What changed in this filing

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Item 1. Financial Statements

2024-05-07 compared with 2023-11-06 · 127 added, 202 removed, 306 unchanged (52% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

6 unchanged sentences

Property and equipment, net

Intangible assets

Liabilities and Stockholders’ Equity

2 unchanged sentences

Accrued expenses

Current portion of lease liabilities

Discontinued operations

Other current liabilities

Total current liabilities

1 unchanged sentence

Contingent consideration

Deferred tax liability

Total liabilities

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 September 30, 2023 and December 31, 2022

10,000,000 shares authorized and no shares issued or outstanding at March 31, 2024 and December 31, 2023

Common stock, $ 0.00001 par value;

200,000,000 and 100,000,000 shares authorized at September 30, 2023 and December 31, 2022, respectively;

70,818,954 and 66,688,647 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

200,000,000 shares authorized at March 31, 2024 and December 31, 2023;

71,248,017 and 70,894,889 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

Additional paid‑in capital

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Contract research

11 unchanged sentences

Other comprehensive loss:

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

Total other comprehensive loss

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

Total other comprehensive (loss) gain

Comprehensive loss

8 unchanged sentences

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

Unrealized gain on marketable securities

Stock-based compensation expense

Balance at March 31, 2023

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

Issuance of common stock under at-the-market sales agreement, net of offering costs of $ 826

Unrealized loss on marketable securities

Stock-based compensation expense

Balance at June 30, 2023

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

Unrealized loss on marketable securities

Stock-based compensation expense

Balance at September 30, 2023

Balance at March 31, 2024

Comprehensive

1 unchanged sentence

Balance at December 31, 2022

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

Unrealized loss on marketable securities

Stock-based compensation expense

Balance at March 31, 2022

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

Issuance of common stock under at-the-market sales agreement, net of offering costs of $ 2,341

Unrealized loss on marketable securities

Stock-based compensation expense

Balance at June 30, 2022

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

Unrealized loss on marketable securities

Unrealized gain on marketable securities

Stock-based compensation expense

Balance at September 30, 2022

Balance at March 31, 2023

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

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities :

15 unchanged sentences

Cash flows from financing activities:

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 (decrease) increase in cash and cash equivalents

Net cash used in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

8 unchanged sentences

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.

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.

The Company’s proprietary KINect drug discovery platform combined with its preclinical development capabilities allows the Company to identify and advance potential drug candidates that it may develop independently or in collaboration with third parties.

In addition to identifying and 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.

The Company also provides contract research services to third parties enabled by its early-stage research and development expertise.

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

As of September 30, 2023, the Company had cash, cash equivalents and marketable securities of $ 187.0 million and an accumulated deficit of $ 769.3 million.

As of March 31, 2024, the Company had cash, cash equivalents and marketable securities of $ 161.4 million and an accumulated deficit of $ 787.7 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.

Prior to the acquisition of Confluence Life Sciences, Inc.

(now known as Aclaris Life Sciences, Inc.) (“Confluence”) in 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.

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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.

The Company will require additional capital to develop its drug candidates 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.

The Company's ability to raise additional capital may be adversely impacted by potentially 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 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.

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 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.

2 unchanged sentences

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2023, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statement of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine months ended September 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 September 30, 2023, the results of its operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022, its changes in stockholders’ equity for the three and nine months ended September 30, 2023 and 2022 and its cash flows for the nine months ended September 30, 2023 and 2022.

The accompanying condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023, the condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2024 and 2023, and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 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 27, 2024 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of March 31, 2024, the results of its operations and comprehensive loss for the three months ended March 31, 2024 and 2023, its changes in stockholders’ equity for the three months ended March 31, 2024 and 2023 and its cash flows for the three months ended March 31, 2024 and 2023.

The condensed consolidated balance sheet data as of December 31, 2023 was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”).

The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2023 and 2022 are unaudited.

The results for the three and nine months ended September 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 financial data and other information disclosed in these notes related to the three months ended March 31, 2024 and 2023 are unaudited.

The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, 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.

14 unchanged sentences

Certain prior year amounts have been reclassified to conform to the current year’s financial statement presentation.

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

2 unchanged sentences

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.

The Company records a contingent consideration liability related to future potential payments resulting from the acquisition of Confluence based upon significant unobservable inputs including the achievement of 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 is involved in determining the appropriateness of these assumptions.

These assumptions are considered Level 3 inputs.

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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 17 % and 41 % at September 30, 2023.

Probability of success assumptions ranged between 17 % and 40 % at March 31, 2024.

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.

8 unchanged sentences

The Company only recognizes revenue when collection of the consideration it is entitled to under a contract with a customer is probable.

Contract Research

Contract Research Revenue

The Company earns contract research revenue from the provision of laboratory services.

3 unchanged sentences

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 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.

3 unchanged sentences

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 September 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.

As of March 31, 2024 and December 31, 2023, the Company had $ 2.2 million in discontinued operations reported as other current liabilities in the Company’s consolidated balance sheet, related to discontinued commercial products.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” This standard requires disclosure of significant segment expenses and other segment items by reportable segment.

This ASU becomes effective for annual periods beginning in 2024 and interim periods in 2025.

The Company is assessing the impact of this ASU and upon adoption expects that any impact would be limited to additional segment expense disclosures in the footnotes to the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” This standard enhances disclosures related to income taxes, including the rate reconciliation and information on income taxes paid.

This ASU becomes effective January 1, 2025.

The Company is currently assessing the impact of this ASU.

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:

September 30, 2023

March 31, 2024

(In thousands)

9 unchanged sentences

Total liabilities

As of September 30, 2023, the Company’s cash equivalents consisted of a money market fund and treasury bills, which were valued based upon Level 1 inputs.

As of 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 September 30, 2023 consisted of commercial paper, treasury bills, and corporate debt, asset-backed debt, foreign government agency 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.

As of March 31, 2024 and December 31, 2023, the Company’s cash equivalents consisted of money market funds, which were valued based upon Level 1 inputs.

The Company’s marketable securities as of March 31, 2024 and December 31, 2023 consisted of commercial paper and corporate debt, asset-backed debt, foreign government agency debt and U.S.

government and government agency debt securities, which were all valued based upon Level 2 inputs.

1 unchanged sentence

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 nine months ended September 30, 2023 and 2022, there were no transfers into or out of Level 3.

The overall $ 0.6 million decrease in the fair value of the contingent consideration liability during the nine months ended September 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, as well as higher discount rates resulting from higher risk-free rates and changes in credit spreads being applied to potential payments relative to prior periods.

This decrease was partially offset by an increase in the probability of success of ATI-2138, as well as the passage of time.

As of September 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:

September 30, 2023

During the three months ended March 31, 2024 and 2023, there were no transfers into or out of Level 3.

The overall $ 2.8 million increase in the fair value of the contingent consideration liability during the three months ended March 31, 2024 was primarily due to changes in estimated sales levels and changes to the probability of success for certain drug candidates.

As of March 31, 2024 and December 31, 2023, the fair value of the Company’s available-for-sale marketable securities by type of security was as follows:

March 31, 2024

(In thousands)

2 unchanged sentences

Commercial paper

Treasury bills

Asset-backed debt securities (2)

3 unchanged sentences

(1) Included in Corporate debt securities is $ 17.9 million with maturity dates between one and two years .

(2) Included in Asset-backed debt securities is $ 11.3 million with maturity dates between two and four years .

(2) Included in Asset-backed debt securities is $ 5.8 million with maturity dates between one and two years .

(3) Included in Foreign government agency debt securities is $ 4.8 million with a maturity date between one and two years .

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Asset-backed debt securities (2)

Foreign government agency debt securities (3)

government and government agency debt securities (4)

Total marketable securities

(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 .

(1) Included in Corporate debt securities is $ 28.0 million with maturity dates between one and two years .

(2) Included in Asset-backed debt securities is $ 6.2 million with maturity dates between one and three years .

(3) Included in Foreign government agency debt securities is $ 4.7 million with a maturity date between one and two years .

(4) Included in U.S.

government and government agency debt securities is $ 5.0 million with maturity dates between one and five years .

government and government agency debt securities is $ 23.9 million with maturity dates between one and two years .

Property and Equipment, Net

Property and equipment, net consisted of the following:

September 30,

(In thousands)

6 unchanged sentences

Property and equipment, net

Depreciation expense was $ 0.2 million for each of the three months ended September 30, 2023 and 2022, and $ 0.6 million for each of the nine months ended September 30, 2023 and 2022.

Intangible Assets

Intangible assets consisted of the following:

Accumulated Amortization

September 30,

(In thousands, except years)

Other intangible assets

In-process research and development

Total intangible assets

Amortization expense was $ 19 thousand for each of the three months ended September 30, 2023 and 2022, and $ 56 thousand for each of the nine months ended September 30, 2023 and 2022.

As of September 30, 2023, estimated future amortization expense was as follows:

(In thousands)

Depreciation expense was $ 0.2 million for each of the three months ended March 31, 2024 and 2023.

Accrued Expenses

Accrued expenses consisted of the following:

September 30,

(In thousands)

2 unchanged sentences

Licensing expenses

Restructuring expenses (Note 12)

Other expenses

Total accrued expenses

1 unchanged sentence

Preferred Stock

As of September 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 September 30, 2023 or December 31, 2022.

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 September 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 70,818,954 and 66,688,647 shares of common stock issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.

As of March 31, 2024 and December 31, 2023, 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 March 31, 2024 or December 31, 2023.

As of March 31, 2024 and December 31, 2023, the Company’s Charter authorized the Company to issue 200,000,000 shares of $ 0.00001 par value common stock.

There were 71,248,017 and 70,894,889 shares of common stock issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.

Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to any preferential dividend rights of any series of preferred stock that may be outstanding.

No dividends have been declared through September 30, 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.

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.

No dividends have been declared through March 31, 2024.

Stock-Based Awards

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As of January 1, 2024, the number of shares of common stock that may be issued under the 2015 Plan was automatically increased by 2,835,795 shares.

As of September 30, 2023, 2,890,919 shares remained available for grant under the 2015 Plan.

The Company had 6,295,647 stock options and 1,707,190 RSUs outstanding as of September 30, 2023 under the 2015 Plan.

As of March 31, 2024, 4,020,777 shares remained available for grant under the 2015 Plan.

The Company had 6,233,088 stock options and 3,139,539 RSUs outstanding as of March 31, 2024 under the 2015 Plan.

2017 Inducement Plan

1 unchanged sentence

The 2017 Inducement Plan is a non-stockholder approved stock plan adopted pursuant to the “inducement exception” provided under Nasdaq listing rules.

The Company had 370,600 stock options outstanding as of September 30, 2023 under the 2017 Inducement Plan.

The Company had 353,100 stock options outstanding as of March 31, 2024 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

In August 2012, the Company’s board of directors adopted the 2012 Plan and the Company’s stockholders approved the 2012 Plan.

Upon the 2015 Plan becoming effective, no further grants can be made under the 2012 Plan.

The Company had 456,208 stock options outstanding as of September 30, 2023 under the 2012 Plan.

The Company had 380,792 stock options outstanding as of March 31, 2024 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 nine months ended September 30, 2023 and 2022 were as follows:

Nine Months Ended

September 30,

The weighted average assumptions the Company used to estimate the fair value of stock options granted during the three months ended March 31, 2024 and 2023 were as follows:

Three Months Ended

Risk-free interest rate

5 unchanged sentences

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2023:

The following table summarizes stock option activity for the three months ended March 31, 2024:

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

1 unchanged sentence

Forfeited and cancelled

Outstanding as of September 30, 2023

Options vested and expected to vest as of September 30, 2023

Options exercisable as of September 30, 2023

The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2023 was $ 11.04 per share.

( 1,294,775 )

Outstanding as of March 31, 2024

Options vested and expected to vest as of March 31, 2024

Options exercisable as of March 31, 2024

The weighted average grant date fair value of stock options granted during the three months ended March 31, 2024 was $ 0.86 per share.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2023:

The following table summarizes RSU activity for the three months ended March 31, 2024:

(In thousands, except share and per share data)

1 unchanged sentence

Forfeited and cancelled

Outstanding as of September 30, 2023

Outstanding as of March 31, 2024

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

3 unchanged sentences

Total stock-based compensation expense

As of September 30, 2023, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 35.6 million and $ 21.7 million, respectively, which is expected to be recognized over weighted average periods of 2.9 years and 2.8 years, respectively.

As of March 31, 2024, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 16.6 million and $ 13.6 million, respectively, which is expected to be recognized over weighted average periods of 2.5 years and 2.3 years, respectively.

Net Loss per Share

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

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

1 unchanged sentence

Net loss per share, basic and diluted

The Company’s potentially dilutive securities, which 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.

The Company’s potentially dilutive securities, which included stock options and RSUs, have been excluded from the computation of diluted net loss per share since the effect would be to reduce the net loss per share.

Therefore, the weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share is the same.

The following table presents potential shares of common stock excluded from the calculation of diluted net loss per share for the nine months ended September 30, 2023 and 2022.

All share amounts presented in the table below represent the total number outstanding as of September 30, 2023 and 2022.

September 30,

The following table presents potential shares of common stock excluded from the calculation of diluted net loss per share for the three months ended March 31, 2024 and 2023.

All share amounts presented in the table below represent the total number outstanding as of March 31, 2024 and 2023.

Options to purchase common stock

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Agreements for Office and Laboratory Space

The Company had a sublease agreement pursuant to which it subleased 33,019 square feet of office space for its headquarters in Wayne, Pennsylvania.

The sublease expired on October 31, 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.

The Company had a sublease agreement pursuant to which it subleased 33,019 square feet of office space for its headquarters in Wayne, Pennsylvania, which expired on October 31, 2023.

In May 2023, the Company entered into a new lease agreement pursuant to which it leases 11,564 square feet of office space for its headquarters in Wayne, Pennsylvania.

The lease commenced on November 1, 2023 and has a term that runs through March 2029.

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.

The lease commenced on November 1, 2023 and has a term that runs through February 2029.

In February 2019, the Company entered into a sublease agreement for 20,433 square feet of office and laboratory space in St.

Louis, Missouri.

2 unchanged sentences

Supplemental balance sheet information related to operating leases is as follows:

September 30,

(In thousands)

4 unchanged sentences

Total operating lease liabilities

Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 0.2 million and $ 0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $ 0.7 million and $ 0.8 million for the nine months ended September 30, 2023 and 2022, respectively.

Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 0.1 million and $ 0.3 million for the three months ended March 31, 2024 and 2023, respectively.

Agreements Related to Intellectual Property

License Agreement – Sun Pharmaceutical Industries, Inc.

In December 2023, the Company entered into an exclusive patent license agreement with Sun Pharmaceutical Industries, Inc.

(“Sun Pharma”).

Under the license agreement, the Company granted Sun Pharma exclusive rights under certain patents that the Company exclusively licenses from a third party.

The patents relate to the use of deuruxolitinib, Sun Pharma’s Janus kinase (“JAK”) inhibitor, or other isotopic forms of ruxolitinib, to treat alopecia areata or androgenetic alopecia.

Under the license agreement, Sun Pharma has paid the Company an upfront payment, and has agreed to pay the Company regulatory and commercial milestone payments upon the achievement of specified milestones set forth in the agreement, and a mid single-digit tiered royalty calculated as a percentage of Sun Pharma’s net sales.

The Company has separate contractual obligations under which the Company has agreed to pay to third parties a portion of the consideration it may receive under the license agreement.

Upon execution of the agreement, the Company received an upfront payment of $ 15.0 million from Sun Pharma, a portion of which was payable to third parties.

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.

(“Pediatrix”), under which the Company granted Pediatrix the exclusive rights to develop, manufacture and commercialize lepzacitinib in Greater China.

Pediatrix has paid the Company an upfront payment, and has agreed to pay the Company development, regulatory and commercial milestone payments upon the achievement of specified milestones set forth in the agreement, and a tiered royalty ranging from a low-to-high single digit percentage of net sales of lepzacitinib by Pediatrix in Greater China.

A portion of consideration received from Pediatrix is payable to the former Confluence equity holders as described below under the caption “Agreement and Plan of Merger - Confluence.”

License Agreement – Eli Lilly and Company

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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.

Under the license agreement, Lilly has paid the Company an upfront payment, and regulatory and certain commercial milestone payments, and has agreed to pay the Company anniversary payments and other commercial milestone payments upon the achievement of specified milestones as set forth in the agreement, 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 $ 8.3 million and $ 10.7 million during the three and nine months ended September 30, 2023, respectively.

Of these amounts, $ 7.3 million and $ 9.0 million were payable to third parties during the three and nine months ended September 30, 2023, respectively, and recorded as licensing expense.

The Company recorded licensing revenue under this agreement of $ 17.6 million for each of the three and nine months ended September 30, 2022.

Of this amount, $ 7.3 million was payable to third parties and recorded as licensing expense.

During the three months ended March 31, 2024 and 2023, the Company recorded licensing revenue under this agreement of $ 1.7 million and $ 1.6 million, respectively, from Lilly, a portion of which was payable to third parties.

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.

EPI Health 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.

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

Through the bankruptcy process, EPI Health and its parent company, Novan, Inc., sold the RHOFADE assets to a third party.

Under the sale agreement, the Company’s asset purchase agreement with EPI Health was not assumed by the buyer, and as a result, the buyer is not obligated to continue to pay the Company royalties or milestones on future sales of RHOFADE, nor is the buyer obligated to cure the outstanding amounts in default by EPI Health.

The sale was approved by the bankruptcy court on September 12, 2023.

As a result of the bankruptcy proceedings, the Company recorded an allowance for doubtful accounts resulting in $ 0.3 million of bad debt expense for the three months ended September 30, 2023, and $ 1.3 million of bad debt expense for the nine months ended September 30, 2023, representing all amounts that were due and outstanding by EPI Health.

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

Through the bankruptcy process, EPI Health and its parent company, Novan, Inc., sold the RHOFADE assets to a third party, which excluded the Company’s asset purchase agreement with EPI Health and the outstanding amounts due.

The sale was approved by the bankruptcy court in September 2023.

As a result of the bankruptcy proceedings, all amounts that are due and outstanding by EPI Health have been fully reserved for as of March 31, 2024.

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”).

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 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.

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In addition to the payments described above, if the Company sells, licenses or transfers any of the intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party, the Company will be obligated to pay the former Confluence equity holders a portion of any consideration received from such sale, license or transfer in specified circumstances.

As of September 30, 2023 and December 31, 2022, the balance of the Company’s contingent consideration liability was $ 32.5 million and $ 33.1 million, respectively (see Note 3).

The Company did no t record a federal or state income tax benefit for losses incurred during the three and nine months ended September 30, 2023 and 2022.

As of March 31, 2024 and December 31, 2023, the balance of the Company’s contingent consideration liability was $ 9.0 million and $ 6.2 million, respectively (see Note 3).

The Company did no t record a federal or state income tax benefit for losses incurred during the three months ended March 31, 2024 and 2023.

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.

Restructuring Charges

In December 2023, the Company’s board of directors approved a reduction of the Company’s workforce by approximately 46 %, which the Company expects to be substantially completed by June 2024.

This action was taken in order to streamline operations, reduce costs and preserve capital.

As a result, the Company terminated certain employees (“terminated employees”) and gave notice to additional employees (“noticed employees”) who were asked to provide transition services through termination dates ranging between one to thirteen months from the date notice was given.

The terminated employees were entitled to receive cash severance payments and other benefits.

The noticed employees are entitled to receive cash severance payments and other benefits, which are contingent upon providing additional services to the Company.

During the year ended December 31, 2023, the Company recorded a restructuring charge for the one-time termination benefit for impacted employees with retention periods less than the sixty-day minimum retention period, which was triggered immediately upon either terminating or giving notice to the impacted employees.

During the three months ended March 31, 2024, the Company recognized severance expense of $ 2.5 million and made cash payments of $ 3.0 million related to severance to terminated employees.

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 therapeutics segment is focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases and earns revenue through licensing of the Company’s intellectual property.

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.

All intersegment revenue has been eliminated in the Company’s consolidated statement of operations.

All customers and revenue pertaining to the Company’s segments are based in the United States.

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 three and nine months ended September 30, 2023 and 2022 are summarized in the tables below:

(In thousands)

Three Months Ended September 30, 2023

Total revenue

Cost of revenue

Research and development

General and administrative

Revaluation of contingent consideration

Loss from operations

(In thousands)

Three Months Ended September 30, 2022

Total revenue

Cost of revenue

Research and development

General and administrative

Revaluation of contingent consideration

Loss from operations

The Company’s results of operations by segment for the three months ended March 31, 2024 and 2023 are summarized in the tables below:

(In thousands)

Nine Months Ended September 30, 2023

Total revenue

Three Months Ended March 31, 2024

Revenue from external customers

Intercompany revenue

Cost of revenue

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Revaluation of contingent consideration

Restructuring expense

Loss from operations

(In thousands)

Nine Months Ended September 30, 2022

Total revenue

Three Months Ended March 31, 2023

Revenue from external customers

Intercompany revenue

Cost of revenue

3 unchanged sentences

Loss from operations

Intersegment Revenue

Revenue for the contract research segment included $ 4.1 million and $ 3.2 million for services performed on behalf of the therapeutics segment for the three months ended September 30, 2023 and 2022, respectively, and $ 12.1 million and $ 9.3 million for the nine months ended September 30, 2023 and 2022, respectively.

All intersegment revenue has been eliminated in the Company’s condensed consolidated statement of operations.

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.

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 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.

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

What changed 10-Q

Item 1. Financial Statements