What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-07 compared with 2023-05-08 · 94 added, 74 removed, 276 unchanged (38% of the section changed)

9 unchanged sentences

In addition to developing our novel drug candidates, we are pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize our novel drug candidates.

Clinical Programs

Development Programs

Zunsemetinib, an Investigational Oral MK2 Inhibitor

5 unchanged sentences

In December 2021, we initiated a Phase 2b randomized, multicenter, double-blind, parallel group, placebo-controlled, dose-ranging trial to investigate the efficacy, safety, tolerability, pharmacokinetics and pharmacodynamics of multiple doses (20 mg and 50 mg twice daily) of zunsemetinib in combination with methotrexate in subjects with moderate to severe rheumatoid arthritis (ATI-450-RA-202).

This trial consists of a 12-week treatment period and a 30-day follow-up period and seeks to enroll approximately 240 subjects in the United States and in multiple countries in Europe.

This trial consists of a 12-week treatment period and a 30-day follow-up period and has completed enrollment of 251 subjects in the United States and in multiple countries in Europe.

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

We expect topline data in the fourth quarter of 2023.

Moderate to Severe Hidradenitis Suppurativa

In December 2021, we initiated a Phase 2a, randomized, multicenter, double-blind, placebo-controlled trial to investigate the efficacy, safety, tolerability, pharmacokinetics and pharmacodynamics of zunsemetinib (50 mg twice daily) in subjects with moderate to severe hidradenitis suppurativa (ATI-450-HS-201).

In March 2023, we announced that the study did not meet its primary or secondary efficacy endpoints.

We do not plan to further pursue this indication.

Moderate to Severe Psoriatic Arthritis

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

In June 2022, we initiated a Phase 2a, randomized, multicenter, double-blind, placebo-controlled trial to investigate the efficacy, safety, tolerability, pharmacokinetics, and pharmacodynamics of zunsemetinib (50 mg twice

daily) in subjects with moderate to severe psoriatic arthritis (ATI-450-PsA-201).

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

1 unchanged sentence

We expect topline data in the first half of 2024.

Moderate to Severe Hidradenitis Suppurativa

In March 2023, we announced that the study did not meet its primary or secondary efficacy endpoints.

We do not plan to further pursue this indication.

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

13 unchanged sentences

In October 2022, we submitted an IND for ATI-2138 for the treatment of ulcerative colitis, which was allowed by the FDA in November 2022.

In December 2022, we initiated a Phase 1 placebo-controlled, randomized, multiple ascending dose (MAD) trial to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of ATI-2138 in healthy volunteers (ATI-2138-PKPD-102).

This trial seeks to enroll approximately 60 healthy volunteers in the United States.

We expect topline data in the second half of 2023.

Preclinical Programs

In December 2022, we initiated a two-week Phase 1 placebo-controlled, randomized, multiple ascending dose (MAD) trial to investigate the safety, tolerability, pharmacokinetics, and pharmacodynamics of ATI-2138 in healthy volunteers (ATI-2138-PKPD-102).

We completed enrollment for this trial of healthy volunteers in the United States.

Based on a preliminary analysis of the pharmacokinetics, pharmacodynamics and safety, we believe the data support the progression of ATI-2138 into Phase 2 clinical development in ulcerative colitis.

We expect to report the data in September 2023.

ATI-2231, an Investigational Oral MK2 Inhibitor

We are exploring the use of ATI-2231, an investigational oral MK2 inhibitor designed to have a long half-life, as a potential treatment for pancreatic cancer and metastatic breast cancer as well as in preventing bone loss in patients with metastatic breast cancer.

We expect clinical development activities to be initiated in 2023, which we expect to

advance as a collaboration with an academic third party.

We are supporting Washington University in a first-in-human investigator-initiated Phase 1a trial of ATI-2231 in patients with advanced solid tumor malignancies.

We expect clinical development activities to be initiated in the second half of 2023.

Discovery Programs

2 unchanged sentences

Since our inception, we have incurred significant net losses.

Our net loss was $28.2 million for the three months ended March 31, 2023 and $86.9 million for the year ended December 31, 2022.

As of March 31, 2023, we had an accumulated deficit of $710.5 million.

Our net loss was $57.7 million for the six months ended June 30, 2023 and $86.9 million for the year ended December 31, 2022.

As of June 30, 2023, we had an accumulated deficit of $740.0 million.

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

8 unchanged sentences

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

Recent Developments

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

In March 2023, we issued a placement notice to sell 3.4 million shares of our common stock for aggregate gross proceeds of $27.5 million, pursuant to a sales agreement with SVB Securities LLC and Cantor Fitzgerald & Co., as sales agents, dated February 23, 2023.

We paid selling commissions of $0.8 million in connection with the sale.

The transaction closed in April 2023.

Impact of Macroeconomic Conditions on Our Business

8 unchanged sentences

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

Pursuant to the terms of the Confluence Agreement, Merger Sub merged with and into Confluence, with Confluence surviving as

our wholly owned subsidiary.

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

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

In addition, we have agreed to pay the former Confluence equity holders future royalty payments calculated as a low single-digit percentage of annual net sales, subject to specified reductions, limitations and other adjustments, until the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first commercial sale of such product.

In addition to the payments described above, if we sell, license or transfer any of the intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party, we 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.

transfer in specified circumstances.

Asset Purchase Agreement with EPI Health

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

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

1 unchanged sentence

In addition, EPI Health has agreed to assume our obligation to pay specified royalties and milestone payments under certain agreements with third parties.

During the three months ended June 30, 2023 and June 30, 2022, we recorded royalty income of $0.1 million and $0.3 million, respectively, and during the six months ended June 30, 2023 and June 30, 2022, we recorded royalty income of $0.3 million and $0.5 million, respectively.

On July 17, 2023, EPI Health filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.

As a result of the bankruptcy filing, we recorded an allowance for doubtful accounts related to amounts due from EPI Health resulting in $1.0 million of bad debt expense for the three and six months ended June 30, 2023.

License Agreement with Eli Lilly and Company

4 unchanged sentences

We have separate contractual obligations under which we have agreed to pay to third parties an amount equal to any regulatory and commercial milestone payments we receive under the Lilly license agreement, as well as a portion of the upfront consideration and a portion of the royalties we may receive under the license agreement.

Upon execution of the agreement, we received $17.6 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.

We remain eligible to receive future milestone payments, all of which will be paid by us to third parties following receipt as described above.

During the three months ended March 31, 2023, we received $1.4 million in royalties from Lilly, a portion of which was payable to third parties.

Upon execution of the agreement, we received $17.6 million, 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.

During the three and six months ended June 30, 2023, we received $0.9 million and $2.3 million in royalties, respectively, from Lilly, a portion of which was paid to third parties.

License Agreement with Pediatrix Therapeutics, Inc.

3 unchanged sentences

Upon execution of the agreement, we received an upfront payment of $5.0 million from Pediatrix, a portion of which was paid to the former Confluence equity holders as described above.

We did not record revenue under this agreement during the three and six months ended June 30, 2023.

Components of Our Results of Operations

47 unchanged sentences

General and administrative expenses consist principally of salaries and related costs, including stock-based compensation, for personnel in executive, administrative, finance and legal functions.

General and administrative expenses also include facility-related costs, patent filing and prosecution costs, professional fees for legal, auditing and tax services, investor relations costs, business development costs, insurance costs and travel expenses.

Licensing expenses consist of third-party contractual obligations incurred under license and acquisition agreements with third parties, as described above.

20 unchanged sentences

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

Probability of success assumptions ranged between 10% and 41% on March 31, 2023.

Probability of success assumptions ranged between 10% and 41% on June 30, 2023.

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 8.5% and 10.0% depending on the year of each potential payment.

During the three months ended March 31, 2023, we did not modify any significant assumptions other than the removal of estimated sales from zunsemetinib for moderate to severe hidradenitis suppurativa following our decision to cease pursuing that indication.

This impact was partially offset by lower discount rates resulting from lower risk-free rates

and changes in credit spreads being applied to potential payments relative to prior periods, as well as the passage of time, resulting in an overall decrease in contingent consideration of $0.8 million.

During the six months ended June 30, 2023, we did not modify any significant assumptions other than the removal of estimated sales from zunsemetinib for moderate to severe hidradenitis suppurativa following our decision to cease pursuing that indication.

This impact was partially offset by lower discount rates resulting from lower risk-free rates and changes in credit spreads being applied to potential payments relative to prior periods, as well as the passage of time, resulting in an overall decrease in contingent consideration of $2.3 million.

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

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

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

Results of Operations

Comparison of Three Months Ended March 31, 2023 and 2022

Three Months Ended March 31,

Comparison of Three and Six Months Ended June 30, 2023 and 2022

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

10 unchanged sentences

Contract research

Contract research revenue was $0.9 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively, and was comprised of fees earned from the provision of laboratory services.

Contract research revenue was $0.9 million and $1.2 million for the three months ended June 30, 2023 and 2022, respectively, and was comprised of fees earned from the provision of laboratory services.

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

Licensing revenue was $1.6 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively.

The increase was driven by $1.4 million of royalty and milestone payments received under the Lilly license agreement.

Other revenue was $30 thousand for the three months ended March 31, 2022, and was comprised of revenue earned from the sub-sublease of our office space.

Contract research revenue was $1.8 million and $2.4 million for the six months ended June 30, 2023 and 2022, respectively, and was comprised of fees earned from the provision of laboratory services.

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

Licensing revenue was $1.0 million and $0.3 million for the three months ended June 30, 2023 and 2022, respectively.

The increase was driven by $0.9 million of royalties under the Lilly license agreement during the three months ended June 30, 2023 offset by a decrease of royalties under the EPI Health agreement between periods.

Licensing revenue was $2.6 million and $0.5 million for the six months ended June 30, 2023 and 2022, respectively.

The increase was driven by $2.3 million of royalties under the Lilly license agreement during the six months ended June 30, 2023 offset by a decrease of royalties under the EPI Health agreement between periods.

Other revenue was $30 thousand for the three months ended June 30, 2022, and $61 thousand for the six months ended June 30, 2022, which was comprised of rent received from the sub-sublease of our office space.

The sub-sublease was terminated in December 2022.

1 unchanged sentence

Cost of Revenue

Cost of revenue was $0.8 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively, and in each case, related to providing laboratory services.

Cost of revenue was $1.0 million and $1.1 million for the three months ended June 30, 2023 and 2022, respectively, and in each case, related to providing laboratory services.

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

Cost of revenue decreased in the three months ended March 31, 2023 compared to the corresponding prior year period due to lower variable costs resulting from the decrease in hours billed.

Cost of revenue decreased in the three months ended June 30, 2023 compared to the corresponding prior year period due to lower variable costs resulting from a decrease in hours billed.

Cost of revenue was $1.9 million and $2.2 million for the six months ended June 30, 2023 and 2022, respectively, and in each case, related to providing laboratory services.

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

Cost of revenue decreased in the six months ended June 30, 2023 compared to the corresponding prior year period due to lower variable costs resulting from a decrease in hours billed.

Research and Development

1 unchanged sentence

Three Months Ended

Six Months Ended

(In thousands)

2 unchanged sentences

Total research and development expenses

The increase in expenses for zunsemetinib during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to higher costs associated with drug candidate manufacturing and costs associated with clinical development activities for a Phase 2b trial in subjects with rheumatoid arthritis, which initiated in December 2021, and several ancillary clinical trials.

The increase in expenses for zunsemetinib during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was primarily due to higher costs associated with drug candidate manufacturing and costs associated with clinical development activities for a Phase 2b trial in subjects with rheumatoid arthritis, which initiated in December 2021, and several ancillary clinical trials.

The increase was partially offset by a decrease in costs associated with clinical development activities for a Phase 2a trial in subjects with hidradenitis suppurativa, which initiated in December 2021 and was completed in early March 2023.

The increase in expenses for ATI-1777 during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to higher costs associated with drug candidate manufacturing and other preclinical development activities as well as costs associated with a Phase 2b clinical trial in subjects with atopic dermatitis.

The increase in expenses for ATI-2138 during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to an increase in clinical development expenses associated with a Phase 1 MAD trial during the three months ended March 31, 2023, as well as an increase in preclinical development activities.

The decrease in expenses for ATI-2231 during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to preclinical development activities and IND-enabling studies as we progressed the program toward IND submission during the three months ended March 31, 2022.

The increase in expenses related to discovery during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was due to continued investment in our discovery-stage programs as we progressed programs toward candidate selection.

The decrease in expenses for ATI-1777 during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was primarily due to lower costs associated with drug candidate manufacturing and other preclinical development activities.

The decrease was partially offset by an increase in costs associated with a Phase 2b clinical trial in subjects with atopic dermatitis.

The increase in expenses for ATI-2138 during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was primarily due to an increase in clinical development expenses associated with a Phase 1 MAD trial, as well as an increase in preclinical development activities.

The decrease in expenses for ATI-2231 during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was primarily due to preclinical development activities and IND-enabling studies in the prior period as we progressed the program toward IND submission in 2023.

The increase in expenses related to discovery during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was due to continued investment in our discovery-stage programs as we progressed programs toward candidate selection.

Personnel and stock-based compensation

The increase in personnel and stock-based compensation expenses in the aggregate during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to an increase in costs associated with higher average headcount during the three months ended March 31, 2023, and lower costs during the three months ended March 31, 2022 due to forfeiture credits.

The increase in personnel and stock-based compensation expenses in the aggregate during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was primarily due to an increase in costs associated with higher average headcount, compensation adjustments and equity awards granted in 2023, and lower costs during the three and six months ended June 30, 2022 due to forfeiture credits.

General and Administrative

1 unchanged sentence

Three Months Ended

Six Months Ended

(In thousands)

5 unchanged sentences

Personnel and stock-based compensation

Personnel and stock-based compensation expenses in the aggregate increased during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to higher average headcount and salary increases and new equity awards granted in 2023.

Personnel and stock-based compensation expenses in the aggregate increased during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 primarily due to higher average headcoun t, compensation adjustments, and equity awards granted in 2023.

Professional and legal fees

Professional and legal fees, including accounting, investor relations and corporate communication costs, increased during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily as a result of an increase in patent expenses.

Professional and legal fees, including accounting, investor relations and corporate communication costs, increased during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022.

The increase during the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was primarily driven by an increase in accounting related expenses.

The increase during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily driven by an increase in patent expenses.

Facility and support services

Facility and support services, including general office expenses, information technology costs and other expenses, increased slightly during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily as a result of an increase in rent expense due to leasing additional office and laboratory space during the three months ended March 31, 2023.

Licensing expenses increased during the three months ended March 31, 2023 due to amounts due to third parties of $1.1 million pertaining to the Lilly agreement.

There were no licensing expenses during the three months ended March 31, 2022.

Facility and support services, including general office expenses, information technology costs and other expenses, increased during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 primarily as a result of an increase in rent expense due to leasing additional office and laboratory space and an increase in information technology costs during the three and six months ended June 30, 2023.

Bad debt expenses were related to our determination that amounts due to us as of June 30, 2023 pursuant to the asset purchase agreement with EPI Health are uncertain as a result of the bankruptcy filing by EPI Health in July 2023.

There was no bad debt expense during the three and six months ended June 30, 2022.

Licensing expenses during the three and six months ended June 30, 2023 were related to amounts paid to third parties pertaining to the Lilly agreement.

There were no licensing expenses during the three and six months ended June 30, 2022.

Revaluation of Contingent Consideration

The decrease in the fair value of our contingent consideration liability during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was mainly due to the removal of estimated future sales levels of zunsemetinib (ATI-450) for moderate to severe hidradenitis suppurativa.

This decrease was partially offset by lower discount rates being applied to potential payments relative to prior periods and the passage of time.

The gain on revaluation of contingent consideration decreased during the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and was driven by changes in discount rates, including risk-free rates and credit spreads, on potential future payments and an increase in the probability of success of zunsemetinib in psoriatic arthritis, partially offset by adjustments to other assumptions for certain clinical programs.

The gain on revaluation of contingent consideration decreased during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 and was driven by changes in discount rates, including risk-free rates and credit spreads, on potential future payments, partially offset by adjustments to other assumptions for certain clinical programs, including the removal of estimated future sales levels of zunsemetinib for moderate to severe hidradenitis suppurativa following our decision to cease pursuing this indication.

Other Income, net

Other income, net increased during the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to higher interest income on investment portfolio balances.

Other income, net increased during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022, primarily due to higher interest income on investment portfolio balances.

Liquidity and Capital Resources

5 unchanged sentences

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

As of March 31, 2023, we had cash, cash equivalents and marketable securities of $204.4 million.

Subsequent to March 31, 2023, we raised aggregate gross proceeds of $27.5 million through our at-the-market equity facility.

As of June 30, 2023, we had cash, cash equivalents and marketable securities of $210.8 million.

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

2 unchanged sentences

Sale of Common Stock under At-the-Market-Facility

In March 2023, we issued a placement notice to sell 3.4 million shares of our common stock pursuant to a sales agreement with SVB Securities LLC and Cantor Fitzgerald & Co., as sales agents, dated February 23, 2023, for aggregate gross proceeds of $27.5 million.

In April 2023, we sold 3.4 million shares of our common stock for aggregate gross proceeds of $27.5 million, pursuant to a sales agreement with SVB Securities LLC and Cantor Fitzgerald & Co., as sales agents, dated February 23, 2023.

We paid selling commissions of $0.8 million in connection with the sale.

This transaction closed in April 2023.

Cash and cash equivalents were $44.7 million as of March 31, 2023 compared to $45.3 million as of December 31, 2022.

We also had $159.7 million in short- and long-term marketable securities as of March 31, 2023 compared to $184.5 million as of December 31, 2022.

In April 2022, we sold 4.8 million shares of our common stock for aggregate gross proceeds of $75.0 million, pursuant to a sales agreement with SVB Securities LLC and Cantor Fitzgerald & Co., as sales agents, dated May 20, 2021.

We paid selling commissions and other fees of $2.3 million in connection with the sale.

Cash and cash equivalents were $31.2 million as of June 30, 2023 compared to $45.3 million as of December 31, 2022.

We also had $179.6 million in short- and long-term marketable securities as of June 30, 2023 compared to $184.5 million as of December 31, 2022.

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

Three Months Ended

Six Months Ended

(In thousands)

6 unchanged sentences

Cash flow related to operating activities was the result of:

Three Months Ended

Six Months Ended

(In thousands)

4 unchanged sentences

Net cash used in operating activities

Net cash used in operating activities increased for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily as a result of higher net losses after adjusting for non-cash items and an increase in the accretion of interest on investments.

The increase in non-cash adjustments to reconcile net loss to net cash used in operating activities was mainly the result of an increase in stock-based compensation expense during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to higher employee headcount and new equity awards granted in 2023, as well as forfeiture credits recognized during the three months ended March 31, 2022.

This increase was partially offset by a decrease in the revaluation of contingent consideration during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to the removal of estimated sales from zunsemetinib for moderate to severe hidradenitis suppurativa following our decision to cease pursuing that indication.

This impact was partially offset by lower discount rates resulting from lower risk-free rates and changes in credit spreads being applied to potential payments relative to the prior period.

Net cash used in operating activities increased for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily as a result of higher net losses after adjusting for non-cash items.

The increase in non-cash adjustments to reconcile net loss to net cash used in operating activities was mainly the result of an increase in stock-based compensation expense during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 due to higher employee headcount and equity awards granted in 2023, as well as forfeiture credits recognized during the six months ended June 30, 2022.

This increase was partially offset by a decrease in the gain on revaluation of contingent consideration during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 driven by changes in discount rates, including risk-free rates and credit spreads, on potential future payments, partially offset by adjustments to other assumptions for certain clinical programs, including the removal of estimated future

sales levels of zunsemetinib for moderate to severe hidradenitis suppurativa following our decision to cease pursuing this indication.

Investing Activities

Cash flow related to investing activities was the result of:

Three Months Ended

Six Months Ended

(In thousands)

3 unchanged sentences

Net cash provided by investing activities

The change in net cash provided by investing activities for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily resulted from higher sales and maturities of marketable securities during the three months ended March 31, 2023, which were used to fund our operations, partially offset from higher purchases of marketable securities during the three months ended March 31, 2023.

The decrease in net cash provided by investing activities for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 resulted primarily from higher purchases of marketable securities during the six months ended June 30, 2023, partially offset by higher sales and maturities of marketable securities during the six months ended June 30, 2023, which were used to fund our operations.

Financing Activities

Cash flow related to financing activities was the result of:

Three Months Ended

Six Months Ended

(In thousands)

Restricted stock unit employee tax withholdings

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

issuance costs

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

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

Net cash provided by financing activities

Net cash provided by financing activities decreased for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to there being no proceeds from exercises of employee stock options and the issuance of stock or employee tax withholdings pertaining to restricted stock units during the three months ended March 31, 2023.

Net cash provided by financing activities decreased for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to larger proceeds in 2022 from our sales under our at-the-market sales agreement.

Funding Requirements

23 unchanged sentences

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

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

Following the expiration of this lease, we anticipate entering into a new lease agreement.

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

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

4 unchanged sentences

Louis, Missouri.

Our aggregate remaining lease payment obligations for these two spaces was $3.4 million as of March 31, 2023.

Our aggregate remaining lease payment obligations for these two spaces was $3.1 million as of June 30, 2023.

In May 2023, we executed a new lease agreement pursuant to which we will lease 11,564 square feet of office space for new headquarters in Wayne, Pennsylvania.

This lease is expected to commence in November 2023 and has a term of 64 months.

Total lease payment obligations for the life of the lease are $2.0 million.

Agreement and Plan of Merger – Confluence

10 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis