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Item 8. Financial Statements and Supplementary Data

2025-02-27 compared with 2024-02-27 · 219 added, 221 removed, 561 unchanged (44% of the section changed)

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To the Board of Directors and Stockholders of Aclaris Therapeutics, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Aclaris Therapeutics, Inc.

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely

detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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Changes in the fair value of the contingent consideration are recorded as income or expense in the Company’s consolidated statement of operations and comprehensive loss.

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

Significant assumptions used in management’s estimates include the probability of achieving

regulatory milestones and commencing commercialization, which are based upon an asset’s current stage of development and review of existing clinical data.

The principal considerations for our determination that performing procedures relating to the fair value of the contingent consideration liability is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate, which in turn led to (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the probability of achieving regulatory milestones and commencing commercialization.

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Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s contingent consideration evaluation, including controls over the valuation of the Company’s contingent consideration liability.

These procedures also included, among others, (i) testing management’s process for developing the fair value of the contingent consideration liability, (ii) evaluating the appropriateness of the probability-weighted expected payment and Monte Carlo simulation valuation models, (iii) testing the completeness and accuracy of the underlying data used in the models, and (iv) evaluating the reasonableness of the significant assumptions used by management related to the probability of achieving regulatory milestones and commencing commercialization.

These procedures included, among others, (i) testing management’s process for developing the fair value of the contingent consideration liability, (ii) evaluating the appropriateness of the probability weighted expected payment and Monte Carlo simulation valuation models, (iii) testing the completeness and accuracy of the underlying data used in the models, and (iv) evaluating the reasonableness of the significant assumptions used by management related to the probability of achieving regulatory milestones and commencing commercialization.

Evaluating management’s assumptions related to the probability of achieving regulatory milestones and commencing commercialization involved evaluating whether the assumptions were reasonable considering the agreements associated with the transaction as well as the consistency with industry information, the stage of product development and whether the assumptions were consistent with evidence obtained in other areas of the audit.

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Property and equipment, net

Intangible assets

Liabilities and Stockholders’ Equity

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Accrued expenses

Current portion of lease liabilities

Discontinued operations

Deferred income

Other current liabilities

Total current liabilities

Other liabilities

Deferred income, net of current portion

Contingent consideration

Deferred tax liability

Total liabilities

Commitments and contingencies (Note 17)

Stockholders’ Equity:

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Common stock, $ 0.00001 par value;

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

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

107,850,124 and 70,894,889 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively

Additional paid‑in capital

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Accumulated deficit

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Revaluation of contingent consideration

Intangible asset impairment

In-process research and development

Total costs and expenses

Loss from operations

Other income (expense), net

Other income:

Interest income

Non-cash royalty income

Total other income

Loss before income taxes

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Weighted average common shares outstanding, basic and diluted

Other comprehensive loss:

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

Foreign currency translation adjustment

Total other comprehensive gain (loss)

Other comprehensive income:

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

Total other comprehensive income

Comprehensive loss

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Stockholders’

Balance at December 31, 2020

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

Issuance of common stock in connection with public offerings, net of offering costs of $ 15,910

Unrealized loss on marketable securities

Foreign currency translation adjustment

Stock-based compensation expense

Income (Loss)

Balance at December 31, 2022

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

Unrealized loss on marketable securities

Unrealized gain on marketable securities

Stock-based compensation expense

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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

Issuance of common stock under securities purchase agreement, net of offering costs of $ 5,087

Issuance of common stock purchase warrants

Unrealized gain on marketable securities

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Revaluation of contingent consideration

Loss on extinguishment of debt

Intangible asset impairment charge

In-process research and development expense

Deferred taxes

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Accounts payable

Accrued expenses

Accrued expenses and other liabilities

Deferred income

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Purchases of property and equipment, net

Purchases of marketable securities

Proceeds from sales and maturities of marketable securities

Net cash provided by (used in) investing activities

Acquisition of in-licensed assets, including transaction costs

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock in connection with public offerings, net of issuance costs

Proceeds from issuance of common stock under securities purchase agreement, net of issuance costs

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

Repayment of debt

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

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

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 decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

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Supplemental disclosure of non-cash investing and financing activities:

Additions to property and equipment included in accounts payable

Fair value of warrants issued in connection with in-license agreement

Deferred transaction consideration in connection with in-license agreement

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

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was incorporated under the laws of the State of Delaware in 2012.

In August 2017, Confluence Life Sciences, Inc.

(now known as Aclaris Life Sciences, Inc.) (“Confluence”) was acquired by Aclaris Therapeutics, Inc.

and became a wholly owned subsidiary thereof.

Aclaris Therapeutics, Inc.

and its wholly owned subsidiaries are referred to collectively as the “Company.”

The Company is a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-inflammatory diseases.

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 is a clinical-stage biopharmaceutical company focused on developing novel small and large molecule product 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 product candidates that it may develop independently or in collaboration with third parties.

In addition to identifying and developing its novel product 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 product candidates.

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

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Since inception, the Company has incurred net losses and negative cash flows from its operations.

Prior to the acquisition of Confluence in August 2017, the Company had never generated revenue.

There can be no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis.

In addition, development activities, including clinical and preclinical testing of the Company’s drug candidates, will require significant additional financing.

The future viability of the Company is dependent on its ability to successfully develop its drug candidates and to generate revenue from identifying and consummating transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize its development assets or to raise additional capital to finance its operations.

The Company will require additional capital to develop its drug candidates and to support its discovery efforts.

In addition, development activities, including clinical and preclinical testing of the Company’s product candidates, will require significant additional financing.

The future viability of the Company is dependent on its ability to successfully develop its product 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 product 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, 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.

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 product 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.

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The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”).

The consolidated financial statements of the Company include the accounts of the operating parent company, Aclaris Therapeutics, Inc., and its wholly owned subsidiaries.

The consolidated financial statements of the Company include the

accounts of the operating parent company, Aclaris Therapeutics, Inc., and its wholly owned subsidiaries.

All intercompany transactions have been eliminated.

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

Discontinued Operations

In September 2019, the Company announced the completion of a strategic review and its decision to refocus its resources on its immuno-inflammatory development programs and to actively seek partners for its commercial products.

As of December 31, 2023 and 2022, the Company had $ 2.2 million in accrued expenses reported as discontinued operations in the Company’s consolidated balance sheet.

Use of Estimates

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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.

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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.

Under ASC Topic 606, the Company elected to apply the “right to invoice” practical expedient when recognizing contract research revenue and as such, recognizes revenue in the amount which it has the right to invoice.

ASC Topic 606 also provides an optional exemption, which the Company has elected to apply, from disclosing remaining performance obligations when revenue is recognized from the satisfaction of the performance obligation in accordance with the “right to invoice” practical expedient.

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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 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 13).

The amortization is based on the Company’s current estimate of future royalty payments.

Cash Equivalents

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Unrealized gains and losses are reported as a separate component of stockholders’ equity.

The cost of securities sold is determined on a specific identification basis, and realized gains and losses, if any, are included in other expense, net within the consolidated statement of operations and comprehensive loss.

The cost of securities sold is determined on a specific identification basis, and realized gains and losses, if any, are included in other income within the consolidated statement of operations and comprehensive loss.

If any adjustment to fair value reflects a decline in the value of the investment, the Company considers available evidence to evaluate the extent to which the decline is “other than temporary” and reduces the investment to fair value through a charge to the statement of operations and comprehensive loss.

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Expenditures for repairs and maintenance of assets are charged to expense as incurred.

Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from continuing operations.

Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.

Impairment of Long-Lived Assets

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If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value.

An impairment loss would be recognized

when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount.

An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount.

The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.

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Intangible assets include both definite-lived and indefinite-lived assets.

Definite-lived intangible assets consist of a drug discovery platform the Company acquired through the acquisition of Confluence.

Definite-lived intangible assets consist of

a drug discovery platform the Company acquired through the acquisition of Confluence Life Sciences, Inc.

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

Definite-lived intangible assets are amortized over their estimated useful life based on the pattern over which the intangible assets are consumed or otherwise used up.

If that pattern cannot be reliably determined, the straight-line method of amortization is used.

Indefinite-lived intangible assets consisted of an in-process research and development (“IPR&D”) drug candidate acquired through the acquisition of Confluence.

Indefinite-lived intangible assets consisted of an in-process research and development (“IPR&D”) product candidate acquired through the acquisition of Confluence.

IPR&D assets are considered indefinite-lived until the completion or abandonment of the associated research and development efforts.

The cost of IPR&D is either amortized over its estimated useful life beginning when the underlying drug candidate is approved and launched commercially, or expensed immediately if development of the drug candidate is abandoned or otherwise impaired.

The cost of IPR&D is either amortized over its estimated useful life beginning when the underlying product candidate is approved and launched commercially, or expensed immediately if development of the product candidate is abandoned or otherwise impaired.

Definite-lived intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

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The Company recognizes impairment losses when and to the extent that the estimated fair value of an intangible asset is less than its carrying value.

During the quarter ended December 31, 2023, the Company performed an impairment analysis on the IPR&D intangible asset due to the Company’s decision to discontinue further development of the drug candidate in immuno-inflammatory diseases.

The Company’s impairment analysis resulted in a fair value of the IPR&D intangible asset which was less than the carrying value.

As a result, the Company recorded an impairment charge of $ 6.6 million, the full balance of the IPR&D intangible asset.

Discontinued Operations

As of December 31, 2024 and 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.

Leases represent a company’s right to use an underlying asset and a corresponding obligation to make payments to a lessor for the right to use those assets.

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Right-of-use assets are included in other assets on the Company’s consolidated balance sheet for operating leases.

Obligations for lease payments are included in current portion of lease liabilities and other liabilities on the Company’s consolidated balance sheet for operating leases.

Obligations for lease payments are included in other current liabilities and other liabilities on the Company’s consolidated balance sheet for operating leases.

Contingent Consideration

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.

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.

Revaluation of the contingent consideration liability can

result from changes to one or more of these assumptions.

The Company evaluates the fair value estimate of the contingent consideration liability on a quarterly basis with changes, if any, recorded as income or expense in the consolidated statement of operations.

Revaluation of the contingent consideration liability can result from changes to one or more of these assumptions.

The Company evaluates the fair value estimate of the contingent

consideration liability on a quarterly basis with changes, if any, recorded as income or expense in the consolidated statement of operations.

The fair value of contingent consideration is estimated using a probability-weighted expected payment model for regulatory milestone payments and a Monte Carlo simulation model for commercial milestone and royalty payments and 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.

The probability of success assumption was 35 % at December 31, 2023.

Probability of success assumptions ranged between 17 % and 40 % at December 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.

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The Company’s historical estimates for research and development costs have not been materially different from the actual costs.

In November 2024, the Company entered into an exclusive license agreement with Biosion, Inc.

(“Biosion”) (as described in Note 12).

This transaction has been accounted for as an asset acquisition in accordance with the Financial Accounting Standards Board (“FASB”) ASC 805-50, rather than a business combination.

Cash payments and issuances of equity instruments for IPR&D, as well as future payments, are initially treated as the acquisition of an asset but then immediately expensed as there is no future alternative use under the accounting guidance for the asset.

These payments are reflected as IPR&D expense on the Company’s consolidated statements of operations and comprehensive loss.

The Company accounted for the transaction as an asset acquisition because substantially all of the fair value of the assets acquired is concentrated in a single asset.

ASC 805-10-55-5A, which sets forth a screen test, provides that if substantially all of the fair value of assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the assets acquired are not a business.

Stock-Based Compensation

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The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

Historically, the Company estimated expected volatility based on historical volatility of a set of peer companies, which are publicly traded.

Starting in 2022, the Company estimated expected volatility based on its stock price's historical volatility, as the Company determined that it had adequate historical data regarding the volatility of its own publicly-traded stock price.

The Company estimates expected volatility based on its stock price's historical volatility, as the Company has determined that it has adequate historical data regarding the volatility of its own publicly-traded stock price.

The expected term of the Company’s stock options has been determined using the “simplified” method for awards that qualify as “plain vanilla” options.

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Basic net loss per share is computed using the weighted average number of common shares outstanding during the period.

Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period, plus the weighted average number of potential shares of common stock from the assumed exercise of stock options and warrants and the assumed vesting of RSUs, if dilutive.

Since the Company was in a net loss position, basic and diluted net loss per share was the same for each of the periods presented.

exercise of stock options and the assumed vesting of RSUs, if dilutive.

Since the Company was in a net loss position, basic and diluted net loss per share were the same for each of the periods presented.

Fair Value Measurements

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Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

● Level 1 — Quoted prices in active markets for identical assets or liabilities.

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Segment Reporting

Operating segments are components of a company for which separate financial information is available and evaluated regularly by the chief operating decision maker in assessing performance and deciding how to allocate resources.

Operating segments are components of a company for which separate financial information is available and evaluated regularly by the chief operating decision maker (“CODM”) in assessing performance and deciding how to allocate resources.

The Company has two reportable segments, therapeutics and contract research.

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

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 does not report asset information by segment because it is not regularly provided to the CODM, and all of the Company’s assets are held in the United States.

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 November 2024, the FASB issued Accounting Standards Update (“ASU”) No.

2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.” This standard requires disclosure of additional information about specific expense categories in the notes to financial statements on an annual and interim basis.

This ASU becomes effective for annual periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027.

The Company is currently assessing the impact of this ASU.

In December 2023, the FASB issued ASU No.

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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.

This ASU becomes effective for annual periods beginning after December 15, 2024.

The Company is currently assessing the impact of this ASU.

In November 2023, the FASB issued 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.

The Company adopted ASU No.

2023-07 effective December 31, 2024, on a retrospective basis, the impact of which is limited to additional segment expense disclosures in the notes to the Company’s consolidated financial statements.

Fair Value of Financial Assets and Liabilities

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

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

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

The Company’s marketable securities as of December 31, 2022 consisted of commercial paper and corporate debt, asset-backed debt and U.S.

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

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During the years ended December 31, 2024 and 2023, there were no transfers into or out of Level 3.

The decrease in contingent consideration of $ 26.9 million during the year ended December 31, 2023 primarily resulted from the removal of estimated sales of zunsemetinib for moderate to severe rheumatoid arthritis, moderate to severe hidradenitis suppurativa and moderate to severe psoriatic arthritis, following the Company’s decision to discontinue further development of its MK2 inhibitor programs in immuno-inflammatory diseases.

This decrease was partially offset by lower discount rates resulting from lower risk-free rates and changes in credit spreads, as well as the passage of time.

The overall $ 2.5 million increase in the fair value of the contingent consideration liability during the year ended December 31, 2024 was primarily due to changes in estimated sales levels, changes to the probability of success for certain product candidates and the passage of time, offset by changes in market rates.

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

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Commercial paper

Asset-backed debt securities (2)

Foreign government agency debt securities

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Total marketable securities

(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 .

(1) Included in Corporate debt securities is $ 59.8 million with maturity dates between one and three years .

(2) Included in U.S.

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

government and government agency debt securities is $ 30.5 million with maturity dates between one and three years .

December 31, 2023

4 unchanged sentences

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

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Property and equipment, net

Depreciation expense was $ 0.8 million, $ 0.7 million and $ 0.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Intangible Assets

Intangible assets consisted of the following:

Accumulated Amortization

(In thousands, except years)

Other intangible assets

In-process research and development

Total intangible assets

Amortization expense was $ 75 thousand for each of the years ended December 31, 2023, 2022 and 2021.

As of December 31, 2023, estimated future amortization expense was as follows:

(In thousands)

Depreciation expense was $ 0.7 million and $ 0.8 million for the years ended December 31, 2024 and 2023, respectively.

Accrued Expenses

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Research and development expenses

Deferred transaction consideration

Licensing expenses

Restructuring expenses (Note 15)

Other expenses

Total accrued expenses

Loan and Security Agreement – Silicon Valley Bank

In March 2020, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”).

The Loan and Security Agreement provided for $ 11.0 million in term loans, of which the Company borrowed the entire amount on March 30, 2020.

In connection with the Loan and Security Agreement, the Company issued to SVB a warrant to purchase up to 460,251 shares of common stock (the “Warrant”) (see Note 8).

The proceeds of the Loan and Security Agreement were allocated to the term loan and Warrant using a relative fair value approach.

In July 2021, the Company repaid in full the $ 11.0 million that was outstanding under the Loan and Security Agreement, together with all accrued and unpaid interest and fees as of the payoff date, for a total payment of $ 11.7 million.

Following this repayment, all of the Company’s obligations under the Loan and Security Agreement are deemed to be terminated, except as set forth in the agreement.

Stockholders’ Equity

Preferred Stock

As of December 31, 2023 and 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.

As of December 31, 2024 and 2023, the Company’s amended and restated certificate of incorporation (as amended, 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 December 31, 2024 and 2023.

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 December 31, 2023 and 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.

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

There were 107,850,124 and 70,894,889 shares of common stock issued and outstanding as of December 31, 2024 and 2023, respectively.

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No dividends have been declared through December 31, 2024.

The Warrant issued to SVB in March 2020 had an initial exercise price of $ 0.956 per share, subject to adjustment as provided in the Warrant.

The Warrant became immediately exercisable in full upon the funding of the term loan facility.

The Company assigned a fair value of $ 0.4 million to the Warrant using a Black-Scholes valuation methodology, and also concluded that the Warrant was indexed to its own stock and therefore classified the Warrant as an equity instrument.

In January 2021, SVB net exercised the Warrant in full, and the Company issued to SVB 388,119 shares of common stock.

January 2021 Public Offering

In January 2021, the Company closed a public offering in which it sold 6,306,271 shares of common stock at a price to the public of $ 17.50 per share, for aggregate gross proceeds of $ 110.4 million.

The Company paid underwriting discounts and commissions of $ 6.6 million, and also incurred expenses of $ 0.4 million in connection with the offering.

As a result, the net offering proceeds received by the Company, after deducting underwriting discounts, commissions and offering expenses, were $ 103.3 million.

June 2021 Public Offering

In June 2021, the Company closed a public offering in which it sold 8,098,592 shares of common stock at a price to the public of $ 17.75 per share, for aggregate gross proceeds of $ 143.8 million.

The Company paid underwriting discounts and commissions of $ 8.6 million, and also incurred expenses of $ 0.3 million in connection with the offering.

As a result, the net offering proceeds received by the Company, after deducting underwriting discounts, commissions and offering expenses, were $ 134.9 million.

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

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.

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 issued warrants to Biosion and Chia Tai Tianqing Pharmaceutical Group, Co., Ltd.

(“CTTQ”) to purchase, in the aggregate, 14,281,985 shares of the Company’s common stock (the “Warrants”).

The Warrants have an initial exercise price of $ 0.00001 per share, subject to adjustment as provided in the Warrants.

The Warrants are immediately exercisable, subject to any applicable overseas direct investment filing that may be required for the holders.

The Warrants will terminate when exercised in full.

The Company classified the Warrants within equity because they are indexed to the Company’s own stock.

The Company assigned an estimated fair value of $ 44.8 million to the Warrants, which was based on the fair value of the Company’s common stock on the date of issuance less the nominal exercise price of $ 0.00001 per share.

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 Leerink Partners LLC (formerly 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.

Private Placement

In November 2024, the Company closed a private placement in which it sold approximately 35.6 million shares of its common stock for aggregate gross proceeds of $ 80.0 million.

The Company paid placement agent and other fees of $ 5.1 million in connection with the private placement.

Stock-Based Awards

2024 Inducement Plan

In November 2024, the Company’s board of directors adopted the 2024 Inducement Plan (the “2024 Inducement Plan”).

The 2024 Inducement Plan is a non-stockholder approved stock plan adopted pursuant to the “inducement exception” provided under Nasdaq listing rules.

The only employees eligible to receive grants of awards under the 2024 Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq rules, generally including individuals who were not previously an employee or director of the Company.

Under the terms of the 2024 Inducement Plan, the Company may grant up to 2,000,000 shares of common stock pursuant to nonqualified stock options, stock appreciation rights, restricted stock awards, RSUs, and other stock awards.

The shares of common stock underlying any awards that expire, or are otherwise terminated, settled in cash or repurchased by the Company under the 2024 Inducement Plan will be added back to the shares of common stock available for issuance under the 2024 Inducement Plan.

As of December 31, 2024, 1,194,000 shares remained available for grant under the 2024 Inducement Plan.

The Company had 626,000 stock options and 180,000 RSUs outstanding as of December 31, 2024 under the 2024 Inducement Plan.

2015 Equity Incentive Plan

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The number of shares initially reserved for issuance under the 2015 Plan was 1,643,872 shares of common stock.

The number of shares of common stock that may be issued under the 2015 Plan will automatically increase on January 1 of each year ending on January 1, 2025, in an amount equal to the lesser of (i) 4.0 % of the shares of the Company’s common stock outstanding on December 31 of the preceding calendar year or (ii) an amount determined by the Company’s board of directors.

The number of shares of common stock that may be issued under the 2015 Plan automatically increased on January 1 of each year which ended on January 1, 2025, in an amount equal to the lesser of (i) 4.0 % of the shares of the Company’s common stock outstanding on December 31 of the preceding calendar year or (ii) an amount determined by the Company’s board of directors.

The shares of common stock underlying any awards that expire, are otherwise terminated, settled in cash or repurchased by the Company under the 2015 Plan and the 2012 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan.

8 unchanged sentences

2012 Equity Compensation Plan

In August 2012, the Company’s board of directors adopted the 2012 Equity Incentive Plan (“2012 Plan”), and the Company’s stockholders approved the 2012 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.

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Outstanding as of December 31, 2024

Forfeited and cancelled

Outstanding as of December 31, 2023

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

5 unchanged sentences

Outstanding as of December 31, 2022

( 1,340,042 )

Forfeited and cancelled

Outstanding as of December 31, 2023

Forfeited and cancelled

Outstanding as of December 31, 2022

( 1,473,327 )

Forfeited and cancelled

15 unchanged sentences

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.

For the year ended December 31, 2024, the basic and diluted weighted-average shares outstanding

included the Warrants, as there were no outstanding contingencies associated with the vesting or exercisability of the Warrants.

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

7 unchanged sentences

Operating lease expense

Rent expense was $ 1.1 million for the year ended December 31, 2023, and $ 1.0 million for each of the years ended December 31, 2022 and 2021, which was recognized on a straight-line basis over the term of the lease.

Rent expense was $ 0.9 million and $ 1.1 million for the years ended December 31, 2024 and 2023, respectively, which was recognized on a straight-line basis over the term of the lease.

Operating Leases

1 unchanged sentence

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 December 2020, the Company entered into a sub-sublease agreement under which it sub-subleased 8,115 square feet to a third party.

The sub-sublease was terminated in December 2022.

In 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.

2 unchanged sentences

Louis, Missouri.

The lease commenced in June 2019 and has a term that runs through June 2029.

In January 2023, the Company amended the sublease agreement to add an additional 6,261 square feet of office and laboratory space effective February 2023, which term runs concurrently with the existing term.

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:

5 unchanged sentences

Total operating lease liabilities

Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 0.8 million for the year ended December 31, 2023, and $ 1.0 million for each of the years ended December 31, 2022 and 2021.

Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 0.5 million and $ 0.8 million for the years ended December 31, 2024 and 2023, respectively.

Supplemental information related to operating leases is as follows:

13 unchanged sentences

Total lease liability

During the years ended December 31, 2023, 2022 and 2021, the Company did no t record an income tax benefit for net operating losses incurred in each year due to the uncertainty of realizing a benefit from those items.

During the years ended December 31, 2024 and 2023, the Company did not record an income tax benefit for net operating losses incurred in each year due to the uncertainty of realizing a benefit from those items.

Loss before income taxes is allocated as follows:

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Lease liabilities

Deferred income

Total deferred tax assets

1 unchanged sentence

Property and equipment

Intangible asset

Right-to-use assets

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The Company has no t recorded any amounts for unrecognized tax benefits as of December 31, 2024 and 2023.

Related Party Transaction

Anand Mehra, a member of the Company’s board of directors, purchased 666,666 shares of the Company’s common stock at a price per share of $ 2.25 in connection with a private placement in November 2024.

Agreements Related to Intellectual Property

Exclusive License Agreement – Biosion, Inc.

In November 2024, the Company entered into an exclusive license agreement (the “Biosion Agreement”) with Biosion, pursuant to which it received the exclusive rights to develop, manufacture and commercialize bosakitug (ATI-045) and ATI-052 worldwide, excluding Mainland China, Macau, Hong Kong and Taiwan (“Greater China”).

In connection with the Biosion Agreement, the Company also entered into a collaboration agreement (the “CTTQ Agreement”) with Biosion and CTTQ, a licensee of bosakitug in Greater China.

In partial consideration of the rights and licenses under the Biosion Agreement and CTTQ Agreement, the Company, agreed to, in the aggregate, (i) pay $ 30.0 million in upfront cash consideration, plus $ 4.5 million for the reimbursement of certain development costs, (ii) issue the Warrants, and (iii) pay $ 6.2 million for the reimbursement of certain development costs and drug product material as set forth in the Biosion Agreement.

The Company determined that the transaction was an acquisition of assets with no alternative future use and therefore expensed as incurred the fair value of the consideration given of $ 85.6 million as a component of in-process research and development expense during the year ended December 31, 2024.

The Company incurred $ 1.3 million in expenses related to this transaction which were expensed as incurred.

In addition, the Company agreed to pay, in the aggregate, (i) up to $ 125 million upon the achievement of specified regulatory milestones commencing with product approval, (ii) up to $ 795 million upon the achievement of specified sales milestones, (iii) a tiered low-to-mid single digit royalty based upon a percentage of annual net sales, subject to specified reductions as set forth in the Biosion Agreement, and (iv) a portion of any sublicense consideration received from the grant of any sublicense or similar rights under any of the rights or licenses granted to the Company under the Biosion Agreement.

The Company will expense these payments in the period when either they are determined to be probable of occurring or when the payment is triggered.

The Warrants have an initial exercise price of $ 0.00001 per share, subject to adjustment as provided in the Warrants.

The Warrants are immediately exercisable, subject to any applicable overseas direct investment filing that may be required for the holders.

The Warrants will terminate when exercised in full.

The Company classified the Warrants within equity because they are indexed to the Company’s own stock.

License Agreement – Sun Pharmaceutical Industries, Inc.

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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 agreed to pay the Company an upfront payment, regulatory and commercial milestone payments, and a mid single-digit tiered royalty calculated as a percentage of Sun Pharma’s net sales.

Under the license agreement, Sun Pharma has paid the Company upfront and regulatory payments, and has agreed to pay the Company other 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.

The Company recognized $ 3.0 million and $ 15.0 million of licensing revenue during the years ended December 31, 2024 and 2023, respectively.

License Agreement – Pediatrix Therapeutics, Inc.

In November 2022, the Company entered into a license agreement with Pediatrix Therapeutics, Inc.

(“Pediatrix”), under which the Company granted Pediatrix the exclusive rights to develop, manufacture and commercialize ATI-1777 in Greater China.

Pediatrix has agreed to pay the Company an upfront payment, development, regulatory and commercial milestone payments, and a tiered royalty ranging from a low-to-high single digit percentage of net sales of ATI-1777 by Pediatrix in Greater China.

A portion of consideration received from Pediatrix is payable to the former Confluence equity holders as described below.

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

(“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 “—Agreement and Plan of Merger - Confluence.”

License Agreement – Eli Lilly and Company

2 unchanged sentences

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 upfront, 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.

During the years ended December 31, 2023 and 2022, the Company recorded licensing revenue under this agreement of $ 12.7 million and $ 17.8 million, respectively, from Lilly, a portion of which was payable to third parties.

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 13).

During the years ended December 31, 2024 and 2023, the Company recognized licensing revenue under this agreement of $ 13.2 million and $ 12.7 million, respectively, from Lilly, a portion of which was payable to third parties.

As of December 31, 2024, we recorded a receivable of $ 8.6 million in other current assets, which represents licensing revenue due to third parties.

Asset Purchase Agreement – EPI Health, LLC

1 unchanged sentence

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.

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, the Company recorded an allowance for doubtful accounts resulting in $ 1.3 million of bad debt expense for the year ended December 31, 2023, representing all amounts that were due and outstanding by EPI Health.

As a result of the bankruptcy proceedings, all amounts that were due and outstanding by EPI Health have been fully reserved.

Agreement and Plan of Merger – Confluence

4 unchanged sentences

As of December 31, 2024 and December 31, 2023, the balance of the Company’s contingent consideration liability was $ 8.7 million and $ 6.2 million, respectively (see Note 3).

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.

In exchange, 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 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 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 the year ended December 31, 2024, the Company recognized $ 1.9 million of non-cash royalty income.

As of December 31, 2024, the current and non-current portions of the remaining deferred income recognized under the units-of revenue method were $ 3.9 million and $ 20.0 million, respectively.

Retirement Savings Plan

1 unchanged sentence

This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis.

Company contributions to the plan may be made at the discretion of the Company’s board of directors.

Company contributions to the plan may be made at the discretion

of the Company’s board of directors.

The Company has elected to match employee contributions to the 401(k) Plan up to 4 % of the employee’s earnings, subject to certain limitations.

Company contributions under the 401(k) Plan were $ 0.7 million, $ 0.5 million and $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Company contributions under the 401(k) Plan were $ 0.4 million and $ 0.7 million for the years ended December 31, 2024 and 2023, respectively.

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.

In December 2023, the Company’s board of directors approved a reduction of the Company’s workforce by approximately 46 %, which was completed as of December 31, 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 of $ 3.1 million which represents a 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.

The Company expensed the cost of cash severance payments, other benefits and annual bonus payments for certain terminated employees with retention periods more than the sixty-day minimum retention period over their respective service terms.

During the year ended December 31, 2024, the Company recognized severance expense of $ 2.7 million and made cash severance payments of $ 5.6 million to impacted employees.

Of the $ 2.7 million of expenses incurred during the year ended December 31, 2024, $ 1.5 million, $ 1.0 million and $ 0.2 million were recorded in research and development expense, general and administrative expense and cost of revenue, respectively, in the consolidated statement of operations and comprehensive loss.

During the year ended December 31, 2023, the Company recorded a restructuring charge of $ 3.1 million which represents a one-time termination benefit for impacted employees with retention periods less than the minimum retention period, which was triggered immediately upon either terminating or giving notice to the impacted employees.

Of the $ 3.1 million of expenses incurred during the year ended December 31, 2023, $ 2.2 million, $ 0.9 million and $ 19 thousand were recorded in research and development expense , general and administrative expense and cost of revenue , respectively, in the consolidated statement of operations and comprehensive loss .

The Company is expensing the cost of cash severance payments, other benefits and annual bonus payments for noticed employees with retention periods more than the minimum retention period over their respective service terms.

Segment Information

2 unchanged sentences

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’s results of operations by segment for the years ended December 31, 2023, 2022 and 2021 are summarized in the tables below:

(In thousands)

Year Ended December 31, 2023

Revenue from external customers

Intercompany revenue

Cost of revenue

Research and development

General and administrative

Revaluation of contingent consideration

Intangible asset impairment

Restructuring expense

Loss from operations

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 and all assets are held in the United States.

The Company does not report asset information by segment because it is not regularly provided to the Company’s chief executive officer, who is the Company’s CODM.

Since inception, the Company has incurred net losses and has an accumulated deficit of $ 902.9 million as of December 31, 2024.

As such, the CODM uses segment loss from operations for each segment in assessing segment performance by comparing the results of each segment to forecast.

All intercompany activity is eliminated in the intersegment elimination column in the tables below.

A reconciliation of operating loss to total consolidated loss before income taxes, for the years ended December 31, 2024 and 2023 is as follows:

(In thousands)

3 unchanged sentences

Cost of revenue

Research and development

Total Research and development project spend

Other research and development expense (1)

Total research and development

General and administrative

Revaluation of contingent consideration

Loss from operations

In-process research and development

Segment operating loss

Non-segment general and administrative

Loss before income taxes

(In thousands)

3 unchanged sentences

Cost of revenue

Research and development

Total Research and development project spend

Other research and development expense (1)

Total research and development

General and administrative

Revaluation of contingent consideration

Loss from 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.

In-process research and development

Segment operating loss

Non-segment general and administrative

Loss before income taxes

(1) Other segment items for the Therapeutics segment consist primarily of the following research and development expenses;

stock-based compensation, depreciation and amortization, regulatory.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data