Aclaris Therapeutics, Inc. 10-Q

Item 1. Financial Statements ACLARIS THERAPEUTICS, IN C. CONDENSED CONSOLIDATED BALANCE SHEET S (Unaudited) ​ (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2023 2022 ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 31,150 ​ $ 45,277 Short-term marketable securities ​ 88,625 ​ 172,294 Accounts receivable, net ​ ​ 431 ​ ​ 484 Prepaid expenses and other current assets ​ 12,729 ​ 13,495 Total current assets ​ 132,935 ​ 231,550 Marketable securities ​ 90,992 ​ 12,242 Property and equipment, net ​ 1,899 ​ 1,099 Intangible assets ​ ​ 6,935 ​ ​ 6,973 Other assets ​ 2,888 ​ 2,732 Total Assets ​ $ 235,649 ​ $ 254,596 Liabilities and Stockholders’ Equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 11,425 ​ $ 10,351 Accrued expenses ​ 8,744 ​ 8,701 Current portion of lease liabilities ​ ​ 458 ​ ​ 684 Discontinued operations ​ ​ 2,202 ​ ​ 2,202 Total current liabilities ​ 22,829 ​ 21,938 Other liabilities ​ ​ 1,903 ​ 1,570 Contingent consideration ​ ​ 30,800 ​ ​ 33,100 Deferred tax liability ​ 367 ​ 367 Total liabilities ​ 55,899 ​ 56,975 Commitments and contingencies (Note 14) ​ ​ ​ ​ ​ ​ Stockholders’ Equity: ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.00001 par value; 10,000,000 shares authorized and no shares issued or outstanding at June 30, 2023 and December 31, 2022 ​ ​ — ​ ​ — Common stock, $ 0.00001 par value; 200,000,000 and 100,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively; 70,769,702 and 66,688,647 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively ​ 1 ​ 1 Additional paid‑in capital ​ 920,904 ​ 880,832 Accumulated other comprehensive loss ​ ( 1,111 ) ​ ( 897 ) Accumulated deficit ​ ( 740,044 ) ​ ( 682,315 ) Total stockholders’ equity ​ 179,750 ​ 197,621 Total liabilities and stockholders’ equity ​ $ 235,649 ​ $ 254,596 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 2 Table of Contents ACLARIS THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) ​ (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ 2023 2022 2023 2022 Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract research ​ $ 875 ​ $ 1,218 ​ $ 1,764 ​ $ 2,439 Licensing ​ ​ 994 ​ ​ 280 ​ ​ 2,633 ​ ​ 481 Other ​ ​ — ​ ​ 30 ​ ​ — ​ ​ 61 Total revenue ​ ​ 1,869 ​ ​ 1,528 ​ ​ 4,397 ​ ​ 2,981 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenue ​ ​ 1,042 ​ ​ 1,068 ​ ​ 1,850 ​ ​ 2,223 Research and development ​ 25,275 ​ ​ 18,779 ​ 47,862 ​ 33,085 General and administrative ​ 8,317 ​ ​ 6,075 ​ 17,107 ​ 12,174 Licensing ​ ​ 550 ​ ​ — ​ ​ 1,611 ​ ​ — Revaluation of contingent consideration ​ ​ ( 1,500 ) ​ ​ ( 3,400 ) ​ ​ ( 2,300 ) ​ ​ ( 4,600 ) Total costs and expenses ​ 33,684 ​ 22,522 ​ 66,130 ​ 42,882 Loss from operations ​ ( 31,815 ) ​ ( 20,994 ) ​ ( 61,733 ) ​ ( 39,901 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income, net ​ 2,246 ​ 462 ​ 4,004 ​ 580 Net loss ​ $ ( 29,569 ) ​ $ ( 20,532 ) ​ $ ( 57,729 ) ​ $ ( 39,321 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per share, basic and diluted ​ $ ( 0.42 ) ​ $ ( 0.31 ) ​ $ ( 0.84 ) ​ $ ( 0.62 ) Weighted average common shares outstanding, basic and diluted ​ 70,633,528 ​ 65,990,031 ​ 68,763,542 ​ 63,723,123 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized loss on marketable securities, net of tax of $ 0 ​ $ ( 757 ) ​ $ ( 354 ) ​ $ ( 214 ) ​ $ ( 1,101 ) Total other comprehensive loss ​ ( 757 ) ​ ( 354 ) ​ ( 214 ) ​ ( 1,101 ) Comprehensive loss ​ $ ( 30,326 ) ​ $ ( 20,886 ) ​ $ ( 57,943 ) ​ $ ( 40,422 ) ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 3 Table of Contents ACLARIS THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) ​ (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, 2022 ​ 66,688,647 ​ $ 1 ​ $ 880,832 ​ $ ( 897 ) ​ $ ( 682,315 ) ​ $ 197,621 ​ Issuance of common stock in connection with vesting of restricted stock units ​ 517,378 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Unrealized gain on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ 543 ​ ​ — ​ ​ 543 ​ Stock-based compensation expense ​ — ​ ​ — ​ ​ 6,806 ​ ​ — ​ ​ — ​ ​ 6,806 ​ Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 28,160 ) ​ ​ ( 28,160 ) ​ Balance at March 31, 2023 ​ 67,206,025 ​ $ 1 ​ $ 887,638 ​ $ ( 354 ) ​ $ ( 710,475 ) ​ $ 176,810 ​ Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units ​ 163,677 ​ ​ — ​ ​ 30 ​ ​ — ​ ​ — ​ ​ 30 ​ Issuance of common stock under at-the-market sales agreement, net of offering costs of $ 826 ​ 3,400,000 ​ ​ — ​ ​ 26,714 ​ ​ — ​ ​ — ​ ​ 26,714 ​ Unrealized loss on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ ( 757 ) ​ ​ — ​ ​ ( 757 ) ​ Stock-based compensation expense ​ — ​ ​ — ​ ​ 6,522 ​ ​ — ​ ​ — ​ ​ 6,522 ​ Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 29,569 ) ​ ​ ( 29,569 ) ​ Balance at June 30, 2023 ​ 70,769,702 ​ $ 1 ​ $ 920,904 ​ $ ( 1,111 ) ​ $ ( 740,044 ) ​ $ 179,750 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ Other ​ ​ ​ Total ​ ​ ​ ​ Par ​ Paid ‑ in ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Value Capital Loss Deficit Equity 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 ​ 509,037 ​ ​ — ​ ​ 49 ​ ​ — ​ ​ — ​ ​ 49 Unrealized loss on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ ( 748 ) ​ ​ — ​ ​ ( 748 ) Stock-based compensation expense ​ — ​ ​ — ​ ​ 2,346 ​ ​ — ​ ​ — ​ ​ 2,346 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 18,789 ) ​ ​ ( 18,789 ) Balance at March 31, 2022 ​ 61,737,483 ​ $ 1 ​ $ 795,366 ​ $ ( 972 ) ​ $ ( 614,196 ) ​ $ 180,199 Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units ​ 91,388 ​ ​ — ​ ​ 88 ​ ​ — ​ ​ — ​ ​ 88 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 ​ — ​ ​ — ​ ​ — ​ ​ ( 354 ) ​ ​ — ​ ​ ( 354 ) Stock-based compensation expense ​ — ​ ​ — ​ ​ 3,692 ​ ​ — ​ ​ — ​ ​ 3,692 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 20,532 ) ​ ​ ( 20,532 ) Balance at June 30, 2022 ​ 66,667,580 ​ $ 1 ​ $ 871,805 ​ $ ( 1,326 ) ​ $ ( 634,728 ) ​ $ 235,752 ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents ACLARIS THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ​ (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ June 30, ​ 2023 2022 Cash flows from operating activities : ​ ​ Net loss ​ $ ( 57,729 ) ​ $ ( 39,321 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 416 ​ 414 Stock-based compensation expense ​ 13,328 ​ 6,038 Revaluation of contingent consideration ​ ​ ( 2,300 ) ​ ​ ( 4,600 ) Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 53 ​ ​ ( 14 ) Prepaid expenses and other assets ​ ( 1,605 ) ​ 1,309 Accounts payable ​ 1,074 ​ ( 4,283 ) Accrued expenses ​ ( 244 ) ​ ( 178 ) Net cash used in operating activities ​ ( 47,007 ) ​ ( 40,635 ) Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ( 784 ) ​ ( 350 ) Purchases of marketable securities ​ ( 118,513 ) ​ ( 85,096 ) Proceeds from sales and maturities of marketable securities ​ 125,433 ​ 94,155 Net cash provided by investing activities ​ 6,136 ​ 8,709 Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Proceeds from issuance of common stock under the at-the-market sales agreement, net of issuance costs ​ ​ 26,714 ​ ​ 72,744 Payments of employee withholding taxes related to restricted stock unit award vesting ​ ​ — ​ ​ ( 23 ) Proceeds from exercise of employee stock options and the issuance of stock ​ ​ 30 ​ ​ 120 Net cash provided by financing activities ​ 26,744 ​ 72,841 Net (decrease) increase in cash and cash equivalents ​ ( 14,127 ) ​ 40,915 Cash and cash equivalents at beginning of period ​ 45,277 ​ 27,349 Cash and cash equivalents at end of period ​ $ 31,150 ​ $ 68,264 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ Additions to property and equipment included in accounts payable ​ $ 394 ​ $ 72 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 5 Table of Contents ACLARIS THERAPEUTICS, INC. NOTES TO UNAUDITED CONDENSED 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 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 condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. As of June 30, 2023, the Company had cash, cash equivalents and marketable securities of $ 210.8 million and an accumulated deficit of $ 740.0 million. Since inception, the Company has incurred net losses and negative cash flows from its operations. Prior to the acquisition of Confluence, 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, the closure of financial institutions 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 has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that its condensed consolidated financial statements are issued. As of the report date, the Company does not believe that substantial doubt exists about its ability to continue as a going concern. 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 condensed consolidated financial statements. 6 Table of Contents ​ 2. Summary of Significant Accounting Policies ​ Unaudited Interim Financial Information ​ The accompanying condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022, the condensed consolidated statement of stockholders’ equity for the three and six months ended June 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 23, 2023 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2023, the results of its operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022, its changes in stockholders’ equity for the three and six months ended June 30, 2023 and 2022 and its cash flows for the six months ended June 30, 2023 and 2022. The condensed consolidated balance sheet data as of December 31, 2022 was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”). The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2023 and 2022 are unaudited. The results for the three and six months ended June 30, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period. The unaudited interim financial statements of the Company included herein have been prepared, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2023. ​ Basis of Presentation ​ The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP. The condensed consolidated financial statements of the Company include the accounts of the operating parent company, Aclaris Therapeutics, Inc., and its wholly owned subsidiaries. All intercompany transactions have been eliminated. Based upon the Company’s revenue, the Company believes that gross profit does not provide a meaningful measure of profitability and, therefore, has not included a line item for gross profit on the condensed consolidated statement of operations. ​ 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. ​ Reclassifications ​ Certain prior year amounts have been reclassified to conform to the current year’s financial statement presentation. ​ 7 Table of Contents 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 three accredited financial institutions, the majority of which are in amounts that exceed or are not subject to 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. ​ Significant Accounting Policies ​ The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2023. There have been no changes to the Company’s significant accounting policies from those disclosed in the annual report. ​ Contingent Consideration ​ The Company initially recorded a contingent consideration liability 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 condensed consolidated statement of operations. ​ The fair value of contingent consideration is estimated using a probability-weighted expected payment model for regulatory milestone payments and a Monte Carlo simulation model for commercial milestone and royalty payments and then applying a risk-adjusted discount rate to calculate the present value of the potential payments. Significant assumptions used in the Company’s estimates include the probability of achieving regulatory milestones and commencing commercialization, which are based on an asset’s current stage of development and a review of existing clinical data. Probability of success assumptions ranged between 10 % and 41 % at 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. ​ 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. 8 Table of Contents ​ 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. ​ Licensing ​ 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. 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 June 30, 2023 and December 31, 2022, the Company had $ 2.2 million in accrued expenses reported as discontinued operations in the Company’s consolidated balance sheet. ​ ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2023 (In thousands) Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ Cash equivalents ​ $ 26,229 ​ $ — ​ $ — ​ $ 26,229 Marketable securities ​ — ​ ​ 179,617 ​ ​ — ​ ​ 179,617 Total assets ​ $ 26,229 ​ $ 179,617 ​ $ — ​ $ 205,846 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration ​ $ — ​ $ — ​ $ 30,800 ​ $ 30,800 Total liabilities ​ $ — ​ $ — ​ $ 30,800 ​ $ 30,800 ​ 9 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ As of June 30, 2023 and December 31, 2022, 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 June 30, 2023 consisted of commercial paper, treasury bills, and corporate debt, asset-backed debt and U.S. government and government agency debt securities, which were all valued based upon Level 2 inputs. The Company’s marketable securities as of December 31, 2022 consisted of commercial paper and corporate debt, asset-backed debt and U.S. government and government agency debt securities, which were all valued based upon Level 2 inputs. ​ In determining the fair value of its Level 2 investments, the Company relies on quoted prices for identical securities in markets that are not active. These quoted prices are 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. During the three and six months ended June 30, 2023 and 2022, there were no transfers into or out of Level 3. ​ The overall $ 2.3 million decrease in the fair value of the contingent consideration liability during the six months ended June 30, 2023 was primarily due to the removal of estimated sales levels from zunsemetinib (ATI-450) for moderate to severe hidradenitis suppurativa following the Company’s decision to cease pursuing this indication. This decrease 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. ​ As of June 30, 2023 and December 31, 2022, the fair value of the Company’s available-for-sale marketable securities by type of security was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2023 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Book ​ Unrealized ​ Unrealized ​ Fair (In thousands) ​ Value ​ Gain ​ Loss ​ Value Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities (1) ​ $ 44,339 ​ $ — ​ $ ( 373 ) ​ $ 43,966 Commercial paper ​ ​ 43,789 ​ ​ 4 ​ ​ ( 73 ) ​ ​ 43,720 Treasury bills ​ ​ 4,982 ​ ​ — ​ ​ ( 9 ) ​ ​ 4,973 Asset-backed debt securities (2) ​ ​ 19,125 ​ ​ — ​ ​ ( 92 ) ​ ​ 19,033 U.S. government and government agency debt securities (3) ​ ​ 68,495 ​ ​ 2 ​ ​ ( 572 ) ​ ​ 67,925 Total marketable securities ​ $ 180,730 ​ $ 6 ​ $ ( 1,119 ) ​ $ 179,617 (1) Included in Corporate debt securities is $ 29.3 million with maturity dates between one and two years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (2) Included in Asset-backed debt securities is $ 19.0 million with maturity dates between two and four years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (3) Included in U.S. government and government agency debt securities is $ 42.7 million with maturity dates between one and two years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10 Table of Contents ​ ​ December 31, 2022 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Book ​ Unrealized ​ Unrealized ​ Fair (In thousands) ​ Value ​ 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 U.S. government and government agency debt securities is $ 5.0 million with maturity dates between one and five years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4. Property and Equipment, Net ​ Property and equipment, net consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ ​ December 31, (In thousands) ​ 2023 ​ 2022 Computer equipment $ 1,449 $ 1,381 Lab equipment ​ ​ 3,087 ​ ​ 2,010 Furniture and fixtures ​ ​ 649 ​ ​ 620 Leasehold improvements ​ ​ 1,123 ​ ​ 1,123 Property and equipment, gross ​ 6,308 ​ 5,134 Accumulated depreciation ​ ( 4,409 ) ​ ( 4,035 ) Property and equipment, net ​ $ 1,899 ​ $ 1,099 ​ Depreciation expense was $ 0.2 million for each of the three months ended June 30, 2023 and 2022, and $ 0.4 million for each of the six months ended June 30, 2023 and 2022. ​ ​ 5. Intangible Assets ​ Intangible assets consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Cost ​ Accumulated Amortization ​ ​ ​ Remaining ​ ​ June 30, ​ ​ December 31, ​ ​ June 30, ​ ​ December 31, (In thousands, except years) ​ Life (years) 2023 2022 2023 2022 Other intangible assets ​ ​ 4.1 ​ $ 751 ​ $ 751 ​ $ 445 ​ $ 407 In-process research and development ​ ​ n/a ​ ​ 6,629 ​ ​ 6,629 ​ ​ — ​ ​ — Total intangible assets ​ ​ ​ ​ $ 7,380 ​ $ 7,380 ​ $ 445 ​ $ 407 ​ Amortization expense was $ 19 thousand for each of the three months ended June 30, 2023 and 2022, and $ 38 thousand for each of the six months ended June 30, 2023 and 2022. ​ 11 Table of Contents As of June 30, 2023, estimated future amortization expense was as follows: ​ ​ ​ ​ ​ ​ ​ ​ Year Ending (In thousands) ​ December 31, 2023 ​ $ 37 2024 ​ 75 2025 ​ 75 2026 ​ ​ 75 2027 ​ ​ 44 Total ​ $ 306 ​ ​ ​ 6. Accrued Expenses ​ Accrued expenses consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, (In thousands) 2023 2022 Employee compensation expenses ​ $ 3,905 ​ $ 5,295 Research and development expenses ​ ​ 4,089 ​ ​ 2,689 Other ​ 750 ​ 717 Total accrued expenses ​ $ 8,744 ​ $ 8,701 ​ ​ ​ ​ 7. Stockholders’ Equity ​ Preferred Stock ​ As of June 30, 2023 and December 31, 2022, the Company’s amended and restated certificate of incorporation (the “Charter”) authorized the Company to issue 10,000,000 shares of undesignated preferred stock. There were no shares of preferred stock outstanding as of June 30, 2023 or December 31, 2022. ​ Common Stock ​ On June 1, 2023, at the 2023 Annual Meeting of Stockholders, the Company’s stockholders approved an amendment to the Charter to increase the authorized number of shares of common stock from 100,000,000 shares to 200,000,000 shares. On June 1, 2023, the Company filed a Certificate of Amendment to the Charter with the Secretary of State of the State of Delaware, which became effective upon filing. ​ As of June 30, 2023 and December 31, 2022, the Company’s Charter authorized the Company to issue 200,000,000 and 100,000,000 shares, respectively, of $ 0.00001 par value common stock. There were 70,769,702 and 66,688,647 shares of common stock issued and outstanding as of June 30, 2023 and December 31, 2022, 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 June 30, 2023. ​ Sales of Common Stock Pursuant to At-The-Market Facility ​ In April 2023, the Company sold 3.4 million shares of its 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. The Company paid selling commissions of $ 0.8 million in connection with the sale. ​ 12 Table of Contents In April 2022, the Company sold 4.8 million shares of its 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. The Company paid selling commissions and other fees of $ 2.3 million in connection with the sale. ​ ​ 8. 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, restricted stock unit (“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 31st 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 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. As of June 30, 2023, 3,035,430 shares remained available for grant under the 2015 Plan. The Company had 6,177,197 stock options and 1,720,040 RSUs outstanding as of June 30, 2023 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 June 30, 2023 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 had 466,497 stock options outstanding as of June 30, 2023 under the 2012 Plan. ​ Stock Option Valuation ​ The weighted average assumptions the Company used to estimate the fair value of stock options granted during the six months ended June 30, 2023 and 2022 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ June 30, ​ ​ ​ 2023 ​ ​ 2022 ​ Risk-free interest rate 3.48 % ​ 1.90 % ​ Expected term (in years) 6.2 ​ ​ 6.2 ​ ​ Expected volatility 77.73 % ​ 77.95 % ​ Expected dividend yield 0 % ​ 0 % ​ ​ 13 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 six months ended June 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2022 5,167,164 ​ $ 16.04 7.2 ​ $ 15,288 Granted 2,074,550 ​ ​ 16.26 ​ ​ ​ ​ ​ Exercised ​ ( 23,980 ) ​ ​ 1.20 ​ ​ ​ ​ ​ Forfeited and cancelled ( 203,440 ) ​ ​ 15.59 ​ ​ ​ ​ ​ Outstanding as of June 30, 2023 7,014,294 ​ $ 16.17 7.3 ​ $ 6,426 Options vested and expected to vest as of June 30, 2023 7,014,294 ​ $ 16.17 7.3 ​ $ 6,426 Options exercisable as of June 30, 2023 3,052,418 ​ $ 16.85 4.8 ​ $ 5,554 ​ The weighted average grant date fair value of stock options granted during the six months ended June 30, 2023 was $ 11.42 per share. ​ Restricted Stock Units ​ The following table summarizes RSU activity for the six months ended June 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2022 ​ 1,520,730 ​ $ 14.02 ​ ​ ​ Granted ​ 924,883 ​ ​ 15.74 ​ ​ ​ Vested ​ ( 657,075 ) ​ ​ 11.51 ​ $ 7,657 Forfeited and cancelled ​ ( 68,498 ) ​ ​ 15.40 ​ ​ ​ Outstanding as of June 30, 2023 ​ 1,720,040 ​ $ 15.85 ​ ​ ​ ​ Stock-Based Compensation ​ Stock-based compensation expense included in total costs and expenses on the condensed consolidated statement of operations included the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (In thousands) 2023 2022 2023 2022 Cost of revenue $ 473 $ 302 $ 772 $ 530 ​ Research and development ​ ​ 3,494 ​ ​ 941 ​ ​ 6,096 ​ ​ 828 ​ General and administrative ​ 2,555 ​ 2,449 ​ 6,460 ​ 4,680 ​ Total stock-based compensation expense ​ $ 6,522 ​ $ 3,692 ​ $ 13,328 ​ $ 6,038 ​ ​ As of June 30, 2023, the Company had unrecognized stock-based compensation expense for stock options and 14 Table of Contents RSUs of $ 38.2 million and $ 23.8 million, respectively, which is expected to be recognized over weighted average periods of 3.1 years and 3.0 years, respectively. ​ ​ 9. Net Loss per Share ​ Basic and diluted net loss per share is summarized in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (In thousands, except for share and per share data) ​ 2023 ​ 2022 2023 2022 ​ Numerator: ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 29,569 ) ​ $ ( 20,532 ) ​ $ ( 57,729 ) ​ $ ( 39,321 ) ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares of common stock outstanding, basic and diluted ​ 70,633,528 ​ 65,990,031 ​ 68,763,542 ​ 63,723,123 ​ Net loss per share, basic and diluted ​ $ ( 0.42 ) ​ $ ( 0.31 ) ​ $ ( 0.84 ) ​ $ ( 0.62 ) ​ ​ The Company’s potentially dilutive securities, which include stock options and RSUs, have been excluded from the computation of diluted net loss per share since the effect would be to reduce the net loss per share. Therefore, the weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share is the same. The following table presents potential shares of common stock excluded from the calculation of diluted net loss per share for the six months ended June 30, 2023 and 2022. All share amounts presented in the table below represent the total number outstanding as of June 30, 2023 and 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ ​ 2023 ​ 2022 Options to purchase common stock ​ 7,014,294 ​ 5,014,953 Restricted stock unit awards ​ 1,720,040 ​ 1,457,309 Total potential shares of common stock ​ 8,734,334 ​ 6,472,262 ​ ​ ​ 10. Leases ​ Operating Leases ​ Agreements for Office and Laboratory Space ​ The Company has a sublease agreement 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. 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. ​ In February 2019, the Company entered into a sublease agreement pursuant to which it subleases 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. In January 2023, the Company amended the sublease agreement to add an additional 6,261 square feet of office and laboratory space effective February 2023, which term runs concurrently with the existing term. ​ 15 Table of Contents Supplemental balance sheet information related to operating leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ ​ December 31, (In thousands) ​ 2023 ​ 2022 Operating Leases: ​ ​ ​ ​ ​ ​ Gross cost ​ $ 5,804 ​ $ 5,240 Accumulated amortization ​ ​ ( 2,993 ) ​ ​ ( 2,560 ) Other assets ​ $ 2,811 ​ $ 2,680 ​ ​ ​ ​ ​ ​ ​ Current portion of lease liabilities ​ $ 458 ​ $ 684 Other liabilities ​ ​ 1,903 ​ ​ 1,570 Total operating lease liabilities ​ $ 2,361 ​ $ 2,254 ​ Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 0.2 million and $ 0.3 million for the three months ended June 30, 2023 and 2022, respectively, and $ 0.4 million and $ 0.5 million for the six months ended June 30, 2023 and 2022, respectively. ​ ​ 11. 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. No revenue under this agreement was recorded during the three and six months ended June 30, 2023. ​ 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. The Company recorded licensing revenue under this agreement of $ 0.9 million and $ 2.3 million during the three and six months ended June 30, 2023, respectively. Of these amounts, $ 0.6 million and $ 1.6 million were paid to third parties during the three and six months ended June 30, 2023, respectively, and recorded as licensing expense. ​ 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 $ 0.1 million and $ 0.3 million during the three months ended June 30, 2023 and 2022, respectively, and $ 0.3 million and $ 0.5 million during the six months ended June 30, 2023 and 2022, respectively. EPI Health has also agreed to pay the Company potential sales 16 Table of Contents 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. ​ 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, the Company 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. ​ Agreement and Plan of Merger – Confluence ​ 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 has 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 has 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 June 30, 2023 and December 31, 2022, the balance of the Company’s contingent consideration liability was $ 30.8 million and $ 33.1 million, respectively (see Note 3). ​ ​ 12. Income Taxes ​ The Company did no t record a federal or state income tax benefit for losses incurred during the three and six months ended June 30, 2023 and 2022. The Company concluded that it is more likely than not that its deferred tax assets will not be realized which resulted in recording a full valuation allowance during those periods. ​ ​ 13. 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. ​ 17 Table of Contents The Company’s results of operations by segment for the three and six months ended June 30, 2023 and 2022 are summarized in the tables below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Three Months Ended June 30, 2023 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ 993 ​ $ 4,876 ​ $ ( 4,000 ) ​ $ 1,869 Cost of revenue ​ ​ — ​ ​ 4,796 ​ ​ ( 3,754 ) ​ ​ 1,042 Research and development ​ ​ 25,521 ​ ​ — ​ ​ ( 246 ) ​ ​ 25,275 General and administrative ​ ​ — ​ ​ 1,254 ​ ​ 7,063 ​ ​ 8,317 Licensing ​ ​ 550 ​ ​ — ​ ​ — ​ ​ 550 Revaluation of contingent consideration ​ ​ ( 1,500 ) ​ ​ — ​ ​ — ​ ​ ( 1,500 ) Loss from operations ​ $ ( 23,578 ) ​ $ ( 1,174 ) ​ $ ( 7,063 ) ​ $ ( 31,815 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Three Months Ended June 30, 2022 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ 309 ​ $ 4,399 ​ $ ( 3,180 ) ​ $ 1,528 Cost of revenue ​ ​ — ​ ​ 4,041 ​ ​ ( 2,973 ) ​ ​ 1,068 Research and development ​ ​ 18,986 ​ ​ — ​ ​ ( 207 ) ​ ​ 18,779 General and administrative ​ ​ — ​ ​ 854 ​ ​ 5,221 ​ ​ 6,075 Licensing ​ ​ — ​ ​ — ​ ​ — ​ ​ — Revaluation of contingent consideration ​ ​ ( 3,400 ) ​ ​ — ​ ​ — ​ ​ ( 3,400 ) Loss from operations ​ $ ( 15,277 ) ​ $ ( 496 ) ​ $ ( 5,221 ) ​ $ ( 20,994 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Six Months Ended June 30, 2023 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ 2,632 ​ $ 9,776 ​ $ ( 8,011 ) ​ $ 4,397 Cost of revenue ​ ​ — ​ ​ 9,343 ​ ​ ( 7,493 ) ​ ​ 1,850 Research and development ​ ​ 48,380 ​ ​ — ​ ​ ( 518 ) ​ ​ 47,862 General and administrative ​ ​ — ​ ​ 2,316 ​ ​ 14,791 ​ ​ 17,107 Licensing ​ ​ 1,611 ​ ​ — ​ ​ — ​ ​ 1,611 Revaluation of contingent consideration ​ ​ ( 2,300 ) ​ ​ — ​ ​ — ​ ​ ( 2,300 ) Loss from operations ​ $ ( 45,059 ) ​ $ ( 1,883 ) ​ $ ( 14,791 ) ​ $ ( 61,733 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Six Months Ended June 30, 2022 ​ Therapeutics ​ Research ​ and Other ​ Company Total revenue ​ $ 541 ​ $ 8,495 ​ $ ( 6,055 ) ​ $ 2,981 Cost of revenue ​ ​ — ​ ​ 7,897 ​ ​ ( 5,674 ) ​ ​ 2,223 Research and development ​ ​ 33,466 ​ ​ — ​ ​ ( 381 ) ​ ​ 33,085 General and administrative ​ ​ — ​ ​ 1,695 ​ ​ 10,479 ​ ​ 12,174 Licensing ​ ​ — ​ ​ — ​ ​ — ​ ​ — Revaluation of contingent consideration ​ ​ ( 4,600 ) ​ ​ — ​ ​ — ​ ​ ( 4,600 ) Loss from operations ​ $ ( 28,325 ) ​ $ ( 1,097 ) ​ $ ( 10,479 ) ​ $ ( 39,901 ) ​ Intersegment Revenue ​ Revenue for the contract research segment included $ 4.0 million and $ 3.2 million for services performed on behalf of the therapeutics segment for the three months ended June 30, 2023 and 2022, respectively, and $ 8.0 million and $ 6.1 million for the six months ended June 30, 2023 and 2022, respectively. All intersegment revenue has been eliminated in the Company’s condensed consolidated statement of operations. ​ ​ 14. 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 18 Table of Contents “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 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. ​ ​ ​ 19 Table of Contents