Aclaris Therapeutics, Inc. 10-Q

Item 1. Financial Statements ACLARIS THERAPEUTICS, INC. CONDENSED CONSOLIDATED BALANCE SHEET S (Unaudited) ​ (In thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2024 2023 ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 47,651 ​ $ 39,878 Short-term marketable securities ​ 80,071 ​ 79,228 Accounts receivable, net ​ ​ 343 ​ ​ 298 Prepaid expenses and other current assets ​ 4,265 ​ 9,452 Total current assets ​ 132,330 ​ 128,856 Marketable securities ​ 45,714 ​ 62,771 Property and equipment, net ​ 1,133 ​ 1,620 Other assets ​ 3,217 ​ 4,158 Total assets ​ $ 182,394 ​ $ 197,405 Liabilities and Stockholders’ Equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 7,662 ​ $ 8,878 Accrued expenses ​ 4,722 ​ 19,446 Deferred income ​ ​ 3,765 ​ ​ — Other current liabilities ​ ​ 2,667 ​ ​ 2,628 Total current liabilities ​ 18,816 ​ 30,952 Other liabilities ​ ​ 2,245 ​ 3,074 Deferred income, net of current portion ​ ​ 21,182 ​ ​ — Contingent consideration ​ ​ 10,000 ​ ​ 6,200 Total liabilities ​ 52,243 ​ 40,226 Stockholders’ Equity: ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.00001 par value; 10,000,000 shares authorized and no shares issued or outstanding at September 30, 2024 and December 31, 2023 ​ ​ — ​ ​ — Common stock, $ 0.00001 par value; 200,000,000 shares authorized at September 30, 2024 and December 31, 2023; 71,417,513 and 70,894,889 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively ​ 1 ​ 1 Additional paid‑in capital ​ 936,032 ​ 928,080 Accumulated other comprehensive income (loss) ​ 427 ​ ( 106 ) Accumulated deficit ​ ( 806,309 ) ​ ( 770,796 ) Total stockholders’ equity ​ 130,151 ​ 157,179 Total liabilities and stockholders’ equity ​ $ 182,394 ​ $ 197,405 ​ 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 ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2024 2023 2024 2023 Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract research ​ $ 645 ​ $ 705 ​ $ 1,926 ​ $ 2,469 Licensing ​ ​ 3,701 ​ ​ 8,577 ​ ​ 7,583 ​ ​ 11,210 Total revenue ​ ​ 4,346 ​ ​ 9,282 ​ ​ 9,509 ​ ​ 13,679 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenue ​ ​ 654 ​ ​ 848 ​ ​ 2,087 ​ ​ 2,698 Research and development ​ 5,956 ​ ​ 23,876 ​ 24,560 ​ 71,738 General and administrative ​ 5,653 ​ ​ 7,091 ​ 17,249 ​ 24,198 Licensing ​ ​ 1,754 ​ ​ 7,344 ​ ​ 4,070 ​ ​ 8,955 Revaluation of contingent consideration ​ ​ 800 ​ ​ 1,700 ​ ​ 3,800 ​ ​ ( 600 ) Total costs and expenses ​ 14,817 ​ 40,859 ​ 51,766 ​ 106,989 Loss from operations ​ ( 10,471 ) ​ ( 31,577 ) ​ ( 42,257 ) ​ ( 93,310 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ 1,991 ​ 2,316 ​ 5,850 ​ 6,320 Non-cash royalty income ​ ​ 894 ​ ​ — ​ ​ 894 ​ ​ — Total other income ​ ​ 2,885 ​ ​ 2,316 ​ ​ 6,744 ​ ​ 6,320 Net loss ​ $ ( 7,586 ) ​ $ ( 29,261 ) ​ $ ( 35,513 ) ​ $ ( 86,990 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per share, basic and diluted ​ $ ( 0.11 ) ​ $ ( 0.41 ) ​ $ ( 0.50 ) ​ $ ( 1.25 ) Weighted average common shares outstanding, basic and diluted ​ 71,381,731 ​ 70,807,934 ​ 71,249,813 ​ 69,452,495 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain (loss) on marketable securities, net of tax of $ 0 ​ $ 890 ​ $ ( 18 ) ​ $ 533 ​ $ ( 232 ) Total other comprehensive gain (loss) ​ 890 ​ ( 18 ) ​ 533 ​ ( 232 ) Comprehensive loss ​ $ ( 6,696 ) ​ $ ( 29,279 ) ​ $ ( 34,980 ) ​ $ ( 87,222 ) ​ 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 Gain (Loss) Deficit Equity Balance at December 31, 2023 70,894,889 ​ $ 1 ​ $ 928,080 ​ $ ( 106 ) ​ $ ( 770,796 ) ​ $ 157,179 ​ Issuance of common stock in connection with vesting of restricted stock units 353,128 ​ ​ — ​ ​ ( 55 ) ​ ​ — ​ ​ — ​ ​ ( 55 ) ​ Unrealized loss on marketable securities — ​ ​ — ​ ​ — ​ ​ ( 258 ) ​ ​ — ​ ​ ( 258 ) ​ Stock-based compensation expense — ​ ​ — ​ ​ 2,089 ​ ​ — ​ ​ — ​ ​ 2,089 ​ Net loss — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 16,941 ) ​ ​ ( 16,941 ) ​ Balance at March 31, 2024 71,248,017 ​ $ 1 ​ $ 930,114 ​ $ ( 364 ) ​ $ ( 787,737 ) ​ $ 142,014 ​ Issuance of common stock in connection with vesting of restricted stock units 84,808 ​ ​ — ​ ​ ( 10 ) ​ ​ — ​ ​ — ​ ​ ( 10 ) ​ Unrealized loss on marketable securities — ​ ​ — ​ ​ — ​ ​ ( 99 ) ​ ​ — ​ ​ ( 99 ) ​ Stock-based compensation expense — ​ ​ — ​ ​ 2,903 ​ ​ — ​ ​ — ​ ​ 2,903 ​ Net loss — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 10,986 ) ​ ​ ( 10,986 ) ​ Balance at June 30, 2024 71,332,825 ​ $ 1 ​ $ 933,007 ​ $ ( 463 ) ​ $ ( 798,723 ) ​ $ 133,822 ​ Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units 84,688 ​ ​ — ​ ​ 21 ​ ​ — ​ ​ — ​ ​ 21 ​ Unrealized gain on marketable securities — ​ ​ — ​ ​ — ​ ​ 890 ​ ​ — ​ ​ 890 ​ Stock-based compensation expense — ​ ​ — ​ ​ 3,004 ​ ​ — ​ ​ — ​ ​ 3,004 ​ Net loss — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 7,586 ) ​ ​ ( 7,586 ) ​ Balance at September 30, 2024 71,417,513 ​ $ 1 ​ $ 936,032 ​ $ 427 ​ $ ( 806,309 ) ​ $ 130,151 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units 49,252 ​ ​ — ​ ​ ( 86 ) ​ ​ — ​ ​ — ​ ​ ( 86 ) Unrealized loss on marketable securities — ​ ​ — ​ ​ — ​ ​ ( 18 ) ​ ​ — ​ ​ ( 18 ) Stock-based compensation expense — ​ ​ — ​ ​ 5,948 ​ ​ — ​ ​ — ​ ​ 5,948 Net loss — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 29,261 ) ​ ​ ( 29,261 ) Balance at September 30, 2023 70,818,954 ​ $ 1 ​ $ 926,766 ​ $ ( 1,129 ) ​ $ ( 769,305 ) ​ $ 156,333 ​ ​ 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ 2024 2023 Cash flows from operating activities : ​ ​ Net loss ​ $ ( 35,513 ) ​ $ ( 86,990 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 664 ​ 635 Stock-based compensation expense ​ 7,996 ​ 19,276 Revaluation of contingent consideration ​ ​ 3,800 ​ ​ ( 600 ) Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ ( 45 ) ​ ​ 138 Prepaid expenses and other assets ​ 3,744 ​ ( 9,293 ) Accounts payable ​ ( 1,216 ) ​ ( 1,079 ) Accrued expenses and other liabilities ​ ( 15,514 ) ​ 6,349 Deferred income ​ ​ 24,947 ​ ​ — Net cash used in operating activities ​ ( 11,137 ) ​ ( 71,564 ) Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Purchases of property and equipment, net ​ ( 121 ) ​ ( 868 ) Purchases of marketable securities ​ ( 49,555 ) ​ ( 135,675 ) Proceeds from sales and maturities of marketable securities ​ 68,630 ​ 175,213 Net cash provided by investing activities ​ 18,954 ​ 38,670 Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Proceeds from issuance of common stock under the at-the-market sales agreement, net of issuance costs ​ ​ — ​ ​ 26,714 Payments of employee withholding taxes related to restricted stock unit award vesting ​ ​ ( 76 ) ​ ​ ( 102 ) Proceeds from exercise of employee stock options and the issuance of stock ​ ​ 32 ​ ​ 45 Net cash (used in) provided by financing activities ​ ( 44 ) ​ 26,657 Net increase (decrease) in cash and cash equivalents ​ 7,773 ​ ( 6,237 ) Cash and cash equivalents at beginning of period ​ 39,878 ​ 45,277 Cash and cash equivalents at end of period ​ $ 47,651 ​ $ 39,040 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ Additions to property and equipment included in accounts payable ​ $ — ​ $ 376 ​ 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. 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. 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. ​ 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 September 30, 2024, the Company had cash, cash equivalents and marketable securities of $ 173.4 million and an accumulated deficit of $ 806.3 million. Since inception, the Company has incurred net losses and negative cash flows from its operations. 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 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 potentially worsening global economic conditions caused by a variety of factors including geopolitical tensions and inflationary pressures. If the Company is unable to raise sufficient additional capital or generate revenue from transactions with potential third-party partners for the development and/or commercialization of its drug candidates, it may need to substantially curtail planned operations. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. ​ In accordance with Accounting Standards Codification (“ASC”) Subtopic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that its 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 September 30, 2024, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023, the condensed consolidated statement of stockholders’ equity for the three and nine months ended September 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 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 September 30, 2024, the results of its operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023, its changes in stockholders’ equity for the three and nine months ended September 30, 2024 and 2023 and its cash flows for the nine months ended September 30, 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, 2024 and 2023 are unaudited. The results for the three and nine months ended September 30, 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. 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, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2024. ​ 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 nature and size of 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 ​ Significant Accounting Policies ​ The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2024. There have been no changes to the Company’s existing significant accounting policies from those disclosed in the annual report. ​ Contingent Consideration ​ The Company records a contingent consideration liability related to future potential payments resulting from the acquisition of Confluence Life Sciences, Inc. (now known as Aclaris Life Sciences, Inc.) (“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. 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 17 % and 40 % at September 30, 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. The discount rate ranged between 6.6 % and 7.9 % 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. ​ Contract Research Revenue ​ 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 8 Table of Contents 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. 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. Deferred Income Related to the Sale of Future Royalties ​ The Company amortizes its deferred income liability related to the sale of future OLUMIANT® (baricitinib) royalties under the units-of-revenue method by computing a ratio of the proceeds received to the total expected payments over the term of the royalty purchase agreement and then applying that ratio to the period’s estimated cash payment (see Note 11). The amortization is based on the Company’s current estimate of future royalty payments. ​ Discontinued Operations ​ As of September 30, 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ 9 Table of Contents 3. Fair Value of Financial Assets and Liabilities ​ The following tables present information about the fair value measurements of the Company’s financial assets and liabilities which are measured at fair value on a recurring and non-recurring basis, and indicate the level of the fair value hierarchy utilized to determine such fair values: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2024 (In thousands) Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ Cash equivalents ​ $ 45,450 ​ $ — ​ $ — ​ $ 45,450 Marketable securities ​ — ​ ​ 125,785 ​ ​ — ​ ​ 125,785 Total assets ​ $ 45,450 ​ $ 125,785 ​ $ — ​ $ 171,235 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration ​ $ — ​ $ — ​ $ 10,000 ​ $ 10,000 Total liabilities ​ $ — ​ $ — ​ $ 10,000 ​ $ 10,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (In thousands) Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ Cash equivalents ​ $ 32,177 ​ $ — ​ $ — ​ $ 32,177 Marketable securities ​ — ​ ​ 141,999 ​ ​ — ​ ​ 141,999 Total assets ​ $ 32,177 ​ $ 141,999 ​ $ — ​ $ 174,176 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration ​ $ — ​ $ — ​ $ 6,200 ​ $ 6,200 Total liabilities ​ $ — ​ $ — ​ $ 6,200 ​ $ 6,200 ​ As of September 30, 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 September 30, 2024 consisted of 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, 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. ​ 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 nine months ended September 30, 2024 and 2023, there were no transfers into or out of Level 3. ​ The overall $ 3.8 million increase in the fair value of the contingent consideration liability during the nine months ended September 30, 2024 was primarily due to changes in estimated sales levels, changes to the probability of success for certain drug candidates, and the passage of time. 10 Table of Contents ​ As of September 30, 2024 and December 31, 2023, the fair value of the Company’s available-for-sale marketable securities by type of security was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2024 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Book ​ Unrealized ​ Unrealized ​ Fair (In thousands) ​ Value ​ Gain ​ Loss ​ Value Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities (1) ​ $ 73,258 ​ $ 414 ​ $ ( 36 ) ​ $ 73,636 Asset-backed debt securities ​ ​ 4,981 ​ ​ — ​ ​ ( 3 ) ​ ​ 4,978 Foreign government agency debt securities ​ ​ 4,872 ​ ​ 32 ​ ​ — ​ ​ 4,904 U.S. government and government agency debt securities (2) ​ ​ 42,246 ​ ​ 63 ​ ​ ( 42 ) ​ ​ 42,267 Total marketable securities ​ $ 125,357 ​ $ 509 ​ $ ( 81 ) ​ $ 125,785 (1) Included in Corporate debt securities is $ 40.5 million with maturity dates between one and two years . ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (2) Included in U.S. government and government agency debt securities is $ 5.1 million with maturity dates between one and two years . ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Book ​ Unrealized ​ Unrealized ​ Fair (In thousands) ​ Value ​ Gain ​ Loss ​ Value Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities (1) ​ $ 52,362 ​ $ 65 ​ $ ( 142 ) ​ $ 52,285 Commercial paper ​ ​ 12,345 ​ ​ 2 ​ ​ ( 1 ) ​ ​ 12,346 Asset-backed debt securities (2) ​ ​ 10,953 ​ ​ 42 ​ ​ ( 30 ) ​ ​ 10,965 Foreign government agency debt securities (3) ​ ​ 4,698 ​ ​ 43 ​ ​ — ​ ​ 4,741 U.S. government and government agency debt securities (4) ​ ​ 61,750 ​ ​ 8 ​ ​ ( 96 ) ​ ​ 61,662 Total marketable securities ​ $ 142,108 ​ $ 160 ​ $ ( 269 ) ​ $ 141,999 (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 $ 23.9 million with maturity dates between one and two years . ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4. Property and Equipment, Net ​ Property and equipment, net consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ December 31, (In thousands) ​ 2024 ​ 2023 Computer equipment $ 1,198 $ 1,253 Lab equipment ​ ​ 3,137 ​ ​ 3,154 Furniture and fixtures ​ ​ 661 ​ ​ 558 Leasehold improvements ​ ​ 817 ​ ​ 817 Property and equipment, gross ​ 5,813 ​ 5,782 Accumulated depreciation ​ ( 4,680 ) ​ ( 4,162 ) Property and equipment, net ​ $ 1,133 ​ $ 1,620 ​ Depreciation expense was $ 0.2 million for each of the three months ended September 30, 2024 and 2023, and $ 0.6 million for each of the nine months ended September 30, 2024 and 2023. ​ ​ 11 Table of Contents ​ 5. Accrued Expenses ​ Accrued expenses consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (In thousands) 2024 2023 Employee compensation expenses ​ $ 2,603 ​ $ 3,910 Research and development expenses ​ ​ 124 ​ ​ 6,661 Licensing expenses ​ ​ 1,084 ​ ​ 5,478 Restructuring expenses (Note 13) ​ ​ 502 ​ ​ 3,112 Other expenses ​ 409 ​ 285 Total accrued expenses ​ $ 4,722 ​ $ 19,446 ​ ​ 6. Stockholders’ Equity ​ Preferred Stock ​ As of September 30, 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 September 30, 2024 or December 31, 2023. ​ Common Stock ​ As of September 30, 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 71,417,513 and 70,894,889 shares of common stock issued and outstanding as of September 30, 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, 2024. ​ 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. ​ 7. 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 12 Table of Contents common stock available for issuance under the 2015 Plan. 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, 2024, 4,440,792 shares remained available for grant under the 2015 Plan. The Company had 5,778,988 stock options and 3,071,776 RSUs outstanding as of September 30, 2024 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 329,000 stock options outstanding as of September 30, 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 337,244 stock options outstanding as of September 30, 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, 2024 and 2023 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ ​ 2024 ​ ​ 2023 ​ Risk-free interest rate 3.85 % ​ 3.53 % Expected term (in years) 6.0 ​ ​ 6.2 ​ Expected volatility 81.95 % ​ 77.73 % Expected dividend yield 0 % ​ 0 % ​ 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 nine months ended September 30, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2023 6,419,455 ​ $ 15.94 7.1 ​ $ 14 Granted 1,982,700 ​ ​ 1.19 ​ ​ ​ ​ ​ Exercised ​ ( 43,548 ) ​ ​ 0.72 ​ ​ ​ ​ 19 Forfeited and cancelled ( 1,913,375 ) ​ ​ 14.82 ​ ​ ​ ​ ​ Outstanding as of September 30, 2024 6,445,232 ​ $ 11.85 ​ 6.9 ​ $ 13 Options vested and expected to vest as of September 30, 2024 6,445,232 ​ $ 11.85 ​ 6.9 ​ $ 13 Options exercisable as of September 30, 2024 3,512,137 ​ $ 15.40 5.4 ​ $ 3 ​ 13 Table of Contents The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2024 was $ 0.86 per share. ​ Restricted Stock Units ​ The following table summarizes RSU activity for the nine months ended September 30, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2023 ​ 1,521,940 ​ $ 15.72 ​ ​ ​ Granted ​ 2,648,642 ​ ​ 1.20 ​ ​ ​ Vested ​ ( 542,846 ) ​ ​ 12.43 ​ $ 647 Forfeited and cancelled ​ ( 555,960 ) ​ ​ 12.54 ​ ​ ​ Outstanding as of September 30, 2024 ​ 3,071,776 ​ $ 4.37 ​ ​ ​ ​ 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 ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) 2024 2023 2024 2023 Cost of revenue $ 232 $ 347 $ 707 $ 1,119 ​ Research and development ​ ​ 1,124 ​ ​ 3,072 ​ ​ 2,192 ​ ​ 9,168 ​ General and administrative ​ 1,648 ​ 2,529 ​ 5,097 ​ 8,989 ​ Total stock-based compensation expense ​ $ 3,004 ​ $ 5,948 ​ $ 7,996 ​ $ 19,276 ​ ​ As of September 30, 2024, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 11.5 million and $ 9.3 million, respectively, which is expected to be recognized over weighted average periods of 2.1 years and 1.9 years, respectively. ​ 8. Net Loss per Share ​ Basic and diluted net loss per share is summarized in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands, except for share and per share data) ​ 2024 ​ 2023 2024 2023 ​ Numerator: ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 7,586 ) ​ $ ( 29,261 ) ​ $ ( 35,513 ) ​ $ ( 86,990 ) ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares of common stock outstanding, basic and diluted ​ 71,381,731 ​ 70,807,934 ​ 71,249,813 ​ 69,452,495 ​ Net loss per share, basic and diluted ​ $ ( 0.11 ) ​ $ ( 0.41 ) ​ $ ( 0.50 ) ​ $ ( 1.25 ) ​ ​ ​ ​ ​ ​ ​ 14 Table of Contents 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, 2024 and 2023. All share amounts presented in the table below represent the total number outstanding as of September 30, 2024 and 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ ​ 2024 ​ 2023 Options to purchase common stock ​ 6,445,232 ​ 7,122,455 ​ Restricted stock unit awards ​ 3,071,776 ​ 1,707,190 ​ Total potential shares of common stock ​ 9,517,008 ​ 8,829,645 ​ ​ ​ 9. Leases ​ Operating Leases ​ 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, 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 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. The lease commenced in June 2019 and has a term that runs through May 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. The Company exercised its option to terminate the leasing of the additional space effective as of June 30, 2024. ​ Supplemental balance sheet information related to operating leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (In thousands) ​ 2024 ​ 2023 Operating Leases: ​ ​ ​ ​ ​ ​ Gross cost ​ $ 4,530 ​ $ 5,094 Accumulated amortization ​ ​ ( 1,556 ) ​ ​ ( 1,235 ) Other assets ​ $ 2,974 ​ $ 3,859 ​ ​ ​ ​ ​ ​ ​ Current portion of lease liabilities ​ $ 465 ​ $ 426 Other liabilities ​ ​ 2,245 ​ ​ 3,074 Total operating lease liabilities ​ $ 2,710 ​ $ 3,500 ​ Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 0.1 million and $ 0.2 million for the three months ended September 30, 2024 and 2023, respectively, and $ 0.4 million and $ 0.7 million for the nine months ended September 30, 2024 and 2023, respectively. ​ 10. Agreements Related to Intellectual Property ​ 15 Table of Contents 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. We recognized $ 3.0 million of licensing revenue during each of the three and nine months ended September 30, 2024. ​ 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 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 ​ 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 paid the Company an upfront payment, and regulatory and certain commercial milestone payments, and 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. In July 2024, the Company entered into a royalty purchase agreement with OCM IP Healthcare Portfolio LP, an investment vehicle for Ontario Municipal Employees Retirement System (“OMERS”), pursuant to which the Company sold to OMERS a portion of the Company’s future royalty payments and the remaining anniversary milestones associated with the license to Lilly (see Note 11). ​ The Company recognized $ 0.7 million and $ 8.3 million of licensing revenue during the three months ended September 30, 2024 and 2023, respectively, and $ 4.6 million and $ 10.7 million during the nine months ended September 30, 2024 and 2023, respectively. The Company recognized $ 0.9 million of non-cash royalty income during each of the three and nine months ended September 30, 2024. ​ 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. 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 16 Table of Contents 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. ​ Agreement and Plan of Merger – Confluence ​ In August 2017, the Company entered into an Agreement and Plan of Merger, pursuant to which it acquired Confluence (the “Confluence Agreement”). Under the Confluence Agreement, the Company 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 September 30, 2024 and December 31, 2023, the balance of the Company’s contingent consideration liability was $ 10.0 million and $ 6.2 million, respectively (see Note 3). ​ 11. Sale of Future Royalties ​ In July 2024, the Company entered into a royalty purchase agreement with OMERS. Under the royalty purchase agreement, the Company sold to OMERS a portion of the Company’s future royalty payments and the remaining anniversary milestones associated with the Company’s existing license to Lilly relating to OLUMIANT® (baricitinib) for the treatment of alopecia areata. ​ Under the terms of the royalty purchase agreement, the Company received an upfront payment of $ 26.5 million and is eligible to receive up to an additional $ 5.0 million based on the achievement of certain sales milestones for OLUMIANT in 2024. In exchange for these payments, OMERS acquired a portion of the royalty payable by Lilly to the Company for worldwide net sales of OLUMIANT for the treatment of alopecia areata from April 1, 2024 through the remainder of the royalty term under the Company’s license agreement with Lilly, and 100 % of the remaining anniversary milestone payments payable by Lilly to the Company under the license agreement. ​ The Company evaluated the arrangement and concluded that the proceeds from the sale of future royalties should be recorded as deferred income on the condensed consolidated balance sheet, as the criteria for debt classification were not met in accordance with ASC Topic 470. In particular, the Company does not have significant continuing involvement in the generation of the cash flows due to OMERS and there are no guaranteed rates of return to OMERS . The Company recognizes non-cash royalty income under the “units-of-revenue” method in the condensed consolidated statements of operations and comprehensive loss. The Company initially recorded $ 0.7 million as a receivable for royalties earned in the second quarter of 2024 and recorded $ 25.8 million as deferred income related to the sale of future royalties. For each of the three and nine months ended September 30, 2024, the Company recognized $ 0.9 million of non-cash royalty income. As of September 30, 2024, the current and non-current portions of the remaining deferred income recognized under the units-of-revenue method were $ 3.8 million and $ 21.2 million, respectively. ​ 12. Income Taxes ​ 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, 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. ​ 17 Table of Contents 13. Restructuring Charges ​ In December 2023, the Company’s board of directors approved a reduction of the Company’s workforce by approximately 46 %, which was substantially completed as of June 30, 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 three and nine months ended September 30, 2024, the Company recognized severance expense of $ 26 thousand and $ 2.6 million, respectively. During the nine months ended September 30, 2024, the Company made cash severance payments of $ 5.2 million to impacted employees. ​ 14. 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 and earns revenue through licensing of the Company’s intellectual property. The contract research segment earns revenue from the provision of laboratory services. 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. ​ 18 Table of Contents The Company’s results of operations by segment for the three and nine months ended September 30, 2024 and 2023 are summarized in the tables below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Three Months Ended September 30, 2024 ​ Therapeutics ​ Research ​ and Other ​ Company Revenue from external customers ​ $ 3,701 ​ $ 645 ​ $ — ​ $ 4,346 Intercompany revenue ​ ​ — ​ ​ 3,035 ​ ​ ( 3,035 ) ​ ​ — Cost of revenue ​ ​ — ​ ​ 3,485 ​ ​ ( 2,831 ) ​ ​ 654 Research and development ​ ​ 6,129 ​ ​ — ​ ​ ( 205 ) ​ ​ 5,924 General and administrative ​ ​ — ​ ​ 905 ​ ​ 4,748 ​ ​ 5,653 Licensing ​ ​ 1,754 ​ ​ — ​ ​ — ​ ​ 1,754 Revaluation of contingent consideration ​ ​ 800 ​ ​ — ​ ​ — ​ ​ 800 Restructuring expense ​ ​ 32 ​ ​ — ​ ​ — ​ ​ 32 Loss from operations ​ $ ( 5,014 ) ​ $ ( 710 ) ​ $ ( 4,747 ) ​ $ ( 10,471 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Three Months Ended September 30, 2023 ​ Therapeutics ​ Research ​ and Other ​ Company Revenue from external customers ​ $ 8,577 ​ $ 705 ​ $ — ​ $ 9,282 Intercompany revenue ​ ​ — ​ ​ 4,112 ​ ​ ( 4,112 ) ​ ​ — Cost of revenue ​ ​ — ​ ​ 4,726 ​ ​ ( 3,878 ) ​ ​ 848 Research and development ​ ​ 24,110 ​ ​ — ​ ​ ( 234 ) ​ ​ 23,876 General and administrative ​ ​ — ​ ​ 1,174 ​ ​ 5,917 ​ ​ 7,091 Licensing ​ ​ 7,344 ​ ​ — ​ ​ — ​ ​ 7,344 Revaluation of contingent consideration ​ ​ 1,700 ​ ​ — ​ ​ — ​ ​ 1,700 Loss from operations ​ $ ( 24,577 ) ​ $ ( 1,083 ) ​ $ ( 5,917 ) ​ $ ( 31,577 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Nine Months Ended September 30, 2024 ​ Therapeutics ​ Research ​ and Other ​ Company Revenue from external customers ​ $ 7,583 ​ $ 1,926 ​ $ — ​ $ 9,509 Intercompany revenue ​ ​ — ​ ​ 10,122 ​ ​ ( 10,122 ) ​ ​ — Cost of revenue ​ ​ — ​ ​ 11,346 ​ ​ ( 9,476 ) ​ ​ 1,870 Research and development ​ ​ 23,555 ​ ​ — ​ ​ ( 645 ) ​ ​ 22,910 General and administrative ​ ​ — ​ ​ 3,033 ​ ​ 13,184 ​ ​ 16,217 Licensing ​ ​ 4,070 ​ ​ — ​ ​ — ​ ​ 4,070 Revaluation of contingent consideration ​ ​ 3,800 ​ ​ — ​ ​ — ​ ​ 3,800 Restructuring expense ​ ​ 1,650 ​ ​ 217 ​ ​ 1,032 ​ ​ 2,899 Loss from operations ​ $ ( 25,492 ) ​ $ ( 2,548 ) ​ $ ( 14,217 ) ​ $ ( 42,257 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ ​ ​ Contract ​ Corporate ​ Total Nine Months Ended September 30, 2023 ​ Therapeutics ​ Research ​ and Other ​ Company Revenue from external customers ​ $ 11,210 ​ $ 2,469 ​ $ — ​ $ 13,679 Intercompany revenue ​ ​ — ​ ​ 12,122 ​ ​ ( 12,122 ) ​ ​ — Cost of revenue ​ ​ — ​ ​ 14,068 ​ ​ ( 11,370 ) ​ ​ 2,698 Research and development ​ ​ 72,490 ​ ​ — ​ ​ ( 752 ) ​ ​ 71,738 General and administrative ​ ​ — ​ ​ 3,490 ​ ​ 20,708 ​ ​ 24,198 Licensing ​ ​ 8,955 ​ ​ — ​ ​ — ​ ​ 8,955 Revaluation of contingent consideration ​ ​ ( 600 ) ​ ​ — ​ ​ — ​ ​ ( 600 ) Loss from operations ​ $ ( 69,635 ) ​ $ ( 2,967 ) ​ $ ( 20,708 ) ​ $ ( 93,310 ) ​ ​ ​ ​ ​ 19 Table of Contents ​