Aclaris Therapeutics, Inc. — Q3 2022 Form 10-Q Summary
Business context and reporting period
Aclaris is a clinical-stage biopharmaceutical company developing therapies for immuno-inflammatory diseases and pursuing strategic partnerships, licensing transactions and other alternatives. It also operates a contract research segment providing laboratory services. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Key clinical programs include zunsemetinib (ATI-450), ATI-1777, ATI-2138 and the preclinical program ATI-2231. The company had 66.7 million common shares outstanding as of October 31, 2022.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $19.0 million | $1.7 million | $22.0 million | $5.3 million |
| Operating loss | $20.9 million | $20.3 million | $60.8 million | $66.8 million |
| Net loss | $20.0 million | $21.1 million | $59.3 million | $68.1 million |
| Net loss per share | $0.30 | $0.35 | $0.92 | $1.23 |
| Cash used in operating activities | Not separately provided | Not separately provided | $48.5 million | $35.1 million |
- Q3 licensing revenue was $17.9 million, including $17.6 million of upfront and milestone payments under the Eli Lilly license agreement. Nine-month licensing revenue was $18.4 million versus $0.6 million in the prior-year period.
- Contract research revenue declined to $1.1 million in Q3 and $3.5 million for nine months, from $1.4 million and $4.6 million, respectively, primarily due to lower hours billed.
- Research and development expense increased to $23.7 million in Q3 and $56.7 million for nine months, driven by clinical development of zunsemetinib and ATI-1777, the ATI-2138 Phase 1 program, ATI-2231 preclinical work and higher personnel costs.
- As of September 30, 2022, cash and cash equivalents were $61.7 million and marketable securities were $186.4 million, for total cash, cash equivalents and marketable securities of approximately $248.1 million.
- The company reported total assets of $267.6 million, total liabilities of $47.8 million and stockholders’ equity of $219.8 million. It had no outstanding term debt; the Silicon Valley Bank loan was repaid in July 2021.
- Liquidity was supported by $72.7 million of net proceeds from an April 2022 at-the-market equity sale. Management stated that existing liquidity is expected to fund operating and capital requirements for more than 12 months from the financial statement issuance date.
Material changes versus the prior comparable period
- Revenue increased by $17.4 million in Q3 and $16.7 million for the first nine months, almost entirely due to the Lilly license transaction.
- Despite higher revenue, Q3 operating loss widened modestly because research and development expense increased by $9.7 million, licensing expense increased by $7.3 million and contingent consideration revaluation expense increased by $1.3 million.
- Nine-month operating loss improved by $6.1 million, primarily because the prior-year period included a $22.1 million increase in the fair value of contingent consideration. In 2022, the company recorded a $2.4 million decrease in that liability.
- Nine-month net loss improved by $8.8 million, while operating cash use increased by $13.4 million due primarily to ongoing development spending and the absence of the prior-year noncash benefit from contingent consideration revaluation.
- Shares outstanding increased from 61.2 million at December 31, 2021 to 66.7 million at September 30, 2022, reflecting the April 2022 equity issuance and equity award activity.
Guidance, outlook, risks and unusual items
- Management expects continued net losses and significant research and development spending as clinical programs advance. Additional capital will be required to complete development of zunsemetinib, ATI-1777 and ATI-2138, advance preclinical compounds and support discovery efforts.
- Expected clinical milestones include topline data for the zunsemetinib rheumatoid arthritis and psoriatic arthritis studies in the second half of 2023, hidradenitis suppurativa data in the first half of 2023, and ATI-1777 Phase 2b data in the first half of 2023.
- The company completed the ATI-2138 Phase 1 single-ascending-dose study in November 2022, after the reporting period, and planned a multiple-ascending-dose study subject to regulatory clearance. It also expected to submit an IND for ATI-2231 by the end of 2022.
- The Lilly agreement generated $17.6 million of revenue but also resulted in $7.3 million of licensing expense payable to third parties. Future Lilly milestone and royalty receipts will be subject to similar contractual payment obligations.
- Remaining contingent consideration related to the Confluence acquisition was $26.0 million at September 30, 2022, against potential future payments of up to $75.0 million plus royalties and other transaction-related obligations.
- Key risks include clinical-trial failure or delay, regulatory nonapproval, inability to secure partnerships or financing, dilution from future equity issuance, market and interest-rate volatility, supply-chain disruptions, COVID-19 effects and uncertainty in the valuation of contingent consideration.
- Management concluded that no substantial doubt existed about the company’s ability to continue as a going concern and reported effective disclosure controls as of September 30, 2022.
Important facts for investors to verify
- Whether the Lilly transaction is nonrecurring and how much future revenue it may produce after required payments to third parties.
- The cash runway relative to the cost and timing of the Phase 2 programs and planned preclinical development.
- Clinical enrollment, topline results and safety findings for zunsemetinib, ATI-1777 and ATI-2138.
- The probability-weighted assumptions, discount rates and potential payment timing underlying the $26.0 million contingent consideration liability.
- Potential dilution from the at-the-market facility, outstanding options and RSUs; approximately 6.8 million potential shares were excluded from diluted loss-per-share calculations at September 30, 2022.
- Future obligations under the Confluence acquisition, Lilly license, leases and other intellectual-property agreements.