Aclaris Therapeutics, Inc. 10-K

Item 8. Financial Statements and Supplementary Data ​ INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 76 ​ ​ Consolidated Balance Sheets as of December 31, 2022 and 2021 79 ​ ​ Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022, 2021 and 2020 80 ​ ​ Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020 81 ​ ​ Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 82 ​ ​ Notes to Consolidated Financial Statements 83 ​ ​ ​ 75 Table of Contents Report of Independent Registered Public Accounting Firm ​ To the Board of Directors and Stockholders of Aclaris Therapeutics, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Aclaris Therapeutics, Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely 76 Table of Contents detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Fair Value of the Contingent Consideration Liability related to zunsemetinib As described in Notes 2 and 3 to the consolidated financial statements, the Company’s contingent consideration balance was $33.1 million as of December 31, 2022, of which a significant portion of the liability relates to zunsemetinib. Management 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 development, regulatory and commercial milestones, as well as estimated future projected sales levels and the discount rates applied to calculate the present value of the potential payments. Management evaluates fair value estimates of the contingent consideration liability on a quarterly basis 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 payment. Changes in the fair value of the contingent consideration are recorded as income or expense in the Company’s consolidated statement of operations and comprehensive loss. Significant assumptions used in management’s estimates include the probability of achieving regulatory milestones and commencing commercialization, which are based upon an asset’s current stage of development and review of existing clinical data. The principal considerations for our determination that performing procedures relating to the fair value of the contingent consideration liability related to zunsemetinib is a critical audit matter are (i) the significant judgment by management, when developing the fair value estimate, which in turn led to (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the probability of achieving regulatory milestones and commencing commercialization. In addition, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s contingent consideration evaluation, including controls over the valuation of the Company’s contingent consideration liability related to zunsemetinib. These procedures also included, among others, (i) testing management’s process for developing the fair value of the contingent consideration liability, (ii) evaluating the appropriateness of the probability-weighted expected payment and Monte Carlo simulation valuation models, (iii) testing the completeness and accuracy of the underlying data used in the models, and (iv) evaluating the reasonableness of the significant assumptions used by management related to the probability of achieving regulatory milestones and commencing commercialization. Evaluating management’s assumptions related to the probability of achieving regulatory milestones and commencing commercialization involved evaluating whether the assumptions were reasonable considering the agreements associated with the transaction as well as the consistency with industry information, the stage of product development and whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s probability-weighted expected payment and Monte Carlo simulation valuation models. /s/ PricewaterhouseCoopers LLP 77 Table of Contents ​ Philadelphia, Pennsylvania February 23, 2023 We have served as the Company’s auditor since 2015. ​ ​ ​ 78 Table of Contents ACLARIS THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEET S ​ (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 45,277 ​ $ 27,349 Short-term marketable securities ​ 172,294 ​ 164,065 Accounts receivable, net ​ ​ 484 ​ ​ 623 Prepaid expenses and other current assets ​ 13,495 ​ 12,995 Total current assets ​ 231,550 ​ 205,032 Marketable securities ​ 12,242 ​ 34,242 Property and equipment, net ​ 1,099 ​ 1,335 Intangible assets ​ ​ 6,973 ​ ​ 7,048 Other assets ​ 2,732 ​ 3,554 Total assets ​ $ 254,596 ​ $ 251,211 Liabilities and Stockholders’ Equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 10,351 ​ $ 9,985 Accrued expenses ​ 8,701 ​ 10,051 Current portion of lease liabilities ​ ​ 684 ​ ​ 693 Discontinued operations ​ ​ 2,202 ​ ​ 2,202 Total current liabilities ​ 21,938 ​ 22,931 Other liabilities ​ ​ 1,570 ​ 2,172 Contingent consideration ​ ​ 33,100 ​ ​ 28,400 Deferred tax liability ​ 367 ​ 367 Total liabilities ​ 56,975 ​ 53,870 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 December 31, 2022 and December 31, 2021 ​ ​ — ​ ​ — Common stock, $ 0.00001 par value; 100,000,000 shares authorized at December 31, 2022 and December 31, 2021; 66,688,647 and 61,228,446 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively ​ 1 ​ 1 Additional paid‑in capital ​ 880,832 ​ 792,971 Accumulated other comprehensive loss ​ ( 897 ) ​ ( 224 ) Accumulated deficit ​ ( 682,315 ) ​ ( 595,407 ) Total stockholders’ equity ​ 197,621 ​ 197,341 Total liabilities and stockholders’ equity ​ $ 254,596 ​ $ 251,211 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 79 Table of Contents ACLARIS THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS ​ (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ 2022 2021 2020 ​ Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract research ​ $ 4,395 ​ $ 5,830 ​ $ 5,786 ​ Licensing ​ ​ 25,100 ​ ​ 809 ​ ​ 690 ​ Other ​ ​ 257 ​ ​ 122 ​ ​ 6 ​ Total revenue ​ ​ 29,752 ​ ​ 6,761 ​ ​ 6,482 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenue ​ ​ 4,023 ​ ​ 4,713 ​ ​ 5,133 ​ Research and development 77,813 ​ 43,813 ​ 29,338 ​ General and administrative 25,133 ​ 23,619 ​ 20,530 ​ Licensing ​ ​ 7,937 ​ ​ — ​ ​ — ​ Revaluation of contingent consideration ​ ​ 4,700 ​ ​ 24,339 ​ ​ 2,393 ​ Total costs and expenses 119,606 ​ 96,484 ​ 57,394 ​ Loss from operations ( 89,854 ) ​ ( 89,723 ) ​ ( 50,912 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense), net 2,946 ​ ( 1,142 ) ​ ( 424 ) ​ Loss from continuing operations before income taxes ​ ​ ( 86,908 ) ​ ​ ( 90,865 ) ​ ​ ( 51,336 ) ​ Income tax benefit ​ ​ — ​ ​ — ​ ​ ( 182 ) ​ Loss from continuing operations ​ ​ ( 86,908 ) ​ ​ ( 90,865 ) ​ ​ ( 51,154 ) ​ Income from discontinued operations, net of tax ​ ​ — ​ ​ — ​ ​ 139 ​ Net loss ​ $ ( 86,908 ) ​ $ ( 90,865 ) ​ $ ( 51,015 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per share, basic and diluted ​ $ ( 1.33 ) ​ $ ( 1.60 ) ​ $ ( 1.20 ) ​ Weighted average common shares outstanding, basic and diluted ​ 65,213,944 ​ 56,730,583 ​ 42,539,293 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized loss on marketable securities, net of tax of $ 0 ​ $ ( 673 ) ​ $ ( 229 ) ​ $ ( 2 ) ​ Foreign currency translation adjustment ​ ​ — ​ ​ 99 ​ ​ ( 26 ) ​ Total other comprehensive loss ​ ( 673 ) ​ ( 130 ) ​ ( 28 ) ​ Comprehensive loss ​ $ ( 87,581 ) ​ $ ( 90,995 ) ​ $ ( 51,043 ) ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 80 Table of Contents ACLARIS THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ​ (In thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ Other ​ ​ ​ Total ​ ​ ​ ​ Par ​ Paid ‑ in ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Value Capital Loss Deficit Equity Balance at December 31, 2019 ​ 41,485,638 ​ $ ​ ​ $ 523,505 ​ $ ( 66 ) ​ $ ( 453,527 ) ​ $ 69,912 Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units ​ 1,390,922 ​ ​ — ​ ​ ( 669 ) ​ ​ — ​ ​ — ​ ​ ( 669 ) Issuance of common stock in connection with an equity purchase agreement, net of offering costs of $ 168 ​ 2,232,754 ​ ​ — ​ ​ 7,865 ​ ​ — ​ ​ — ​ ​ 7,865 Unrealized loss on marketable securities ​ — ​ ​ — ​ ​ 378 ​ ​ ( 2 ) ​ ​ — ​ ​ 376 Foreign currency translation adjustment ​ — ​ ​ — ​ ​ — ​ ​ ( 26 ) ​ ​ — ​ ​ ( 26 ) Stock-based compensation expense ​ — ​ ​ — ​ ​ 11,207 ​ ​ — ​ ​ — ​ ​ 11,207 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 51,015 ) ​ ​ ( 51,015 ) Balance at December 31, 2020 ​ 45,109,314 ​ $ — ​ $ 542,286 ​ $ ( 94 ) ​ $ ( 504,542 ) ​ $ 37,650 Issuance of common stock in connection with exercise of stock options and warrants and vesting of restricted stock units ​ 1,714,269 ​ ​ — ​ ​ ( 1,574 ) ​ ​ — ​ ​ — ​ ​ ( 1,574 ) Issuance of common stock in connection with public offerings, net of offering costs of $ 15,910 ​ 14,404,863 ​ ​ 1 ​ ​ 238,199 ​ ​ — ​ ​ — ​ ​ 238,200 Unrealized loss on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ ( 229 ) ​ ​ — ​ ​ ( 229 ) Foreign currency translation adjustment ​ — ​ ​ — ​ ​ — ​ ​ 99 ​ ​ — ​ ​ 99 Stock-based compensation expense ​ — ​ ​ — ​ ​ 14,060 ​ ​ — ​ ​ — ​ ​ 14,060 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 90,865 ) ​ ​ ( 90,865 ) Balance at December 31, 2021 ​ 61,228,446 ​ $ 1 ​ $ 792,971 ​ $ ( 224 ) ​ $ ( 595,407 ) ​ $ 197,341 Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units ​ 621,492 ​ ​ — ​ ​ 163 ​ ​ — ​ ​ — ​ ​ 163 Issuance of common stock under at-the-market sales agreement, net of offering costs of $ 2,341 ​ 4,838,709 ​ ​ — ​ ​ 72,659 ​ ​ — ​ ​ — ​ ​ 72,659 Unrealized loss on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ ( 673 ) ​ ​ — ​ ​ ( 673 ) Stock-based compensation expense ​ — ​ ​ — ​ ​ 15,039 ​ ​ — ​ ​ — ​ ​ 15,039 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 86,908 ) ​ ​ ( 86,908 ) Balance at December 31, 2022 ​ 66,688,647 ​ $ 1 ​ $ 880,832 ​ $ ( 897 ) ​ $ ( 682,315 ) ​ $ 197,621 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 81 Table of Contents ACLARIS THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ​ (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2022 2021 ​ 2020 Cash flows from operating activities : ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 86,908 ) ​ $ ( 90,865 ) ​ $ ( 51,015 ) ​ Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 797 ​ 923 ​ ​ 1,324 ​ Stock-based compensation expense ​ 15,039 ​ 14,060 ​ ​ 11,207 ​ Revaluation of contingent consideration ​ ​ 4,700 ​ ​ 24,339 ​ ​ 2,393 ​ Loss on extinguishment of debt ​ ​ — ​ ​ 752 ​ ​ — ​ Deferred taxes ​ ​ — ​ ​ — ​ ​ ( 182 ) ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 139 ​ ​ 149 ​ ​ 4,898 ​ Prepaid expenses and other assets ​ ( 2,294 ) ​ ( 5,617 ) ​ ​ 1,689 ​ Accounts payable ​ 368 ​ 3,655 ​ ​ ( 5,219 ) ​ Accrued expenses ​ 592 ​ 470 ​ ​ ( 3,728 ) ​ Net cash used in operating activities ​ ( 67,567 ) ​ ( 52,134 ) ​ ​ ( 38,633 ) ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ( 605 ) ​ ( 308 ) ​ ​ ( 453 ) ​ Purchases of marketable securities ​ ( 164,753 ) ​ ( 235,153 ) ​ ​ ( 47,714 ) ​ Proceeds from sales and maturities of marketable securities ​ 177,986 ​ 67,829 ​ ​ 54,554 ​ Net cash provided by (used in) investing activities ​ 12,628 ​ ( 167,632 ) ​ ​ 6,387 ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from issuance of common stock in connection with public offerings, net of issuance costs ​ ​ — ​ ​ 238,200 ​ ​ — ​ Proceeds from issuance of common stock under the at-the-market sales agreement, net of issuance costs ​ ​ 72,744 ​ ​ — ​ ​ — ​ Proceeds from issuance of common stock in connection with an equity purchase agreement, net of issuance costs ​ — ​ — ​ ​ 7,737 ​ Proceeds from debt financing (including warrants), net of issuance costs ​ ​ — ​ ​ — ​ ​ 10,913 ​ Repayment of debt ​ ​ — ​ ​ ( 11,483 ) ​ ​ — ​ Payments of employee withholding taxes related to restricted stock unit award vesting ​ ​ ( 34 ) ​ ​ ( 3,124 ) ​ ​ — ​ Finance lease payments ​ ​ — ​ ​ — ​ ​ ( 137 ) ​ Deferred issuance costs ​ ​ — ​ ​ — ​ ​ ( 211 ) ​ Proceeds from exercise of employee stock options and the issuance of stock ​ ​ 157 ​ ​ 1,459 ​ ​ 70 ​ Net cash provided by financing activities ​ 72,867 ​ 225,052 ​ ​ 18,372 ​ Net increase (decrease) in cash and cash equivalents ​ 17,928 ​ 5,286 ​ ​ ( 13,874 ) ​ Cash and cash equivalents at beginning of period ​ 27,349 ​ 22,063 ​ ​ 35,937 ​ Cash and cash equivalents at end of period ​ $ 45,277 ​ $ 27,349 ​ $ 22,063 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additions to property and equipment included in accounts payable ​ $ 24 ​ $ 143 ​ $ — ​ Fair value of warrants issued in connection with debt financing ​ $ — ​ $ — ​ $ 378 ​ Fair value of common stock issued in connection with an equity purchase agreement ​ $ — ​ $ — ​ $ 263 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 82 Table of Contents ACLARIS THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ 1. Organization and Nature of Business ​ Overview ​ Aclaris Therapeutics, Inc. was incorporated under the laws of the State of Delaware in 2012. In August 2017, Confluence Life Sciences, Inc. (now known as Aclaris Life Sciences, Inc.) (“Confluence”) was acquired by Aclaris Therapeutics, Inc. and became a wholly owned subsidiary thereof. Aclaris Therapeutics, Inc. and its wholly owned subsidiaries 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. 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. ​ Liquidity ​ The Company’s 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 December 31, 2022, the Company had cash, cash equivalents and marketable securities of $ 229.8 million and an accumulated deficit of $ 682.3 million. Since inception, the Company has incurred net losses and negative cash flows from its operations. Prior to the acquisition of Confluence in August 2017, the Company had never generated revenue. There can be no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. In addition, development activities, including clinical and preclinical testing of the Company’s drug candidates, will require significant additional financing. The future viability of the Company is dependent on its ability to successfully develop its drug candidates and to generate revenue from identifying and consummating transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize its development assets or to raise additional capital to finance its operations. The Company will require additional capital to complete the clinical development of zunsemetinib (ATI-450), ATI-1777, ATI-2138 and ATI-2231, to develop its preclinical compounds, and to support its discovery efforts. ​ Additional funds may not be available on a timely basis, on commercially acceptable terms, or at all, and such funds, if raised, may not be sufficient to enable the Company to continue to implement its long-term business strategy. The Company's ability to raise additional capital may be adversely impacted by potential worsening global economic conditions caused by a variety of factors including geopolitical tensions, rising interest rates and inflationary pressures. 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 Codification (“ASC”) Subtopic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, 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 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. The Company believes its existing cash, cash equivalents and marketable securities are sufficient to fund its operating and capital expenditure requirements for a period greater than 12 months from the date of issuance of these consolidated financial statements. ​ 2. Summary of Significant Accounting Policies ​ Basis of Presentation ​ The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”). The consolidated financial statements of the Company include the accounts of the operating parent company, Aclaris Therapeutics, Inc., and its wholly owned subsidiaries. All intercompany transactions have been eliminated. Based upon the Company’s revenue, the Company believes that gross profit does not 83 Table of Contents provide a meaningful measure of profitability and, therefore, has not included a line item for gross profit on the 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. ​ As of December 31, 2022 and 2021, the Company had $ 2.2 million in accrued expenses reported as discontinued operations in the Company’s consolidated balance sheet. During the year ended December 31, 2020, the Company reported $ 0.1 million as income from discontinued operations in the Company’s consolidated statements of operations and comprehensive loss. ​ Use of Estimates ​ The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, contingent consideration and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. 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. ​ Revenue Recognition ​ The Company accounts for revenue in accordance with 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. 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. ​ 84 Table of Contents Licensing 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 and Royalty Payments – The Company considers any future potential milestones and sales-based royalties to be variable consideration. The Company recognizes revenue from development, regulatory and anniversary milestone payments as they are achieved. The Company recognizes revenue from commercial milestones and royalty payments as the sales occur. ​ Cash Equivalents ​ The Company considers all short-term, highly liquid investments with original maturities of three months or less at acquisition date to be cash equivalents. Cash equivalents, which have consisted of money market accounts and commercial paper, are stated at fair value. ​ Marketable Securities ​ Marketable securities with original maturities of greater than three months and remaining maturities of less than one year from the balance sheet date are classified as short-term. Marketable securities with remaining maturities of greater than one year from the balance sheet date are classified as long-term. ​ The Company classifies all marketable securities as available-for-sale securities. The Company’s marketable securities are measured and reported at fair value using either quoted prices in active markets for identical securities or quoted prices in markets that are not active for identical or similar securities. Unrealized gains and losses are reported as a separate component of stockholders’ equity. The cost of securities sold is determined on a specific identification basis, and realized gains and losses, if any, are included in other expense, net within the consolidated statement of operations and comprehensive loss. If any adjustment to fair value reflects a decline in the value of the investment, the Company considers available evidence to evaluate the extent to which the decline is “other than temporary” and reduces the investment to fair value through a charge to the statement of operations and comprehensive loss. ​ Property and Equipment ​ Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the useful life of the asset. Computer equipment is depreciated over three years . Laboratory equipment is depreciated over three to five years . Furniture and fixtures are depreciated over five years . Leasehold improvements are depreciated over the shorter of the lease term or their useful life. Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from continuing operations. ​ Impairment of Long-Lived Assets ​ Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. ​ 85 Table of Contents Intangible Assets ​ Intangible assets include both definite-lived and indefinite-lived assets. Definite-lived intangible assets consist of a drug discovery 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 or otherwise impaired. ​ 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. ​ During the years ended December 31, 2022, 2021 and 2020, the Company did not record an IPR&D impairment. ​ Leases ​ Leases represent a company’s right to use an underlying asset and a corresponding obligation to make payments to a lessor for the right to use those assets. The Company evaluates leases at their inception to determine if they are an operating lease or a finance lease. A lease is accounted for as a finance lease if it meets one of the following five criteria: the lease has a purchase option that is reasonably certain of being exercised, the present value of the future cash flows are substantially all of the fair market value of the underlying asset, the lease term is for a significant portion of the remaining economic life of the underlying asset, the title to the underlying asset transfers at the end of the lease term, or if the 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 consolidated balance sheet. ​ Right-of-use assets are included in other assets and property and equipment, net on the Company’s 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 consolidated balance sheet for both operating and finance leases. ​ Contingent Consideration ​ 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 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 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 86 Table of Contents 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 10 % and 40 % at December 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. The discount rate ranged between 9.8 % and 10.2 % depending on the year of each potential payment. ​ Research and Development Costs ​ Research and development costs are expensed as incurred. Research and development expenses include salaries, stock-based compensation and benefits of employees, and other operational costs related to the Company’s research and development activities, including depreciation expenses and the cost of research and development contracts which the Company has entered into with outside vendors to conduct both preclinical studies and clinical trials. Significant judgment and estimates are made in determining the amount of research and development costs recognized in each reporting period. The Company analyzes the progress of its preclinical studies and clinical trials, completion of milestone events, invoices received and contracted costs when estimating research and development costs. Actual results could differ from the Company’s estimates. The Company’s historical estimates for research and development costs have not been materially different from the actual costs. ​ Stock-Based Compensation ​ The Company measures the compensation expense of stock-based awards granted to employees and directors using the grant date fair value of the award. The Company has issued stock options and restricted stock unit (“RSU”) awards with service-based vesting conditions, as well as with performance-based vesting conditions. The Company has not issued awards that include market-based conditions. For service-based awards the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period, which is typically four years . For performance-based awards the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period beginning in the period that it becomes probable the performance conditions will occur. At each balance sheet date, the Company evaluates whether any performance conditions related to a performance-based award have changed. The effect of any change in performance conditions would be recognized as a cumulative catch-up adjustment in the period such change occurs, and any remaining unrecognized compensation expense would be recognized on a straight-line basis over the remaining requisite service period. The impact of forfeitures is recognized in the period in which they occur. ​ The Company measures the compensation expense of stock-based awards granted to consultants using the grant date fair value of the award. The Company recognizes compensation expense over the period during which services are rendered by the consultant. ​ The Company classifies stock-based compensation expense in its statement of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified. ​ The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Historically, the Company estimated expected volatility based on historical volatility of a set of peer companies, which are publicly traded. Starting in 2022, the Company estimated expected volatility based on its stock price's historical volatility, as the Company determined that it had adequate historical data regarding the volatility of its own publicly-traded stock price. The expected term of the Company’s stock options has been determined using the “simplified” method for awards that qualify as “plain vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the future. ​ The fair value of each RSU is measured using the closing price of the Company’s common stock on the date of grant. ​ 87 Table of Contents Patent Costs ​ All patent related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses. ​ Income Taxes ​ The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. ​ The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. ​ Comprehensive Loss ​ Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. Comprehensive loss is primarily comprised of net loss and unrealized gains (losses) on marketable securities. ​ Net Loss per Share ​ Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period, plus the weighted average number of potential shares of common stock from the assumed exercise of stock options and warrants and the assumed vesting of RSUs, if dilutive. Since the Company was in a net loss position, basic and diluted net loss per share was the same for each of the periods presented. ​ Fair Value Measurements ​ Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: ​ ● Level 1 — Quoted prices in active markets for identical assets or liabilities. ​ ● Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. ​ 88 Table of Contents ● Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. ​ The Company’s cash equivalents, marketable securities and contingent consideration are carried at fair value, determined according to the fair value hierarchy described above. The carrying value of the Company’s accounts payable and accrued expenses approximate fair value due to the short-term nature of these liabilities. ​ 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. ​ Segment Reporting ​ Operating segments are components of a company for which separate financial information is available and evaluated regularly by the chief operating decision maker in assessing performance and deciding how to allocate resources. The Company has two reportable segments, therapeutics and contract research. The therapeutics segment is focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases. The contract research segment earns revenue from the provision of laboratory services. Contract research revenue is generally evidenced by contracts with clients which are on an agreed upon fixed-price, fee-for-service basis. 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. ​ Recently Issued Accounting Pronouncements ​ In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. ​ 89 Table of Contents 3. Fair Value of Financial Assets and Liabilities ​ The following tables present information about the fair value measurements of the Company’s financial assets and liabilities which are measured at fair value on a recurring and non-recurring basis, and indicate the level of the fair value hierarchy utilized to determine such fair values: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 (In thousands) Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ Cash equivalents ​ $ 38,516 ​ $ — ​ $ — ​ $ 38,516 Marketable securities ​ — ​ ​ 184,536 ​ ​ — ​ ​ 184,536 Total assets ​ $ 38,516 ​ $ 184,536 ​ $ — ​ $ 223,052 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration ​ $ — ​ $ — ​ $ 33,100 ​ $ 33,100 Total liabilities ​ $ — ​ $ — ​ $ 33,100 ​ $ 33,100 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 (In thousands) Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ Cash equivalents ​ $ 21,678 ​ $ — ​ $ — ​ $ 21,678 Marketable securities ​ — ​ ​ 198,307 ​ ​ — ​ ​ 198,307 Total assets ​ $ 21,678 ​ $ 198,307 ​ $ — ​ $ 219,985 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration ​ $ — ​ $ — ​ $ 28,400 ​ $ 28,400 Total liabilities ​ $ — ​ $ — ​ $ 28,400 ​ $ 28,400 ​ As of December 31, 2022 and 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 December 31, 2022 and 2021 consisted of commercial paper, and corporate debt, asset-backed and U.S. government agency debt securities, which were valued based upon Level 2 inputs. The Company’s marketable securities as of December 31, 2021 also included foreign government agency debt securities, which were valued based upon Level 2 inputs. The Company’s marketable securities as of December 31, 2022 also included U.S. government 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. These quoted prices were obtained by the Company with the assistance of a third-party pricing service based on available trade, bid and other observable market data for identical securities. Quarterly, the Company compares the quoted prices obtained from the third-party pricing service to other available independent pricing information to validate the reasonableness of the quoted prices provided. The Company evaluates whether adjustments to third-party pricing are necessary and, historically, the Company has not made adjustments to quoted prices obtained from the third-party pricing service. During the years ended December 31, 2022 and 2021, there were no transfers into or out of Level 3. ​ The increase in contingent consideration of $ 4.7 million during the year ended December 31, 2022 primarily resulted from an increase in future sales level assumptions for zunsemetinib and the passage of time. ​ 90 Table of Contents As of December 31, 2022 and 2021, the fair value of the Company’s available-for-sale marketable securities by type of security was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair (In thousands) ​ Cost ​ Gain ​ Loss ​ Value Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities (1) ​ $ 40,626 ​ $ — ​ $ ( 251 ) ​ $ 40,375 Commercial paper ​ ​ 79,598 ​ ​ — ​ ​ — ​ ​ 79,598 Asset-backed debt securities (2) ​ ​ 14,641 ​ ​ 4 ​ ​ ( 123 ) ​ ​ 14,522 U.S. government and government agency debt securities (3) ​ ​ 50,571 ​ ​ — ​ ​ ( 530 ) ​ ​ 50,041 Total marketable securities ​ $ 185,436 ​ $ 4 ​ $ ( 904 ) ​ $ 184,536 (1) Included in Corporate debt securities is $ 4.8 million with maturity dates between one and five years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (2) Included in Asset-backed debt securities is $ 2.4 million with maturity dates between one and five years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (3) Included in US government and government agency debt securities is $ 5.0 million with maturity dates between one and five years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair (In thousands) ​ Cost ​ Gain ​ Loss ​ Value Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities (1) ​ $ 40,993 ​ $ 6 ​ $ ( 50 ) ​ $ 40,949 Commercial paper ​ ​ 71,837 ​ ​ — ​ ​ — ​ ​ 71,837 Asset-backed debt securities ​ ​ 36,166 ​ ​ — ​ ​ ( 43 ) ​ ​ 36,123 Foreign government agency debt securities ​ ​ 4,073 ​ ​ — ​ ​ ( 13 ) ​ ​ 4,060 U.S. government agency debt securities (2) ​ ​ 45,465 ​ ​ — ​ ​ ( 127 ) ​ ​ 45,338 Total marketable securities ​ $ 198,534 ​ $ 6 ​ $ ( 233 ) ​ $ 198,307 (1) Included in Corporate debt securities is $ 9.2 million with maturity dates between one and five years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (2) Included in U.S. government debt securities is $ 25.0 million with maturity dates between one and five years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4. Property and Equipment, Net ​ Property and equipment, net consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ December 31, (In thousands) ​ 2022 ​ 2021 Computer equipment $ 1,381 $ 1,380 Lab equipment ​ ​ 2,010 ​ ​ 1,605 Furniture and fixtures ​ ​ 620 ​ ​ 620 Leasehold improvements ​ ​ 1,123 ​ ​ 1,123 Property and equipment, gross ​ 5,134 ​ 4,728 Accumulated depreciation ​ ( 4,035 ) ​ ( 3,393 ) Property and equipment, net ​ $ 1,099 ​ $ 1,335 ​ Depreciation expense was $ 0.7 million, $ 0.8 million and $ 1.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. ​ 91 Table of Contents 5. Intangible Assets ​ Intangible assets consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Cost ​ Accumulated Amortization ​ ​ ​ Remaining ​ ​ December 31, ​ ​ December 31, ​ ​ December 31, ​ ​ December 31, (In thousands, except years) ​ Life (years) 2022 2021 2022 2021 Other intangible assets ​ ​ 4.6 ​ $ 751 ​ $ 751 ​ $ 407 ​ $ 332 In-process research and development ​ ​ n/a ​ ​ 6,629 ​ ​ 6,629 ​ ​ — ​ ​ — Total intangible assets ​ ​ ​ ​ $ 7,380 ​ $ 7,380 ​ $ 407 ​ $ 332 ​ Amortization expense was $ 75 thousand for each of the years ended December 31, 2022, 2021 and 2020. ​ As of December 31, 2022, estimated future amortization expense was as follows: ​ ​ ​ ​ ​ ​ ​ ​ Year Ending (In thousands) ​ December 31, 2023 ​ $ 75 2024 ​ 75 2025 ​ 75 2026 ​ ​ 75 2027 ​ ​ 44 Total ​ $ 344 ​ ​ 6. Accrued Expenses ​ Accrued expenses consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (In thousands) 2022 2021 Employee compensation expenses ​ $ 5,295 ​ $ 4,389 Research and development expenses ​ ​ 2,689 ​ ​ 1,278 Litigation settlements (see Note 17) ​ ​ — ​ ​ 2,650 Other ​ 717 ​ 1,734 Total accrued expenses ​ $ 8,701 ​ $ 10,051 ​ ​ 7. Debt ​ Loan and Security Agreement – Silicon Valley Bank ​ In March 2020, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”). The Loan and Security Agreement provided for $ 11.0 million in term loans, of which the Company borrowed the entire amount on March 30, 2020. In connection with the Loan and Security Agreement, the Company issued to SVB a warrant to purchase up to 460,251 shares of common stock (the “Warrant”) (see Note 8). The proceeds of the Loan and Security Agreement were allocated to the term loan and Warrant using a relative fair value approach. ​ In July 2021, the Company 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. Following this repayment, all of the Company’s obligations under the Loan and Security Agreement are deemed to be terminated, except as set forth in the agreement. 92 Table of Contents 8. Stockholders’ Equity ​ Preferred Stock ​ As of December 31, 2022 and 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 December 31, 2022 and 2021. ​ Common Stock ​ As of December 31, 2022 and 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 66,688,647 and 61,228,446 shares of common stock issued and outstanding as of December 31, 2022 and 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 December 31, 2022. ​ Warrants ​ 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 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 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 ​ 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. ​ 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. ​ 93 Table of Contents 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 and other fees of $ 2.2 million in connection with the sale. ​ 9. Stock-Based Awards ​ 2015 Equity Incentive Plan ​ In September 2015, the Company’s board of directors adopted the 2015 Equity Incentive Plan (the “2015 Plan”), and the Company’s stockholders approved the 2015 Plan. The 2015 Plan became effective in connection with the Company’s initial public offering in October 2015. Beginning at the time the 2015 Plan became effective, no further grants may be made under the Company’s 2012 Equity Compensation Plan, as amended and restated (the “2012 Plan”). The 2015 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, RSU awards, performance stock awards, cash-based awards and other stock-based awards. The number of shares initially reserved for issuance under the 2015 Plan was 1,643,872 shares of common stock. The number of shares of common stock that may be issued under the 2015 Plan will automatically increase on January 1 of each year ending on January 1, 2025, in an amount equal to the lesser of (i) 4.0 % of the shares of the Company’s common stock outstanding on December 31 of the preceding calendar year or (ii) an amount determined by the Company’s board of directors. The shares of common stock underlying any awards that expire, are otherwise terminated, settled in cash or repurchased by the Company under the 2015 Plan and the 2012 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan. As of December 31, 2022, 3,095,380 shares remained available for grant under the 2015 Plan. As of January 1, 2023, the number of shares of common stock that may be issued under the 2015 Plan was automatically increased by 2,667,545 shares. The Company had 4,322,587 stock options and 1,520,730 RSUs outstanding as of December 31, 2022 under the 2015 Plan. ​ 2017 Inducement Plan ​ In July 2017, the Company’s board of directors adopted the 2017 Inducement Plan (the “2017 Inducement Plan”). The 2017 Inducement Plan is a non-stockholder approved stock plan adopted pursuant to the “inducement exception” provided under Nasdaq listing rules. The Company had 370,600 stock options outstanding as of December 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. ​ 2012 Equity Compensation Plan ​ Upon the 2015 Plan becoming effective, no further grants can be made under the 2012 Plan. The Company granted stock options to purchase a total of 1,140,524 shares under the 2012 Plan, of which 473,977 were outstanding as of December 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 years ended December 31, 2022, 2021 and 2020 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ ​ ​ ​ 2022 ​ ​ 2021 ​ ​ 2020 ​ Risk-free interest rate 2.22 % ​ 0.92 % ​ 0.87 % ​ Expected term (in years) 6.2 ​ ​ 6.2 ​ ​ 6.1 ​ ​ Expected volatility 77.95 % ​ 76.60 % ​ 85.19 % ​ Expected dividend yield 0 % ​ 0 % ​ 0 % ​ ​ 94 Table of Contents The Company recognizes compensation expense for awards over their vesting period. Compensation expense for awards includes the impact of forfeitures in the period when they occur. ​ Stock Options ​ The following table summarizes stock option activity for the years ended December 31, 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ Aggregate ​ ​ Number ​ Exercise ​ Contractual ​ Intrinsic (In thousands, except share and per share data and years) ​ of Shares ​ Price ​ Term ​ Value ​ ​ ​ ​ ​ ​ ​ (in years) ​ ​ ​ Outstanding as of December 31, 2019 ​ 3,102,221 ​ $ 20.33 6.6 ​ $ 148 Granted ​ 734,800 ​ 1.30 ​ ​ ​ ​ ​ Exercised ​ ( 53,737 ) ​ 1.30 ​ ​ ​ ​ 145 Forfeited and cancelled ​ ( 911,786 ) ​ 22.41 ​ ​ ​ ​ ​ Outstanding as of December 31, 2020 ​ 2,871,498 ​ $ 15.16 6.8 ​ $ 4,890 Granted ​ 1,068,100 ​ 23.44 ​ ​ ​ ​ ​ Exercised ​ ( 115,548 ) ​ 12.63 ​ ​ ​ ​ 1,373 Forfeited and cancelled ​ ( 31,600 ) ​ 23.26 ​ ​ ​ ​ ​ Outstanding as of December 31, 2021 3,792,450 ​ $ 17.50 6.8 ​ $ 13,710 Granted 2,548,750 ​ ​ 14.40 ​ ​ ​ ​ ​ Exercised ( 88,172 ) ​ ​ 1.78 ​ ​ ​ ​ 1,120 Forfeited and cancelled ( 1,085,864 ) ​ ​ 18.44 ​ ​ ​ ​ ​ Outstanding as of December 31, 2022 5,167,164 ​ $ 16.04 7.2 ​ $ 15,288 Options vested and expected to vest as of December 31, 2022 5,167,164 ​ $ 16.04 7.2 ​ $ 15,288 Options exercisable as of December 31, 2022 2,348,821 ​ $ 17.30 5.0 ​ $ 9,419 ​ The weighted average grant date fair value of stock options granted during the years ended December 31, 2022, 2021 and 2020 was $ 9.95 , $ 15.67 , and $ 0.93 per share, respectively. ​ 95 Table of Contents Restricted Stock Units ​ The following table summarizes RSU activity for the years ended December 31, 2022, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ Grant Date ​ Aggregate ​ ​ Number ​ Fair Value ​ Intrinsic (In thousands, except share and per share data) ​ of Shares ​ Per Share ​ Value ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding as of December 31, 2019 ​ 3,592,915 ​ $ 4.62 ​ ​ ​ Granted ​ 1,168,805 ​ ​ 1.36 ​ ​ ​ Vested ​ ( 1,804,429 ) ​ ​ 3.33 ​ $ 2,607 Forfeited and cancelled ​ ( 713,134 ) ​ ​ 4.77 ​ ​ ​ Outstanding as of December 31, 2020 ​ 2,244,157 ​ $ 3.83 ​ ​ ​ Granted ​ 664,948 ​ ​ 23.33 ​ ​ ​ Vested ​ ( 1,340,042 ) ​ ​ 3.18 ​ $ 31,492 Forfeited and cancelled ​ ( 72,117 ) ​ ​ 10.36 ​ ​ ​ Outstanding as of December 31, 2021 ​ 1,496,946 ​ $ 12.75 ​ ​ ​ Granted ​ 936,563 ​ ​ 14.43 ​ ​ ​ Vested ​ ( 533,212 ) ​ ​ 11.61 ​ $ 7,943 Forfeited and cancelled ​ ( 379,567 ) ​ ​ 13.40 ​ ​ ​ Outstanding as of December 31, 2022 ​ 1,520,730 ​ $ 14.02 ​ ​ ​ ​ Stock-Based Compensation ​ Stock-based compensation expense included in total costs and expenses on the consolidated statement of operations included the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2022 2021 2020 Cost of revenue $ 1,151 $ 981 ​ $ 946 ​ Research and development ​ ​ 3,745 ​ ​ 3,866 ​ ​ 2,919 ​ General and administrative ​ 10,143 ​ 9,213 ​ 7,342 ​ Total stock-based compensation expense ​ $ 15,039 ​ $ 14,060 ​ $ 11,207 ​ ​ As of December 31, 2022, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 23.6 million and $ 16 million, respectively, which is expected to be recognized over weighted average periods of 3.0 years and 2.8 years, respectively. ​ ​ 96 Table of Contents 10. Net Loss per Share ​ Basic and diluted net loss per share is summarized in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands, except for share and per share data) 2022 2021 2020 ​ Numerator: ​ ​ ​ ​ ​ Net loss ​ $ ( 86,908 ) ​ $ ( 90,865 ) ​ $ ( 51,015 ) ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares of common stock outstanding, basic and diluted ​ 65,213,944 ​ 56,730,583 ​ 42,539,293 ​ Net loss per share, basic and diluted ​ $ ( 1.33 ) ​ $ ( 1.60 ) ​ $ ( 1.20 ) ​ ​ 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 is the same. The following table presents potential shares of common stock excluded from the calculation of diluted net loss per share for the years ended December 31, 2022, 2021 and 2020. All share amounts presented in the table below represent the total number outstanding as of December 31 of each year. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2022 ​ 2021 ​ 2020 Options to purchase common stock ​ 5,167,164 ​ 3,792,450 2,871,498 Restricted stock unit awards ​ 1,520,730 ​ 1,496,946 ​ 2,244,157 Warrants ​ — ​ — 460,251 Total potential shares of common stock ​ 6,687,894 ​ 5,289,396 5,575,906 ​ 11. Leases ​ The Company has operating leases for office space and laboratory facilities, and had finance leases for its laboratory equipment and vehicles. The components of lease expense were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2022 2021 2020 Operating lease expense $ 1,013 $ 1,013 $ 1,013 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance Leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of right-to-use assets ​ $ — ​ $ — ​ $ 113 Interest expense ​ ​ — ​ ​ — ​ ​ 5 Total finance lease expenses ​ $ — ​ $ — ​ $ 118 ​ Rent expense was $ 1.0 million for each of the years ended December 31, 2022, 2021 and 2020, which was recognized on a straight-line basis over the term of the lease. ​ Operating Leases ​ 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. The sublease has a term that runs through October 2023. 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 to a third party. The sub-sublease was terminated in December 2022. 97 Table of Contents ​ 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. Louis, Missouri. The lease commenced in June 2019 and has a term that runs through June 2029. ​ Supplemental balance sheet information related to operating leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ December 31, (In thousands) ​ 2022 ​ 2021 Operating Leases: ​ ​ ​ ​ ​ ​ Gross cost ​ $ 5,240 ​ $ 5,240 Accumulated amortization ​ ​ ( 2,560 ) ​ ​ ( 1,803 ) Other assets ​ $ 2,680 ​ $ 3,437 ​ ​ ​ ​ ​ ​ ​ Current portion of lease liabilities ​ $ 684 ​ $ 693 Other liabilities ​ ​ 1,570 ​ ​ 2,151 Total operating lease liabilities ​ $ 2,254 ​ $ 2,844 ​ Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 1.0 million for each of the years ended December 31, 2022, 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. ​ ​ Supplemental information related to operating and finance leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ (In thousands, except for years and percentages) ​ December 31, ​ Supplemental Cash Flow Lease Information: ​ 2022 ​ 2021 2020 ​ Operating cash flows from operating leases ​ $ 846 ​ $ 924 ​ $ 907 ​ Operating cash flows from finance leases ​ $ — ​ $ — ​ $ 5 ​ Financing cash flows from finance leases ​ $ — ​ $ — ​ $ 137 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average Remaining Lease Term (in years): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 5.2 ​ ​ 5.4 ​ ​ 6.0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average Discount Rate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 10.1 % ​ 10.1 % ​ 10.1 % ​ 98 Table of Contents Future minimum lease payments under operating lease agreements are as follows: ​ ​ ​ ​ ​ (In thousands) ​ ​ Operating Year Ending December 31, Leases 2023 ​ $ 919 2024 ​ ​ 343 2025 ​ ​ 352 2026 ​ ​ 361 2027 ​ ​ 370 Thereafter ​ ​ 571 Total undiscounted lease payments ​ ​ 2,916 Less: unrecognized interest ​ ​ ( 662 ) Total lease liability ​ $ 2,254 ​ ​ 12. Income Taxes ​ During the years ended December 31, 2022, 2021 and 2020, the Company did no t record an income tax benefit for net operating losses incurred in each year due to the uncertainty of realizing a benefit from those items. ​ Loss before income taxes is allocated as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ (In thousands) ​ 2022 ​ 2021 ​ 2020 ​ U.S. operations ​ $ ( 86,908 ) ​ $ ( 90,865 ) ​ $ ( 51,215 ) ​ Foreign operations ​ ​ — ​ ​ — ​ ​ 18 ​ Loss before income taxes ​ $ ( 86,908 ) ​ $ ( 90,865 ) ​ $ ( 51,197 ) ​ ​ A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 ​ 2021 2020 Federal statutory income tax rate ( 21.0 ) % ( 21.0 ) % ( 21.0 ) % State taxes, net of federal benefit ​ ( 2.3 ) ( 7.7 ) ( 7.5 ) ​ Research and development tax credits ​ ( 4.3 ) ( 3.0 ) ( 2.6 ) ​ Excess equity compensation tax benefit net of officer limitation ​ 0.2 ​ ( 3.9 ) ​ 1.4 ​ Revaluation of contingent consideration ​ 1.1 ​ 5.6 ​ 1.0 ​ Permanent differences ​ — ​ — ​ 0.2 ​ Change in deferred tax asset valuation allowance ​ 26.3 30.0 28.1 ​ Effective income tax rate ​ — % — % ( 0.4 ) % ​ 99 Table of Contents Deferred tax liabilities, net consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (In thousands) ​ 2022 ​ 2021 Deferred tax assets: ​ ​ ​ Net operating loss carryforwards ​ $ 120,554 ​ $ 123,583 ​ Capitalized start-up costs ​ ​ 5,506 ​ ​ 6,334 ​ Research and development tax credit carryforwards ​ 15,233 ​ 11,502 ​ Capitalized research and development expense ​ 25,087 ​ 4,046 ​ Stock‑based compensation expense ​ 19,432 ​ 17,728 ​ Accrued compensation ​ ​ 1,146 ​ ​ 825 ​ Lease liabilities ​ ​ 558 ​ ​ 721 ​ Other ​ 534 ​ 648 ​ Total deferred tax assets ​ 188,050 ​ 165,387 ​ Deferred tax liabilities: ​ ​ ​ ​ ​ ​ ​ Property and equipment ​ ​ ( 137 ) ​ ​ ( 171 ) ​ Intangible asset ​ ​ ( 1,576 ) ​ ​ ( 1,567 ) ​ Right-to-use assets ​ ​ ( 651 ) ​ ​ ( 852 ) ​ Other ​ ( 1,365 ) ​ ( 1,340 ) ​ Total deferred tax liabilities ​ ( 3,729 ) ​ ( 3,930 ) ​ Valuation allowance ​ ( 184,688 ) ​ ( 161,824 ) ​ Deferred tax liabilities, net ​ $ ( 367 ) ​ $ ( 367 ) ​ ​ As of December 31, 2022, the Company had federal and state net operating loss (“NOL”) carryforwards of $ 446.7 million and $ 477.9 million, respectively, which will begin to expire in 2032. As of December 31, 2022, the Company also had federal research and development tax credit carryforwards of $ 15.1 million which will begin to expire in 2032, and state research and development tax credit carryforwards of $ 0.1 million which will begin to expire in 2022. The Company also has $ 0.2 million of loss carryforwards in the United Kingdom which can be carried forward indefinitely. Utilization of the NOLs and research and development tax credit carryforwards in the United States may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that may have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has completed an analysis under Section 382 for NOLs generated from July 13, 2012 through December 31, 2021. Although the Company has experienced Section 382 ownership changes since 2012, the Company has concluded that it should have sufficient ability to utilize NOLs accumulated during the periods tested. The Company has not yet determined if a Section 382 ownership change has occurred after December 31, 2021. In addition, the Company may experience ownership changes in the future as a result of subsequent shifts in its stock ownership, some of which may be outside of the Company’s control. ​ The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. The Company considered its history of cumulative net losses incurred since inception, its lack of substantial revenue generated to date, and its forecasted future operating losses and concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2022 and 2021. The Company evaluates positive and negative evidence of its ability to realize deferred tax assets at each reporting period. ​ 100 Table of Contents Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2022, 2021 and 2020 related primarily to the increases in NOLs, capitalized start-up costs, and research and development tax credit carryforwards and were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (In thousands) ​ ​ 2022 ​ ​ 2021 ​ ​ 2020 Valuation allowance at beginning of year ​ $ ( 161,824 ) $ ( 134,559 ) $ ( 120,966 ) ​ Decreases recorded as benefit to income tax provision ​ — ​ — ​ — ​ Decreases recorded to opening balance sheet ​ ​ — ​ ​ — ​ ​ 58 ​ Increases recorded to income tax provision ​ ( 22,864 ) ​ ( 27,265 ) ​ ( 13,651 ) ​ Valuation allowance as of end of year ​ $ ( 184,688 ) ​ $ ( 161,824 ) ​ $ ( 134,559 ) ​ ​ The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. The Company’s tax years are still open under statute from 2020 to the present. All open years may be examined to the extent that tax credit or NOLs are used in future periods. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. ​ 13. Related Party Transactions ​ Mallinckrodt plc ​ In April 2018, Bryan Reasons was appointed to the Company’s board of directors. Subsequently, in March 2019, Mr. Reasons became the Chief Financial Officer of Mallinckrodt plc. Prior to Mr. Reasons joining Mallinckrodt plc, the Company entered into a master services agreement with a subsidiary of Mallinckrodt plc, pursuant to which Confluence provides laboratory services to a subsidiary (“Mallinckrodt”) in the ordinary course of business. Mr. Reasons was not involved in the negotiation or execution of the agreement, but may be deemed to have an interest in the ongoing transactions based on his employment as an executive officer of Mallinckrodt plc. During the years ended December 31, 2022, 2021 and 2020, the Company invoiced Mallinckrodt for $ 0 , $ 24 thousand and $ 0.3 million, respectively, under the master services agreement. Mr. Reasons had no financial interest in these transactions. ​ 14. Agreements Related to Intellectual Property ​ License Agreement – Pediatrix Therapeutics, Inc. ​ In November 2022, the Company entered into a license agreement with Pediatrix Therapeutics, Inc. (“Pediatrix”), under which the Company granted Pediatrix the exclusive rights to develop, manufacture and commercialize ATI-1777 in Greater China. Pediatrix has agreed to pay the Company an upfront payment, development, regulatory and commercial milestone payments, and a tiered royalty ranging from a low-to-high single digit percentage of net sales of ATI-1777 by Pediatrix in Greater China. A portion of consideration received from Pediatrix is payable to the former Confluence equity holders as described below. ​ Upon execution of the agreement, the Company received an upfront payment of $ 5.0 million from Pediatrix, a portion of which was payable to the former Confluence equity holders as described below. ​ License Agreement – Eli Lilly and Company ​ In August 2022, the Company entered into a non-exclusive patent license agreement with Eli Lilly and Company (“Lilly”). Under the license agreement, the Company granted Lilly non-exclusive rights under certain patents and patent applications that the Company exclusively licenses from a third party. The patents and patent applications relate to the use of baricitinib, Lilly’s JAK inhibitor, to treat alopecia areata. Under the license agreement, Lilly has agreed to pay the Company an upfront payment, regulatory and commercial milestone payments, anniversary payments, and a low single-digit royalty calculated as a percentage of Lilly’s net sales of baricitinib for the treatment of alopecia areata. The Company has separate contractual obligations under which the Company has agreed to pay to third parties an amount equal to any regulatory and commercial milestone payments it receives under the Lilly license agreement, as well as a portion of the upfront consideration and a portion of the royalties it may receive under the license agreement. ​ 101 Table of Contents During the year ended December 31, 2022, the Company received $ 17.8 million from Lilly, a portion of which represented payments for regulatory and commercial milestones that were deemed to have been achieved as of the execution of the license agreement. The Company recognized the payments received during the year ended December 31, 2022 as licensing revenue on its consolidated statements of operations and comprehensive loss. During the year ended December 31, 2022, the Company recorded amounts paid to third parties of $ 7.4 million as licensing expense on its consolidated statements of operations and comprehensive loss. ​ Asset Purchase Agreement – EPI Health, LLC ​ 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 $ 1.0 million, $ 0.8 million and $ 0.7 million during the years ended December 31, 2022, 2021 and 2020, respectively. Royalty income is included in licensing revenue on the consolidated statements of operations and comprehensive loss. EPI Health has also agreed to pay the Company potential sales milestone payments of up to $ 20.0 million in the aggregate upon the achievement of specified levels of net sales of products covered by the asset purchase agreement, and 25 % of any upfront, license, milestone, maintenance or fixed payment received by EPI Health in connection with any license or sublicense of the assets transferred in the disposition in any territory outside of the United States, subject to specified exceptions. ​ Agreement and Plan of Merger – Confluence ​ In August 2017, the Company entered into an Agreement and Plan of Merger, pursuant to which it acquired Confluence (the “Confluence Agreement”). 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 December 31, 2022 and December 31, 2021, the balance of the Company’s contingent consideration liability was $ 33.1 million and $ 28.4 million, respectively (see Note 3). ​ 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. In connection with an amendment of the agreement with Rigel in October 2019, the Company paid Rigel an amendment fee of $ 1.5 million during the year ended December 31, 2020. The Company terminated the license and collaboration with Rigel effective as of April 2021. ​ 15. Retirement Savings Plan ​ The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the discretion of the Company’s board of directors. The Company has elected to match employee contributions to the 401(k) Plan up to 4 % of the employee’s earnings, subject to certain limitations. Company contributions under the 401(k) Plan were $ 0.5 million, $ 0.3 million and $ 0.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. ​ ​ ​ 102 Table of Contents 16. Segment Information ​ The Company has two reportable segments, therapeutics and contract research. The therapeutics segment is focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases. The contract research segment earns revenue from the provision of laboratory services. Contract research revenue is generally evidenced by contracts with clients which are on an agreed upon fixed-price, fee-for-service basis. Corporate and other includes general and administrative expenses as well as eliminations of intercompany transactions. The Company does not report balance sheet information by segment since it is not reviewed by the chief operating decision maker, and all of the Company’s tangible assets are held in the United States. ​ The Company’s results of operations by segment for the years ended December 31, 2022, 2021 and 2020 are summarized in the tables below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Year Ended December 31, 2022 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ 25,356 ​ $ 17,005 ​ $ ( 12,609 ) ​ $ 29,752 Cost of revenue ​ ​ — ​ ​ 15,847 ​ ​ ( 11,824 ) ​ ​ 4,023 Research and development ​ ​ 78,599 ​ ​ — ​ ​ ( 786 ) ​ ​ 77,813 General and administrative ​ ​ — ​ ​ 3,505 ​ ​ 21,628 ​ ​ 25,133 Licensing ​ ​ 7,937 ​ ​ — ​ ​ — ​ ​ 7,937 Revaluation of contingent consideration ​ ​ 4,700 ​ ​ — ​ ​ — ​ ​ 4,700 Loss from operations ​ $ ( 65,880 ) ​ $ ( 2,347 ) ​ $ ( 21,627 ) ​ $ ( 89,854 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Year Ended December 31, 2021 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ 932 ​ $ 13,447 ​ $ ( 7,618 ) ​ $ 6,761 Cost of revenue ​ ​ — ​ ​ 11,885 ​ ​ ( 7,172 ) ​ ​ 4,713 Research and development ​ ​ 44,259 ​ ​ — ​ ​ ( 446 ) ​ ​ 43,813 General and administrative ​ ​ — ​ ​ 3,047 ​ ​ 20,572 ​ ​ 23,619 Revaluation of contingent consideration ​ ​ 24,339 ​ ​ — ​ ​ — ​ ​ 24,339 Loss from operations ​ $ ( 67,666 ) ​ $ ( 1,485 ) ​ $ ( 20,572 ) ​ $ ( 89,723 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Year Ended December 31, 2020 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ 696 ​ $ 13,319 ​ $ ( 7,533 ) ​ $ 6,482 Cost of revenue ​ ​ — ​ ​ 12,228 ​ ​ ( 7,095 ) ​ ​ 5,133 Research and development ​ ​ 29,777 ​ ​ — ​ ​ ( 439 ) ​ ​ 29,338 General and administrative ​ ​ — ​ ​ 2,794 ​ ​ 17,736 ​ ​ 20,530 Revaluation of contingent consideration ​ ​ 2,393 ​ ​ — ​ ​ — ​ ​ 2,393 Loss from operations ​ $ ( 31,474 ) ​ $ ( 1,703 ) ​ $ ( 17,735 ) ​ $ ( 50,912 ) Income (loss) from discontinued operations ​ $ 140 ​ $ — ​ $ ( 1 ) ​ $ 139 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Intersegment Revenue ​ Revenue for the contract research segment included $ 12.6 million, $ 7.6 million and $ 7.5 million for services performed on behalf of the therapeutics segment for the years ended December 31, 2022, 2021 and 2020, respectively. All intersegment revenue has been eliminated in the Company’s consolidated statement of operations. ​ 17. Legal Proceedings ​ Securities Class Action ​ On July 30, 2019, plaintiff Linda Rosi (“Rosi”) filed a putative class action complaint captioned Rosi v. Aclaris Therapeutics, Inc., et al. in the U.S. District Court for the Southern District of New York against the Company and certain of its executive officers. On September 5, 2019, an additional plaintiff, Robert Fulcher (“Fulcher”), filed a substantially identical putative class action complaint captioned Fulcher v. Aclaris Therapeutics, Inc., et al. in the same court against the same defendants. On November 6, 2019, the court consolidated the Rosi and Fulcher actions (together, the “Consolidated Securities Action”) and appointed Fulcher “lead plaintiff” for the putative class. The parties signed and filed a settlement agreement in July 2021. The court granted final approval of the settlement on December 9, 2021. As of 103 Table of Contents December 31, 2021, the Company’s financial obligation under the settlement was $ 2.7 million, which was within the limits of its insurance coverage. The settlement was paid in January 2022. ​ ​ ​ Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ​ None. ​