What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-10 · 98 added, 82 removed, 300 unchanged (38% of the section changed)

11 unchanged sentences

Zunsemetinib, an Investigational Oral MK2 Inhibitor

We submitted an Investigational New Drug Application, or IND, in April 2019 for zunsemetinib, an investigational oral, novel, small molecule selective MK2 inhibitor compound, for the treatment of rheumatoid arthritis, which was allowed by the U.S.

Food and Drug Administration, or FDA, in May 2019.

We are developing zunsemetinib, an investigational oral, novel, small molecule selective MK2 inhibitor compound, as a potential treatment for rheumatoid arthritis and other immuno-inflammatory diseases.

MK2 is a key regulator of pro-inflammatory mediators including TNFα, IL1β, IL6, IL8, IL17 and other essential pathogenic signals in chronic immuno-inflammatory diseases, as well as in oncology.

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No serious adverse events were reported and

all adverse events were mild to moderate.

all adverse events were mild.

The most common adverse events (reported by 2 or more subjects who received zunsemetinib) were headache, dizziness, nausea, parasthesia and, in the post-dosing follow-up period of the trial, dry skin.

These adverse events were all mild in severity.

Moderate to Severe Rheumatoid Arthritis

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In the trial, which consisted of a 12-week treatment period and a 4-week follow-up period, 19 subjects were randomized in a 3:1 ratio and received either zunsemetinib at 50 mg twice daily or placebo, in combination with methotrexate, for 12 weeks.

The final per-protocol analysis, which consisted of the 17 subjects who completed the treatment period (15 in the treatment arm and two in the placebo arm), showed that zunsemetinib demonstrated durable clinical activity, as defined by a marked and sustained reduction in DAS28-CRP and improvement of ACR20/50/70 responses over 12 weeks.

Zunsemetinib was generally well tolerated.

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Moderate to Severe Psoriatic Arthritis

We plan to progress zunsemetinib (50 mg twice daily) into a Phase 2a trial in subjects with moderate to severe psoriatic arthritis in the second quarter of 2022, with topline data expected in the first half of 2023 (ATI-450-PsA-201).

In June 2022, we initiated study activities in a Phase 2a, randomized, multicenter, double-blind, placebo-controlled trial to investigate the efficacy, safety, tolerability, pharmacokinetics and pharmacodynamics of zunsemetinib (50 mg twice daily) in subjects with moderate to severe psoriatic arthritis (ATI-450-PsA-201).

This trial consists of a 12-week treatment period and a 30-day follow-up period, and seeks to enroll approximately 70 subjects in the United States

and in Poland.

The primary endpoint is the proportion of subjects achieving ACR20 at week 12.

We expect topline data in the first half of 2023.

ATI-1777, an Investigational Topical “Soft” JAK 1/3 Inhibitor

In June 2020, we submitted an IND for ATI-1777, an investigational topical “soft” JAK 1/3 inhibitor compound, for the treatment of moderate to severe atopic dermatitis.

We are developing ATI-1777, an investigational topical “soft” JAK 1/3 inhibitor compound, as a potential treatment for moderate to severe atopic dermatitis.

“Soft” JAK inhibitors are designed to be topically applied and active in the skin, but rapidly metabolized and inactivated when they enter the bloodstream, which may result in low systemic exposure.

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The ITJ compound interrupts T cell signaling through the combined inhibition of ITK/TXK/JAK3 pathways in lymphocytes.

We submitted an IND for ATI-2138 for the treatment of psoriasis in October 2021, which was allowed by the FDA in November 2021.

In December 2021, we initiated a Phase 1 randomized, observer-blind, placebo-controlled, single ascending dose trial to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of ATI-2138 in healthy subjects (ATI-2138-PKPD-101).

We submitted an Investigational New Drug application, or IND, for ATI-2138 for the treatment of psoriasis in October 2021, which was allowed by the U.S.

Food and Drug Administration, or FDA, in November 2021.

In December 2021, we initiated a Phase 1 randomized, observer-blind, placebo-controlled, single ascending dose (SAD) trial to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of ATI-2138 in healthy subjects (ATI-2138-PKPD-101).

We expect topline data in 2022.

If the Phase 1 SAD trial is successful, we currently plan to initiate a two-week Phase 1 multiple ascending dose trial of ATI-2138 in subjects with psoriasis in 2022, with topline data expected in the first half of 2023.

We are also currently exploring alternative indications to the planned indication that are relevant to the mechanism of action which may impact the trial design and require the submission of additional INDs to different reviewing divisions of the FDA.

If the Phase 1 SAD trial is successful, we currently plan to initiate a Phase 1 multiple ascending dose (MAD) trial of ATI-2138 in subjects with psoriasis in 2022, with topline data expected in the first half of 2023.

We are also currently exploring alternative indications that are relevant to the mechanism of action, which may impact the trial design and require the submission of additional INDs to different reviewing divisions of the FDA before we can conduct further clinical trials.

Preclinical Programs

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Since our inception, we have incurred significant net losses.

Our net loss was $18.8 million for the three months ended March 31, 2022 and $90.9 million for the year ended December 31, 2021.

As of March 31, 2022, we had an accumulated deficit of $614.2 million.

Our net loss was $39.3 million for the six months ended June 30, 2022 and $90.9 million for the year ended December 31, 2021.

As of June 30, 2022, we had an accumulated deficit of $634.7 million.

We expect to incur significant expenses and operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical and clinical development.

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If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development of one or more of our drug candidates.

Recent Developments

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

In April 2022, we sold 4,838,709 shares of our 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.

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

Impact of COVID-19 on Our Business

Impacts of COVID-19 on Our Business

The impacts of the global COVID-19 pandemic continue to evolve.

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However, COVID-19 has caused disruptions to our business.

If COVID-19 continues to spread, we may experience additional disruptions that could severely impact our business, results of operations and prospects, including the timing of our development programs and our clinical trials, including our trials of zunsemetinib as a potential treatment for moderate to severe rheumatoid arthritis and other immuno-inflammatory diseases and ATI-1777 as a potential treatment for moderate to severe atopic dermatitis, and the supply of active pharmaceutical ingredients and drug product for our clinical trials.

The extent to which the COVID-19 pandemic impacts our business, our preclinical and clinical development and our regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted, such as the spread of the disease, the introduction of new variants, the duration of the pandemic, travel restrictions, quarantines, stay-at-home orders, social distancing requirements, business closures, staffing shortages, and supply chain and other disruptions in the United States and other countries, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease, including the administration of vaccines.

Accordingly, we do not yet know the full extent of the potential impacts on our business, our preclinical and clinical development and regulatory activities.

active pharmaceutical ingredients and drug product for our clinical trials.

The extent to which the COVID-19 pandemic impacts our business, our preclinical and clinical development and our regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted, such as the spread of the disease, the introduction and spread of new variants, travel restrictions, quarantines, stay-at-home orders, social distancing requirements, business closures, staffing shortages, and supply chain and other disruptions in the United States and other countries, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease, including the administration of vaccines.

Accordingly, we do not know the full extent of the potential impacts on our business, our preclinical and clinical development and regulatory activities.

Acquisition and License Agreements

Agreement and Plan of Merger with Confluence

In August 2017, we entered into an Agreement and Plan of Merger, or the Confluence Agreement, with Confluence Life Sciences, Inc.

In 2017, we entered into an Agreement and Plan of Merger, or the Confluence Agreement, with Confluence Life Sciences, Inc.

(now known as Aclaris Life Sciences, Inc.), or Confluence , Aclaris Life Sciences, Inc., our wholly-owned subsidiary, or Merger Sub, and Fortis Advisors LLC, as representative of the equity holders of Confluence.

Pursuant to the terms of the Confluence Agreement, the Merger Sub merged with and into Confluence, with Confluence surviving as our wholly-owned subsidiary.

Under the Confluence Agreement, we 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.

Pursuant to the terms of the Confluence Agreement, Merger Sub merged with and into Confluence, with Confluence surviving as our wholly-owned subsidiary.

Under the Confluence Agreement, we have agreed to pay the former Confluence equity holders aggregate remaining contingent consideration of up to $75.0 million based upon the achievement of specified future regulatory and commercial milestones set forth in the Confluence Agreement.

In addition, we have 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.

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Asset Purchase Agreement with EPI Health

In October 2019, we entered into an asset purchase agreement with EPI Health, LLC, or EPI Health, pursuant to which we sold the worldwide rights to RHOFADE (oxymetazoline hydrochloride) cream, 1%, or RHOFADE, which included the assignment of certain licenses for related intellectual property assets, or the Disposition.

In 2019, we entered into an asset purchase agreement with EPI Health, LLC, or EPI Health, pursuant to which we sold the worldwide rights to RHOFADE (oxymetazoline hydrochloride) cream, 1%, or RHOFADE, which included the assignment of certain licenses for related intellectual property assets, or the Disposition.

Pursuant to the asset purchase agreement, EPI Health paid us closing consideration of $35.2 million.

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● expenses incurred under agreements with contract research organizations, or CROs, as well as clinical trial sites and consultants that conduct our clinical trials and preclinical studies, and investigator-initiated trials;

● manufacturing scale-up expenses and the cost of acquiring and manufacturing active pharmaceutical ingredients and preclinical and clinical trial materials;

● manufacturing scale-up expenses and the cost of acquiring and manufacturing active pharmaceutical ingredients and preclinical and clinical trial materials, including domestic technology transfer expenses;

● outsourced professional scientific development services;

1 unchanged sentence

● employee-related expenses, which include salaries, benefits and stock-based compensation;

● depreciation of manufacturing equipment;

● payments made under agreements with third parties under which we have acquired or licensed intellectual property;

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Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect to continue to incur research and development expenses in the near term as we continue the clinical development of zunsemetinib as a potential treatment for moderate to severe rheumatoid arthritis and other immuno-inflammatory diseases, ATI-1777 as a potential treatment for moderate to severe atopic dermatitis and ATI-2138 as a potential treatment for T cell-mediated autoimmune diseases, continue the development of our preclinical compounds, and continue to discover and develop additional drug candidates.

We expect to continue to incur research and development expenses in the near term as we continue the clinical development of zunsemetinib as a potential treatment for moderate to severe rheumatoid arthritis and other immuno-inflammatory diseases, ATI-1777 as a potential treatment for moderate to severe atopic dermatitis and ATI-2138 as a potential treatment for T cell-mediated autoimmune diseases, and as we continue the development of our preclinical compounds and discover and develop additional drug candidates.

We expense research and development costs as incurred.

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Other Income (Expense), Net

Other income (expense), net primarily consists of interest earned on our cash, cash equivalents and marketable securities and interest expense related to our debt obligations.

Other income (expense), net primarily consists of interest earned on our cash, cash equivalents and marketable securities and in prior periods included interest expense related to our debt obligations.

Critical Accounting Estimates

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Significant assumptions used in our 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 10% and 40% at March 31, 2022 compared to between 4% and 40% at March 31, 2021.

Probability of success assumptions ranged between 10% and 40% at June 30, 2022 compared to between 4% and 40% at June 30, 2021.

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 10.2% and 10.9% depending on the year of each potential payment.

During the three months ended March 31, 2022, we did not modify any significant assumptions;

During the six months ended June 30, 2022, we did not modify any significant assumptions;

however, due to higher discount rates resulting from higher risk-free rates and wider credit spreads being applied to potential payments relative to prior periods, we recorded a decrease in contingent consideration of $4.6 million.

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

During the three months ended March 31, 2021, we updated assumptions for probability of success and estimated future sales levels as a result of the completion of a Phase 2a clinical trial of zunsemetinib in subjects with moderate to severe rheumatoid arthritis;

we also included estimated future sales related to hidradenitis suppurativa and psoriatic arthritis which are additional planned indications for zunsemetinib.

These updates resulted in a charge of $16.4 million.

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

During the six months ended June 30, 2021, we updated assumptions for probability of success and estimated future sales levels as a result of the completion of a Phase 2a clinical trial of zunsemetinib in subjects with moderate to severe rheumatoid arthritis and as a result of the completion of a Phase 2a clinical trial of ATI-1777 in subjects with moderate to severe atopic dermatitis.

We also included estimated future sales of zunsemetinib as a potential treatment for hidradenitis suppurativa and psoriatic arthritis, which are additional planned indications for zunsemetinib.

These updates resulted in an increase in the fair value of the contingent consideration liability of $21.2 million.

Results of Operations

Comparison of Three Months Ended March 31, 2022 and 2021

Three Months Ended March 31,

Comparison of Three and Six Months Ended June 30, 2022 and 2021

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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Other income (expense), net

Contract research revenue was $1.2 million and $1.5 million for the three months ended March 31, 2022 and 2021, respectively, and was comprised of fees earned from the provision of laboratory services to our clients.

The $0.3 million decrease was driven by lower overall hours billed, partially offset by a higher average bill rate.

Other revenue for each of the three months ended March 31, 2022 and 2021 primarily consisted of $0.2 million of royalties earned on net sales of RHOFADE.

Contract research revenue was $1.2 million and $1.6 million for the three months ended June 30, 2022 and 2021, respectively, and was comprised of fees earned from the provision of laboratory services.

The $0.4 million decrease was driven by lower overall hours billed, partially offset by a higher average billing rate.

Other revenue for the three months ended June 30, 2022 and 2021 primarily consisted of $0.3 million and $0.2 million of royalties earned on net sales of RHOFADE, respectively.

Contract research revenue was $2.4 million and $3.1 million for the six months ended June 30, 2022 and 2021, respectively, and was comprised of fees earned from the provision of laboratory services.

The $0.7 million decrease was driven by lower overall hours billed, partially offset by a higher average billing rate.

Other revenue for the six months ended June 30, 2022 and 2021 primarily consisted of $0.5 million and $0.4 million of royalties earned on net sales of RHOFADE, respectively.

Cost of Revenue

Cost of revenue was $1.2 million for each of the three months ended March 31, 2022 and 2021, and in each case related to providing laboratory services to our clients.

Cost of revenue was flat due to lower variable costs resulting from the decrease in hours billed offset by an increase in overhead costs, including personnel-related costs.

Cost of revenue was $1.1 million and $2.2 million for the three and six months ended June 30, 2022, respectively, and $1.3 million and $2.5 million for the three and six months ended June 30, 2021, respectively.

In each case cost of revenue related to providing laboratory services.

Changes in cost of revenue generally correlate to changes in contract research revenue.

Cost of revenue decreased in the three and six months ended June 30, 2022 due to lower variable costs resulting from the decrease in hours billed, partially offset by an increase in fixed overhead costs, including personnel-related costs.

Research and Development Expenses

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Three Months Ended

Six Months Ended

(In thousands)

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Total research and development expenses

The increase in expenses for zunsemetinib during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to costs associated with clinical development activities for a Phase 2b trial in subjects with rheumatoid arthritis and a Phase 2a trial in subjects with hidradenitis suppurativa which were initiated in December 2021 .

Costs associated with start-up activities for a Phase 2a trial in subjects with psoriatic arthritis also contributed to the overall increase.

The increase in expenses for ATI-1777 during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to higher costs associated with drug candidate manufacturing and other preclinical development activities as well start-up costs associated with a Phase 2b clinical trial.

Lower costs associated with a Phase 2a clinical trial which commenced in 2020 and concluded in 2021 partially offset the overall increase in expenses.

Expenses for ATI-2138 were lower during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to a decrease in preclinical development activities and IND-enabling study expenses following our IND submission in October 2021.

Clinical development expenses associated with a Phase 1 SAD trial which initiated in December 2021 partially offset the overall decrease in expenses.

Expenses for ATI-2231 were higher during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to preclinical development activities and IND-enabling studies.

Expenses related to discovery increased during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 due to continued investment in our discovery-stage programs as we progressed programs toward candidate selection.

The increase in expenses for zunsemetinib during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 was primarily due to costs associated with clinical development activities for a Phase 2b trial in subjects with rheumatoid arthritis, which initiated in December 2021, a Phase 2a trial in subjects with hidradenitis suppurativa, which initiated in December 2021 and start-up activities for a Phase 2a trial in subjects with psoriatic arthritis, which initiated in June 2022.

The increase in expenses for ATI-1777 during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 was primarily due to higher costs associated with drug candidate manufacturing and other preclinical development activities as well start-up costs associated with a Phase 2b clinical trial in subjects with atopic dermatitis.

Lower costs associated with a Phase 2a clinical trial in subjects with atopic dermatitis, which commenced in 2020 and concluded in 2021, partially offset the overall increase in expenses.

Expenses for ATI-2138 were relatively flat during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 due to a decrease in preclinical development activities and IND-enabling study expenses following our IND submission in October 2021, offset by clinical development expenses associated with a Phase 1 SAD trial, which initiated in December 2021.

Expenses for ATI-2231 were higher during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 primarily due to preclinical development activities and IND-enabling studies.

Expenses related to discovery increased during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 due to continued investment in our discovery-stage programs as we progressed programs toward candidate selection.

Personnel and stock-based compensation

Personnel and stock-based compensation expenses increased in the aggregate during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to an increase in costs associated with higher average headcount, partially offset by a decrease in stock-based compensation expense mainly attributable to forfeiture credits recorded during the three months ended March 31, 2022.

Personnel and stock-based compensation expenses increased in the aggregate during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 primarily due to an increase in costs associated with higher average headcount.

For the six months ended June 30, 2022 the increase in costs associated with higher average headcount was partially offset by a decrease in stock-based compensation expense mainly attributable to forfeiture credits recorded between the period.

General and Administrative Expenses

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Three Months Ended

Six Months Ended

(In thousands)

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Personnel and stock-based compensation

Personnel and stock-based compensation expenses increased during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to an increase in costs associated with higher average headcount and an increase in stock-based compensation expense associated with new equity awards granted in 2022.

Personnel and stock-based compensation expenses in the aggregate increased during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 primarily due to an increase in costs associated with higher average headcount and an increase in stock-based compensation expense associated with new equity awards granted in 2022.

Professional and legal fees

Professional and legal fees, including accounting, investor relations and corporate communication costs, were lower during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily as a result of lower legal fees partially offset by higher Sarbanes-Oxley and other accounting compliance expenses.

Professional and legal fees, including accounting, investor relations and corporate communication costs, decreased during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 primarily as a result of lower legal fees, partially offset by higher Sarbanes-Oxley and other accounting compliance expenses.

Facility and support services

Facility and support services, including general office expenses, information technology costs and other expenses, increased during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to an increase in overhead expenses including increases in tax and license fees and information technology support costs.

Facility and support services, including general office expenses, information technology costs and other expenses, was relatively flat during the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Facility and support services, including general office expenses, information technology costs and other expenses, increased during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to an increase in overhead expenses including increases in tax and license fees and information technology support costs.

Revaluation of Contingent Consideration

The decrease in revaluation of contingent consideration during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 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 revaluation of contingent consideration was partially offset by the impact of the passage of time.

The decrease in the fair value of our contingent consideration liability during the three months ended June 30, 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 in 2022.

Additionally, increases recorded during the three months ended June 30, 2021 from updates to the probability of success and estimated future sales level assumptions as a result of the completion of a Phase 2a clinical trial of ATI-1777 in subjects with atopic dermatitis contributed to the decrease.

The decrease in the fair value of our contingent consideration liability during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 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 in 2022.

Additionally, increases recorded during the six months ended June 30, 2021 from updates to the probability of success and estimated future sales level assumptions as a result of the completion of a Phase 2a clinical trial of zunsemetinib in subjects with rheumatoid arthritis, as well as the completion of a Phase 2a clinical trial of ATI-1777 in subjects with atopic dermatitis.

Additionally, the inclusion of estimated future sales of zunsemetinib as a potential treatment for hidradenitis suppurativa and psoriatic arthritis, which are additional planned indications for zunsemetinib, also contributed to the increase during the six months ended June 30, 2021.

Other Income (Expense), net

Other income (expense), net increased during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to lower interest expense associated with the Loan and Security Agreement with Silicon Valley Bank, or SVB, which was repaid in July 2021, and higher interest income on investment portfolio balances.

Other income (expense), net increased during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 due to lower interest expense associated with the Loan and Security Agreement with Silicon Valley Bank, or SVB, which was repaid in July 2021, and higher interest income on investment portfolio balances.

Liquidity and Capital Resources

Since our inception, we have incurred net losses and negative cash flows from our operations.

Prior to our acquisition of Confluence in August 2017, we did not generate any revenue.

Prior to our acquisition of Confluence, we did not generate any revenue.

We have financed our operations over the last several years primarily through sales of our equity securities and incurring indebtedness in the form of loans from commercial lenders.

We may engage in additional debt and equity financing transactions in order to raise funds.

We may receive royalties and milestone payments from EPI Health in connection with the sale of RHOFADE.

We may also receive royalties and milestone payments from EPI Health in connection with the sale of RHOFADE.

In addition, to the extent we are able to consummate transactions with potential third-party partners to further develop, obtain marketing approval for and/or commercialize our drug candidates, we may receive upfront payments, milestone payments or royalties from such arrangements that would increase our liquidity.

As of March 31, 2022, we had cash, cash equivalents and marketable securities of $203.6 million.

Subsequent to March 31, 2022, we raised aggregate gross proceeds of $75.0 million through our at-the-market equity facility.

As of June 30, 2022, we had cash, cash equivalents and marketable securities of $255.8 million.

Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view towards liquidity and capital preservation.

1 unchanged sentence

Equity Financing

At-the-Market Offering

Sale of Common Stock Pursuant to At-the-Market Offering

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

We paid selling commissions and other fees of $2.2 million in connection with the sale.

June 2021 Public Offering

In June 2021, we closed a public offering in which we 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.

We 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 us, after deducting underwriting discounts, commissions and offering expenses, were $134.9 million.

January 2021 Public Offering

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In July 2021, we repaid in full the $11.0 million that was outstanding under the Loan and Security Agreement, together with all accrued and unpaid interest and fees as of the payoff date, for a total payment of $11.7 million.

Cash and cash equivalents were $36.3 million as of March 31, 2022 compared to $27.3 million as of December 31, 2021.

We also had $167.2 million in short- and long-term marketable securities as of March 31, 2022 compared to $198.3 million as of December 31, 2021.

Cash and cash equivalents were $68.3 million as of June 30, 2022 compared to $27.3 million as of December 31, 2021.

We also had $187.6 million in short- and long-term marketable securities as of June 30, 2022 compared to $198.3 million as of December 31, 2021.

The sources and uses of cash that contributed to the change in cash and cash equivalents were:

Three Months Ended

Six Months Ended

(In thousands)

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Cash flow related to operating activities was the result of:

Three Months Ended

Six Months Ended

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Net cash used in operating activities

Net cash used in operating activities increased for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily as a result of higher net losses after adjusting for non-cash items and an increase in cash paid for accounts payable and accrued expenses.

The increase was partially offset by a decrease in cash paid for prepaid expenses.

Cash paid for prepaid expenses and other assets was lower due to a smaller increase in prepaid research and development balances relative to the prior year-end period.

The increase in cash paid for accounts payable and accrued expenses was primarily driven by the timing of receipt and payment of invoices around quarter-end relative to the prior year-end period.

Net cash used in operating activities increased for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily as a result of higher net losses after adjusting for non-cash items and an increase in cash paid for accounts payable and accrued expenses.

The increase was partially offset by a decrease in cash paid for prepaid expenses and other assets.

The decrease in non-cash adjustments to reconcile net loss to net cash used in operating activities was mainly the result of a decrease in revaluation of contingent consideration during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due to higher discount rates, resulting from higher risk-free rates and wider credit spreads, being applied to potential payments relative to prior periods in 2022.

The increase in cash paid for accounts payable and accrued expenses was primarily driven by the timing of receipt and payment of invoices around quarter-end relative to the prior year period.

The decrease in cash paid for prepaid expenses and other assets resulted from an increase in the prepaid research and development balance at June 30, 2021 relative to the balance at December 31, 2020, as compared to the prepaid research and development balance at June 30, 2022 which was flat relative to the balance at December 31, 2021.

Investing Activities

Cash flow related to investing activities was the result of:

Three Months Ended

Six Months Ended

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Net cash provided by (used in) investing activities

The change in net cash provided by investing activities for the three months ended March 31, 2022 compared to net cash used in investing activities for the three months ended March 31, 2021 primarily resulted from sales and maturities of marketable securities during the three months ended March 31, 2022 which were used to fund company operations and a reduction of purchases of marketable securities which were higher during the three months ended March 31, 2021 following our January 2021 public offering.

Net cash provided by investing activities for the six months ended June 30, 2022 compared to net cash used in investing activities for the six months ended June 30, 2021 primarily resulted from sales and maturities of marketable securities during the six months ended June 30, 2022, which were used to fund our operations, and a reduction of purchases of marketable securities, which were higher during the six months ended June 30, 2021 following our January 2021 and June 2021 public offerings.

Financing Activities

Cash flow related to financing activities was the result of:

Three Months Ended

Six Months Ended

(In thousands)

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

Restricted stock unit employee tax withholdings

Proceeds from issuance of common stock under the at-the-market sales agreement, net of issuance costs

Payments of employee withholding taxes related to restricted stock unit award vesting

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

Net cash provided by financing activities

Cash provided by financing activities decreased for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to our January 2021 public offering.

Net cash provided by financing activities decreased for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to our January 2021 and June 2021 public offerings, partially offset by our April 2022 sales under the at-the-market sales agreement.

Funding Requirements

We anticipate we will incur net losses in the near term as we continue the clinical development of zunsemetinib as a potential treatment for moderate to severe rheumatoid arthritis and other immuno-inflammatory diseases, ATI-1777 as a potential treatment for moderate to severe atopic dermatitis and ATI-2138 as a potential treatment for T cell-mediated autoimmune diseases, continue the development of our preclinical compounds, and continue to discover and develop additional drug candidates.

We anticipate we will incur net losses in the near term as we continue the clinical development of zunsemetinib as a potential treatment for moderate to severe rheumatoid arthritis and other immuno-inflammatory diseases, ATI-1777 as a potential treatment for moderate to severe atopic dermatitis and ATI-2138 as a potential treatment for T cell-mediated autoimmune diseases, as well as continue the development of our preclinical compounds and discover and develop additional drug candidates.

We may not be able to generate revenue from these programs if, among other things, our clinical trials are not successful, the FDA does not approve our drug candidates currently in clinical trials when we expect, or at all, or we are not able to identify and consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our drug candidates.

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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 us to continue to implement our long-term business strategy.

Our 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.

Our ability to raise additional capital may be adversely impacted by the potential worsening of global economic conditions, including inflationary pressures, and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the COVID-19 pandemic and geopolitical tensions.

If we are unable to raise sufficient additional capital or generate revenue from transactions with potential third-party partners for the development and/or commercialization of our drug candidates, we may need to substantially curtail our planned operations.

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● our ability to earn revenue as a result of licenses to, or partnerships or other arrangements with, third parties.

See “Risk Factors” for additional risks associated with our substantial capital requirements

We occupy space for our headquarters in Wayne, Pennsylvania under a sublease agreement which has a term through October 2023.

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Louis, Missouri under a sublease agreement which has a term through June 2029.

Our aggregate remaining lease payment obligations for these two spaces was $3.6 million as of March 31, 2022.

Our aggregate remaining lease payment obligations for these two spaces was $3.3 million as of June 30, 2022.

Agreement and Plan of Merger – Confluence

In August 2017, we entered into the Confluence Agreement, pursuant to which we acquired Confluence.

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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 2. Management’s Discussion and Analysis