.

The Company recorded royalty income under the asset purchase agreement of $ 0.2 million during each of the

three months ended March 31, 2022 and 2021.

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, 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.

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 set forth in the Confluence Agreement.

Under the Confluence Agreement, the Company 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 set forth in the Confluence Agreement.

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 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.

As of September 30, 2021 and December 31, 2020, the balance of the Company’s contingent consideration liability was $ 26.2 million and $ 4.1 million, respectively (see Note 3).

The Company did not record a federal or state income tax benefit for losses incurred during each of the three and nine months ended September 30, 2021 and 2020.

As of March 31, 2022 and December 31, 2021, the balance of the Company’s contingent consideration liability was $ 27.2 million and $ 28.4 million, respectively (see Note 3).

The Company did not record a federal or state income tax benefit for losses incurred during the three months ended March 31, 2022 and 2021.

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.

1 unchanged sentence

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

September 30,

(In thousands)

Accounts payable

Accrued expenses

7 unchanged sentences

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

The Company’s results of operations by segment for the three and nine months ended September 30, 2021 and 2020 are summarized in the tables below:

(In thousands)

Three Months Ended September 30, 2021

Total revenue

Cost of revenue

Research and development

General and administrative

Revaluation of contingent consideration

Loss from operations

(In thousands)

Three Months Ended September 30, 2020

Total revenue

Cost of revenue

Research and development

General and administrative

Revaluation of contingent consideration

Loss from operations

The Company’s results of operations by segment for the three months ended March 31, 2022 and 2021 are summarized in the tables below:

(In thousands)

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Total revenue

5 unchanged sentences

(In thousands)

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Total revenue

4 unchanged sentences

Loss from operations

Loss from discontinued operations

Intersegment Revenue

Revenue for the contract research segment included $ 1.9 million and $ 1.7 million for services performed on behalf of the therapeutics segment for the three months ended September 30, 2021 and 2020, respectively and $ 5.5 million and $ 5.7 million for the nine months ended September 30, 2021 and 2020, respectively.

Revenue for the contract research segment included $ 2.9 million and $ 1.7 million for services performed on behalf of the therapeutics segment for the three months ended March 31, 2022 and 2021, 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.

The complaint alleged 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 (hydrogen peroxide) topical solution, 40% (w/w) (“ESKATA”) and find that the materials minimized the risks or overstated the efficacy of the product.

The complaint sought 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.

8 unchanged sentences

The parties signed and filed a settlement agreement in July 2021.

On August 18, 2021, the court preliminarily approved the proposed settlement, directed that notice be given to the putative class and scheduled the final approval settlement hearing for November 30, 2021.

On August 18, 2021, the court preliminarily approved the proposed

settlement, directed that notice be given to the putative class and scheduled the final approval settlement hearing for November 30, 2021.

Notice was subsequently given to the putative class.

The proposed settlement is subject to final approval by the court.

The Company had $ 2.65 million accrued as of September 30, 2021 for its estimated financial obligation.

The Company expects its financial obligation to be within the limits of its insurance coverage and accordingly recorded a receivable for an insurance recovery equal to the settlement amount.

The insurance recovery receivable and the litigation settlement liability are recorded in prepaid expenses and other current assets and accrued expenses, respectively, in the condensed consolidated balance sheet.

Stockholder Derivative Action

On November 15, 2019, plaintiff Keith Allred (“Allred”) filed a derivative stockholder complaint captioned Allred v.

Walker et al.

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’ then-anticipated motion to dismiss the Consolidated Securities Action.

On May 18, 2021, the court extended the stay – subject to certain conditions – until the resolution of a motion for summary judgment in the Consolidated Securities Action, which defendants in that action intended to file had the parties to the Consolidated Securities Action not reached an agreement to settle.

In June 2021, the defendants and the plaintiffs agreed to settle the Consolidated Derivative Action.

The agreed terms provide for the Company to implement certain policies and for attorneys’ fees to be paid to plaintiff’s counsel.

The parties signed and filed a settlement agreement in July 2021.

On August 18, 2021, the court preliminarily approved the proposed settlement, directed that notice be given to the Company’s stockholders and scheduled the final approval settlement hearing for November 30, 2021.

Notice was subsequently given to the Company’s stockholders .

The proposed settlement is subject to final approval by the court.

The Company had $ 425 thousand accrued as of September 30, 2021 for its estimated financial obligation.

The Company expects its financial obligation to be within the limits of its insurance coverage and accordingly recorded a receivable for an insurance recovery equal to the settlement amount.

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.

The Company’s motion to dismiss was granted on July 9, 2021.

The Court dismissed the majority of claims against the Company with prejudice.

All remaining claims against the Company were dismissed without prejudice.

The court granted final approval of the settlement on December 9, 2021.

The Company’s financial obligation under the settlement was $ 2.7 million which was within the limits of its insurance coverage.

Subsequent Event

On November 1, 2021, Kamil Ali-Jackson, Co-Founder, Chief Legal Officer, Chief Compliance Officer and Corporate Secretary notified the Company that she will retire from her position effective January 3, 2022.

In connection with her retirement, the Company entered into a Severance Agreement containing a release of claims against the Company.

Under the Severance Agreement, Ms.

Ali-Jackson will receive a lump sum cash payment of $ 615 thousand, equal to her annual base salary, her 2021 target bonus, and accrued but unused paid-time off.

She will also receive continuation of health insurance benefits for 12 months, acceleration of vesting of options and restricted stock units, to the extent the award would have vested had she remained employed through March 31, 2022, and acceleration of additional currently outstanding restricted stock units held by her, with respect to a number of shares equal to (i) $ 157 thousand divided by (ii)

the fair market value of the Company’s common stock on January 3, 2022.

Sales of Common Stock Pursuant to At-The-Market Facility

In April 2022, the Company sold 4,838,709 shares of its common stock at a weighted average price per share of $ 15.50 , for aggregate gross proceeds of $ 75.0 million, pursuant to a sales agreement with SVB Securities LLC and Cantor Fitzgerald & Co., as sales agents, dated May 20, 2021.

The Company paid selling commissions of $ 2.2 million in connection with the sale.

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