Aclaris Therapeutics, Inc. — Q2 2020 Form 10-Q Summary
Business context and reporting period
Quarterly period ended June 30, 2020; filing dated August 7, 2020. Aclaris is a clinical-stage biopharmaceutical company focused on immuno-inflammatory diseases, with contract research services provided through Aclaris Life Sciences. Following its 2019 strategic review, the company refocused on development programs and pursued partners for its drug candidates and non-marketed FDA-approved ESKATA.
Commercial product activities were presented as discontinued operations. Aclaris sold RHOFADE rights to EPI Health in October 2019 and reported no product sales in the 2020 periods.
Key financial metrics
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 |
|---|---|---|---|---|
| Total revenue | $2.046 million | $0.886 million | $3.453 million | $2.149 million |
| Contract research revenue | $1.853 million | $0.886 million | $3.042 million | $2.149 million |
| Other revenue | $0.193 million | — | $0.411 million | — |
| Research and development | $6.466 million | $17.519 million | $15.909 million | $37.161 million |
| General and administrative | $5.572 million | $7.469 million | $11.773 million | $14.926 million |
| Loss from operations | $(11.381) million | $(43.600) million | $(26.887) million | $(70.643) million |
| Net loss | $(11.597) million | $(49.876) million | $(27.183) million | $(87.441) million |
| Net loss per share | $(0.28) | $(1.21) | $(0.65) | $(2.12) |
The filing does not present a meaningful gross-margin measure, stating that gross profit is not meaningful for the contract research revenue model. Cost of revenue was $1.389 million in the second quarter and $2.658 million for the six-month period.
- Cash, cash equivalents, restricted cash and marketable securities totaled $68.115 million at June 30, 2020, including $35.528 million of marketable securities and $1.753 million of restricted cash.
- Net cash used in operating activities was $17.626 million for the six months ended June 30, 2020, compared with $52.696 million in the prior-year period.
- Investing activities provided $3.455 million, primarily reflecting net marketable-securities maturities and sales.
- Financing activities provided $10.821 million, primarily from the SVB term loan.
- Cash and cash equivalents decreased by $3.350 million during the first six months, ending at $32.587 million.
- Long-term debt, net was $10.573 million at June 30, 2020. The company borrowed $11.0 million from Silicon Valley Bank in March 2020, secured by substantially all assets other than intellectual property.
- Total liabilities were $35.633 million and stockholders’ equity was $49.366 million at June 30, 2020.
Material changes versus the prior comparable period
- Second-quarter revenue increased $1.160 million, or approximately 131%, driven by higher contract research revenue and $0.193 million of RHOFADE royalty revenue.
- Six-month revenue increased $1.304 million, or approximately 61%, including $0.411 million of RHOFADE royalties.
- Research and development expense declined $11.053 million in the quarter and $21.252 million year to date, primarily because of completed or reduced programs, lower headcount following the 2019 restructuring, and lower spending on ATI-501, ATI-502 and A-101.
- General and administrative expense declined $1.897 million in the quarter and $3.153 million year to date, primarily due to lower personnel, stock-based compensation, facility and legal expenses and reduced travel.
- The prior-year periods included an $18.504 million goodwill impairment charge; no comparable charge was recorded in 2020.
- Discontinued-operations loss declined to $27,000 in the quarter and $285,000 year to date, from $6.191 million and $16.483 million, respectively, in the prior-year periods.
- Net loss improved by $38.279 million in the quarter and $60.258 million year to date, although the company remained substantially loss-making.
- Contingent consideration increased by $1.767 million during the six months, reflecting updated assumptions following successful completion of the ATI-450 Phase 1 trial.
Guidance, outlook, risks and unusual items
- ATI-450 Phase 2a rheumatoid arthritis enrollment was temporarily paused because of COVID-19, resumed in May 2020, and data reporting was moved to the first half of 2021. A Phase 2a CAPS trial was planned for the second half of 2020.
- The company expected to initiate an ATI-1777 Phase 1/2a atopic dermatitis trial in the second half of 2020 and expected to file an IND for ATI-2138 in 2021.
- An investigator-initiated ATI-450 COVID-19 cytokine-release-syndrome trial was being supported; the first subject was dosed in August 2020.
- Management expected continuing net losses and significant research and development spending. It stated that existing cash, cash equivalents and marketable securities should fund operating and capital requirements for more than 12 months from the financial-statement issuance date, but additional capital will be required for ATI-450, ATI-1777, preclinical compounds and discovery efforts.
- Potential funding sources include equity or debt financings, strategic partnerships, milestone payments, reduced or delayed development spending and further restructuring. The company cautioned that funding may be unavailable or available only on unfavorable terms.
- The SVB loan bears interest at the greater of prime plus 2% or 6.75%, requires interest-only payments through March 2022, and principal amortization thereafter through March 2024. It includes a 5% final payment fee, warrants for 460,251 shares and covenants limiting additional indebtedness and other activities.
- COVID-19 may disrupt clinical enrollment, manufacturing, suppliers, contract research organizations, regulatory activities, operations and access to capital.
- A consolidated securities class action and a consolidated derivative action related primarily to ESKATA disclosures were pending. The company disputed the claims and had not quantified potential damages in the filing.
- RHOFADE royalty income may continue under the EPI Health asset purchase agreement; the company also had a $4.950 million payable to EPI Health at June 30, 2020 related to post-sale collections.
Most important facts for investors to verify
- Cash-burn trajectory and whether the reported liquidity remains sufficient as clinical programs advance.
- ATI-450 Phase 2a enrollment, timing of data in the first half of 2021, and the planned CAPS and COVID-19 studies.
- ATI-1777 clinical initiation and regulatory progress for ATI-2138.
- Availability and terms of future financing or strategic partnerships, including potential dilution and debt restrictions.
- Compliance with the SVB loan covenants and ability to service debt beginning in 2022.
- COVID-19 effects on trial timelines, manufacturing and laboratory-service demand.
- Progress and potential exposure from the ESKATA-related securities and derivative litigation.
- Royalty collections, milestone contingencies and obligations under the EPI Health, Rigel and Confluence agreements.