10-Q 1 acrs-20240331x10q.htm 10-Q
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7

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission File Number 001-37581

Aclaris Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

46-0571712
(I.R.S. Employer
Identification No.)

701 Lee Road, Suite 103
Wayne, PA
(Address of principal executive offices)

19087
(Zip Code)

Registrant’s telephone number, including area code: (484324-7933

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:

 

Trading Symbol(s)

Name of Each Exchange on which Registered

Common Stock, $0.00001 par value

 

ACRS

The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934:

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes  No 

The number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, as of the close of business on April 30, 2024 was 71,264,786.

ACLARIS THERAPEUTICS, INC.

INDEX TO FORM 10-Q

    

PAGE

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

2

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

2

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023

3

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023

4

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3. Quantitative and Qualitative Disclosures about Market Risk

31

Item 4. Controls and Procedures

32

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

33

Item 1A. Risk Factors

33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 5. Other Information

33

Item 6. Exhibits

33

Signatures

35

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

    

March 31, 

December 31, 

    

2024

    

2023

Assets

Current assets:

Cash and cash equivalents

$

35,841

$

39,878

Short-term marketable securities

 

92,325

 

79,228

Accounts receivable, net

373

298

Prepaid expenses and other current assets

 

6,799

 

9,452

Total current assets

 

135,338

 

128,856

Marketable securities

 

33,199

 

62,771

Property and equipment, net

 

1,531

 

1,620

Other assets

 

3,997

 

4,158

Total assets

$

174,065

$

197,405

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

10,810

$

8,878

Accrued expenses

 

6,565

 

19,446

Other current liabilities

2,705

2,628

Total current liabilities

 

20,080

 

30,952

Other liabilities

2,971

 

3,074

Contingent consideration

9,000

6,200

Total liabilities

 

32,051

 

40,226

Stockholders’ Equity:

Preferred stock, $0.00001 par value; 10,000,000 shares authorized and no shares issued or outstanding at March 31, 2024 and December 31, 2023

Common stock, $0.00001 par value; 200,000,000 shares authorized at March 31, 2024 and December 31, 2023; 71,248,017 and 70,894,889 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

1

 

1

Additional paid‑in capital

 

930,114

 

928,080

Accumulated other comprehensive loss

 

(364)

 

(106)

Accumulated deficit

 

(787,737)

 

(770,796)

Total stockholders’ equity

 

142,014

 

157,179

Total liabilities and stockholders’ equity

$

174,065

$

197,405

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

2

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended

March 31, 

    

2024

    

2023

Revenues:

Contract research

$

657

$

889

Licensing

1,741

1,639

Total revenue

2,398

2,528

Costs and expenses:

Cost of revenue

809

808

Research and development

 

 

9,845

 

22,587

General and administrative

 

 

6,844

 

8,790

Licensing

1,031

1,061

Revaluation of contingent consideration

2,800

(800)

Total costs and expenses

 

 

21,329

 

32,446

Loss from operations

 

 

(18,931)

 

(29,918)

Other income, net

 

 

1,990

 

1,758

Net loss

$

(16,941)

$

(28,160)

Net loss per share, basic and diluted

$

(0.24)

$

(0.42)

Weighted average common shares outstanding, basic and diluted

 

71,074,858

 

66,872,778

Other comprehensive loss:

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

$

(258)

$

543

Total other comprehensive (loss) gain

 

(258)

 

543

Comprehensive loss

$

(17,199)

$

(27,617)

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

3

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)

Accumulated

 

Common Stock

Additional

Other

Total

 

Par

Paidin

Comprehensive

Accumulated

Stockholders’

 

  Shares 

  

Value

  

Capital

  

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

Accumulated

Common Stock

Additional

Other

Total

Par

Paidin

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

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

4

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended

March 31, 

    

2024

    

2023

Cash flows from operating activities:

    

    

    

    

Net loss

$

(16,941)

$

(28,160)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

 

243

 

198

Stock-based compensation expense

 

2,089

 

6,806

Revaluation of contingent consideration

2,800

(800)

Changes in operating assets and liabilities:

Accounts receivable

(75)

(202)

Prepaid expenses and other assets

 

2,044

 

(874)

Accounts payable

 

1,932

 

(2,161)

Accrued expenses

 

(12,907)

 

(1,160)

Net cash used in operating activities

 

(20,815)

 

(26,353)

Cash flows from investing activities:

Purchases of property and equipment

 

(135)

 

(553)

Purchases of marketable securities

 

 

(28,524)

Proceeds from sales and maturities of marketable securities

 

16,968

 

54,875

Net cash provided by investing activities

 

16,833

 

25,798

Cash flows from financing activities:

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

(55)

Net cash used in financing activities

 

(55)

 

Net decrease in cash and cash equivalents

 

(4,037)

 

(555)

Cash and cash equivalents at beginning of period

 

39,878

 

45,277

Cash and cash equivalents at end of period

$

35,841

$

44,722

Supplemental disclosure of non-cash investing and financing activities:

Additions to property and equipment included in accounts payable

$

$

41

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

5

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 March 31, 2024, the Company had cash, cash equivalents and marketable securities of $161.4 million and an accumulated deficit of $787.7 million. Since inception, the Company has incurred net losses and negative cash flows from its operations. Prior to the acquisition of Confluence Life Sciences, Inc. (now known as Aclaris Life Sciences, Inc.) (“Confluence”) in 2017, the Company had never generated revenue. There can be no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. 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, rising interest rates, and inflationary pressures. If the Company is unable to raise sufficient additional capital or generate revenue from transactions with potential third-party partners for the development and/or commercialization of its drug candidates, it may need to substantially curtail planned operations. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

In accordance with Accounting Standards Codification (“ASC”) Subtopic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company 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

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023, the condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2024 and 2023, and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 are unaudited.  The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 27, 2024 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of March 31, 2024, the results of its operations and comprehensive loss for the three months ended March 31, 2024 and 2023, its changes in stockholders’ equity for the three months ended March 31, 2024 and 2023 and its cash flows for the three months ended March 31, 2024 and 2023.  The condensed consolidated balance sheet data as of December 31, 2023 was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”).  The financial data and other information disclosed in these notes related to the three months ended March 31, 2024 and 2023 are unaudited. The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period. The unaudited interim financial statements of the Company included herein have been prepared, pursuant to the rules and regulations of the SEC. 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 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

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 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 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 March 31, 2024. Additionally, estimated future sales levels and the risk-adjusted discount rate applied to the potential payments are also significant assumptions used in calculating the fair value. The discount rate ranged between 7.4% and 8.3% 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 recognized from the satisfaction of the performance obligation in accordance with the “right to invoice” practical expedient.

8

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.

Discontinued Operations

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

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This standard requires disclosure of significant segment expenses and other segment items by reportable segment. This ASU becomes effective for annual periods beginning in 2024 and interim periods in 2025. The Company is assessing the impact of this ASU and upon adoption expects that any impact would be limited to additional segment expense disclosures in the footnotes to the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This standard enhances disclosures related to income taxes, including the rate reconciliation and information on income taxes paid. This ASU becomes effective January 1, 2025. The Company is currently assessing the impact of this ASU.

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:

March 31, 2024

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

    

    

    

    

    

    

    

    

Cash equivalents

$

33,536

$

$

$

33,536

Marketable securities

 

125,524

125,524

Total assets

$

33,536

$

125,524

$

$

159,060

Liabilities:

Contingent consideration

$

$

$

9,000

$

9,000

Total liabilities

$

$

$

9,000

$

9,000

9

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 March 31, 2024 and December 31, 2023, the Company’s cash equivalents consisted of money market funds, which were valued based upon Level 1 inputs. The Company’s marketable securities as of March 31, 2024 and December 31, 2023 consisted of commercial paper and corporate debt, asset-backed debt, foreign government agency debt and U.S. government and government agency debt securities, which were all valued based upon Level 2 inputs.

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

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

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

March 31, 2024

Gross

Gross

Book

Unrealized

Unrealized

Fair

(In thousands)

Value

Gain

Loss

Value

Marketable securities:

Corporate debt securities(1)

$

52,531

$

26

$

(186)

$

52,371

Commercial paper

4,949

4,949

Asset-backed debt securities(2)

10,537

71

(33)

10,575

Foreign government agency debt securities(3)

4,765

22

4,787

U.S. government and government agency debt securities(4)

53,110

(268)

52,842

Total marketable securities

$

125,892

$

119

$

(487)

$

125,524

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

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

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

(4) Included in U.S. government and government agency debt securities is $4.7 million with maturity dates between one and two years.

10

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:

March 31, 

December 31, 

(In thousands)

2024

2023

Computer equipment

    

$

1,206

    

$

1,253

Lab equipment

3,153

3,154

Furniture and fixtures

694

558

Leasehold improvements

817

817

Property and equipment, gross

 

5,870

 

5,782

Accumulated depreciation

 

(4,339)

 

(4,162)

Property and equipment, net

$

1,531

$

1,620

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

5. Accrued Expenses

Accrued expenses consisted of the following:

March 31, 

December 31, 

(In thousands)

    

2024

    

2023

Employee compensation expenses

$

1,694

$

3,910

Research and development expenses

1,232

6,661

Licensing expenses

794

5,478

Restructuring expenses (Note 12)

2,588

3,112

Other expenses

 

257

 

285

Total accrued expenses

$

6,565

$

19,446

6. Stockholders’ Equity

Preferred Stock

As of March 31, 2024 and December 31, 2023, the Company’s amended and restated certificate of incorporation (the “Charter”) authorized the Company to issue 10,000,000 shares of undesignated preferred stock.  There were no shares of preferred stock outstanding as of March 31, 2024 or December 31, 2023.

11

Common Stock

As of March 31, 2024 and December 31, 2023, the Company’s Charter authorized the Company to issue 200,000,000 shares of $0.00001 par value common stock. There were 71,248,017 and 70,894,889 shares of common stock issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to any preferential dividend rights of any series of preferred stock that may be outstanding. No dividends have been declared through March 31, 2024.

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 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 March 31, 2024, 4,020,777 shares remained available for grant under the 2015 Plan. The Company had 6,233,088 stock options and 3,139,539 RSUs outstanding as of March 31, 2024 under the 2015 Plan.

2017 Inducement Plan

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 353,100 stock options outstanding as of March 31, 2024 under the 2017 Inducement Plan. All shares of common stock that were eligible for issuance under the 2017 Inducement Plan after October 1, 2018, including any shares underlying any awards that expire or are otherwise terminated, reacquired to satisfy tax withholding obligations, settled in cash or repurchased by the Company in the future that would have been eligible for re-issuance under the 2017 Inducement Plan, were retired.  

2012 Equity Compensation Plan

In August 2012, the Company’s board of directors adopted the 2012 Plan and the Company’s stockholders approved the 2012 Plan. Upon the 2015 Plan becoming effective, no further grants can be made under the 2012 Plan. The Company had 380,792 stock options outstanding as of March 31, 2024 under the 2012 Plan.

12

Stock Option Valuation

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

    

Three Months Ended

March 31, 

2024

2023

Risk-free interest rate

 

3.81

%

3.46

%

Expected term (in years)

 

6.0

6.3

Expected volatility

 

81.81

%

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 three months ended March 31, 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

 

1,842,300

1.20

Forfeited and cancelled

 

(1,294,775)

14.54

Outstanding as of March 31, 2024

 

6,966,980

$

12.32

7.0

$

96

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

 

6,966,980

$

12.32

 

7.0

$

96

Options exercisable as of March 31, 2024

 

3,695,196

$

16.24

 

5.1

$

24

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

Restricted Stock Units

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

2,444,350

1.20

Vested

(399,716)

14.93

$

482

Forfeited and cancelled

(427,035)

13.65

Outstanding as of March 31, 2024

3,139,539

$

4.81

13

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

 

March 31, 

 

(In thousands)

    

    

2024

    

2023

 

Cost of revenue

    

  

$

252

    

$

299

Research and development

(29)

2,602

General and administrative

 

1,866

 

3,905

Total stock-based compensation expense

$

2,089

$

6,806

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

8. Net Loss per Share

Basic and diluted net loss per share is summarized in the following table:

Three Months Ended

 

March 31, 

 

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

    

2024

    

2023

Numerator:

    

    

    

    

Net loss

$

(16,941)

$

(28,160)

Denominator:

Weighted average shares of common stock outstanding, basic and diluted

 

71,074,858

 

66,872,778

Net loss per share, basic and diluted

$

(0.24)

$

(0.42)

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

 

March 31, 

2024

2023

 

Options to purchase common stock

6,966,980

6,865,524

Restricted stock unit awards

3,139,539

1,740,081

Total potential shares of common stock

10,106,519

8,605,605

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.

14

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 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.

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

March 31, 

December 31, 

(In thousands)

2024

2023

Operating Leases:

Gross cost

$

5,094

$

5,094

Accumulated amortization

(1,378)

(1,235)

Other assets

$

3,716

$

3,859

Current portion of lease liabilities

$

503

$

426

Other liabilities

2,971

3,074

Total operating lease liabilities

$

3,474

$

3,500

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

10. Agreements Related to Intellectual Property

License Agreement – Sun Pharmaceutical Industries, Inc.

In December 2023, the Company entered into an exclusive patent license agreement with Sun Pharmaceutical Industries, Inc. (“Sun Pharma”). Under the license agreement, the Company granted Sun Pharma exclusive rights under certain patents that the Company exclusively licenses from a third party. The patents relate to the use of deuruxolitinib, Sun Pharma’s Janus kinase (“JAK”) inhibitor, or other isotopic forms of ruxolitinib, to treat alopecia areata or androgenetic alopecia. Under the license agreement, Sun Pharma has paid the Company an upfront payment, and has agreed to pay the Company regulatory and commercial milestone payments upon the achievement of specified milestones set forth in the agreement, and a mid single-digit tiered royalty calculated as a percentage of Sun Pharma’s net sales. The Company has separate contractual obligations under which the Company has agreed to pay to third parties a portion of the consideration it may receive under the license agreement.

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

License Agreement – Pediatrix Therapeutics, Inc.

In November 2022, the Company entered into a license agreement with Pediatrix Therapeutics, Inc. (“Pediatrix”), under which the Company granted Pediatrix the exclusive rights to develop, manufacture and commercialize 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.”

15

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 has agreed to pay the Company anniversary payments and other commercial milestone payments upon the achievement of specified milestones as set forth in the agreement, and a low single-digit royalty calculated as a percentage of Lilly’s net sales of baricitinib for the treatment of alopecia areata. The Company has separate contractual obligations under which the Company has agreed to pay to third parties an amount equal to any regulatory and commercial milestone payments it receives under the Lilly license agreement, as well as a portion of the upfront consideration and a portion of the royalties it may receive under the license agreement.

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

Asset Purchase Agreement – EPI Health, LLC

In October 2019, the Company sold RHOFADE (oxymetazoline hydrochloride) cream, 1% (“RHOFADE”) to EPI Health, LLC (“EPI Health”) pursuant to an asset purchase agreement. In July 2023, EPI Health filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Through the bankruptcy process, EPI Health and its parent company, Novan, Inc., sold the RHOFADE assets to a third party, which excluded the Company’s asset purchase agreement with EPI Health and the outstanding amounts due. The sale was approved by the bankruptcy court in September 2023. As a result of the bankruptcy proceedings, all amounts that are due and outstanding by EPI Health have been fully reserved for as of March 31, 2024.

Agreement and Plan of Merger – Confluence

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

11. Income Taxes

The Company did not record a federal or state income tax benefit for losses incurred during the three months ended March 31, 2024 and 2023. The Company concluded that it is more likely than not that its deferred tax assets will not be realized which resulted in recording a full valuation allowance during those periods.

16

12. Restructuring Charges

In December 2023, the Company’s board of directors approved a reduction of the Company’s workforce by approximately 46%, which the Company expects to be substantially completed by June 2024. This action was taken in order to streamline operations, reduce costs and preserve capital. As a result, the Company terminated certain employees (“terminated employees”) and gave notice to additional employees (“noticed employees”) who were asked to provide transition services through termination dates ranging between one to thirteen months from the date notice was given.  The terminated employees were entitled to receive cash severance payments and other benefits. The noticed employees are entitled to receive cash severance payments and other benefits, which are contingent upon providing additional services to the Company.

During the year ended December 31, 2023, the Company recorded a restructuring charge for the one-time termination benefit for impacted employees with retention periods less than the sixty-day minimum retention period, which was triggered immediately upon either terminating or giving notice to the impacted employees. During the three months ended March 31, 2024, the Company recognized severance expense of $2.5 million and made cash payments of $3.0 million related to severance to terminated employees.

13. Segment Information

The Company has two reportable segments, therapeutics and contract research. The therapeutics segment is focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases 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.  

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

(In thousands)

Contract

Corporate

Total

Three Months Ended March 31, 2024

Therapeutics

Research

and Other

Company

Revenue from external customers

$

1,741

$

657

$

$

2,398

Intercompany revenue

3,666

(3,666)

Cost of revenue

4,024

(3,432)

592

Research and development

8,760

(233)

8,527

General and administrative

1,108

4,742

5,850

Licensing

1,031

1,031

Revaluation of contingent consideration

2,800

2,800

Restructuring expense

1,318

217

994

2,529

Loss from operations

$

(12,168)

$

(1,026)

$

(5,737)

$

(18,931)

(In thousands)