Aclaris Therapeutics, Inc. — Q1 2018 Form 10-Q Summary
Business context and reporting period
Aclaris Therapeutics is a dermatologist-led biopharmaceutical company developing and commercializing therapies for medical and aesthetic dermatology. The report covers the three months ended March 31, 2018 and was filed May 8, 2018. ESKATA was FDA-approved in December 2017 and commercial product sales began in May 2018, after the reporting period. Revenue in the quarter was generated primarily by laboratory services and NIH grants through Confluence, acquired in August 2017; the dermatology therapeutics segment generated no external revenue.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Revenue | $1.1 million | $0 | +$1.1 million |
| Gross profit | $0.2 million | $0 | +$0.2 million |
| Gross margin | 13.5% | Not meaningful | — |
| Research and development | $13.6 million | $7.8 million | +$5.8 million |
| Sales and marketing | $11.2 million | $1.4 million | +$9.8 million |
| General and administrative | $6.3 million | $3.7 million | +$2.5 million |
| Net loss | $30.2 million | $12.6 million | Loss increased $17.7 million |
| Loss per share | $0.98 | $0.48 | Loss increased |
| Operating cash flow | $(21.9) million | $(12.7) million | Cash use increased $9.2 million |
Cash, cash equivalents and marketable securities totaled $187.0 million at March 31, 2018, compared with $208.9 million at December 31, 2017. Cash and cash equivalents were $54.9 million, and marketable securities were $132.1 million. Total assets were $220.6 million and stockholders’ equity was $200.5 million.
Total liabilities were $20.2 million, including $5.2 million of acquisition-related contingent consideration. The filing does not identify material conventional debt or credit facilities. Lease obligations totaled $3.5 million in future minimum payments, and additional milestone, royalty and other contingent obligations exist under licensing, intellectual property, acquisition and supply agreements.
Investing activities provided $56.2 million, primarily from $92.1 million of marketable-security sales and maturities, partially offset by $35.6 million of purchases. Financing activities provided $0.4 million, principally from employee stock-option exercises. Stock-based compensation expense was $5.1 million, or approximately 17% of the net loss.
Material changes versus the prior comparable period
- Revenue began following the Confluence acquisition, but consisted primarily of contract research activity rather than ESKATA sales.
- Research and development expense increased 75%, driven by A-101 45% common-warts trials, JAK-inhibitor development, Confluence drug-discovery activities and a $0.9 million increase in contingent consideration.
- Sales and marketing expense increased substantially as the Company prepared for ESKATA commercialization, including hiring a 50-person field sales force.
- General and administrative expense increased with headcount, public-company compliance, facility expansion and launch preparation.
- The net loss more than doubled, while operating cash use increased materially year over year.
- The Company received a $2.0 million refund of the ESKATA PDUFA fee in January 2018, which benefited operating cash flow.
- The Company adopted ASC Topic 606 and ASU 2017-01 on January 1, 2018; no material transition adjustment resulted.
Guidance, outlook, risks and unusual items
Management expects continuing net losses and significant cash requirements for the next several years. It expects increased expenses for ESKATA manufacturing, sales, marketing, distribution and direct-to-consumer advertising, as well as continued development of A-101 45%, ATI-501 and ATI-502 and other discovery programs.
Management expected to initiate Phase 3 trials of A-101 45% for common warts in the second half of 2018, with data expected in the second half of 2019. It expected to initiate the ATI-501 Phase 2 trial in the first half of 2018 and reported that ATI-502 studies were underway or planned. These timelines are forward-looking and may change.
The Company stated that existing cash, cash equivalents and marketable securities were sufficient to fund operations for more than 12 months from the financial-statement issuance date under current assumptions. However, additional capital is expected to be required for clinical development, ESKATA commercialization and potential acquisitions or licenses. Additional financing may dilute shareholders and may not be available on acceptable terms.
Key risks include ESKATA failing to achieve commercial acceptance, clinical-trial delays or unfavorable results, regulatory delays or nonapproval, manufacturing and supply constraints, intellectual-property challenges, substantial contingent milestone and royalty obligations, and dependence on future financing. No material legal proceedings were reported, and management stated that risk factors had not materially changed from the 2017 Form 10-K.
Important facts for investors to verify
- Whether ESKATA sales after the May 2018 launch generated meaningful revenue and whether commercial adoption met management expectations.
- The Company’s actual cash burn and remaining liquidity after commercialization spending and clinical-trial expansion.
- Progress, cost and results of the planned Phase 3 A-101 45% trials and the ATI-501 and ATI-502 programs.
- The amount and timing of contingent milestone payments, royalties and other obligations, including those related to Confluence, Rigel, Vixen and acquired intellectual property.
- Whether the contract research business remains profitable on a gross-margin basis; Q1 2018 consolidated gross margin was only 13.5%.
- The potential dilution from future equity or convertible-debt financing and outstanding options and restricted stock units totaling approximately 4.9 million potential shares.