Aclaris Therapeutics, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the three and nine months ended September 30, 2017, filed November 7, 2017. Aclaris is a dermatology-focused biopharmaceutical company developing A-101 topical solutions, JAK inhibitors and other dermatology candidates. The company acquired Confluence Life Sciences on August 3, 2017, adding drug-discovery capabilities and a contract laboratory-services business.
A-101 40% Topical Solution for seborrheic keratosis had completed Phase 3 trials. The FDA accepted the NDA in May 2017, with a PDUFA target action date of December 24, 2017. The company submitted an EU marketing application in July 2017.
Key financial metrics
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0.7 million | $0 | $0.7 million | $0 |
| Gross profit | $0.2 million | $0 | $0.2 million | $0 |
| Gross margin | 33.8% | Not meaningful | 33.8% | Not meaningful |
| Research and development expense | $10.9 million | $7.2 million | $26.6 million | $26.5 million |
| General and administrative expense | $8.1 million | $3.7 million | $20.6 million | $10.4 million |
| Net loss | $18.2 million | $10.7 million | $45.6 million | $36.6 million |
| Net loss per share | $0.63 | $0.50 | $1.68 | $1.76 |
| Cash used in operating activities | Not provided quarterly | Not provided quarterly | $36.5 million | $26.5 million |
| Cash, cash equivalents and marketable securities | $227.8 million at September 30, 2017 |
Cash and cash equivalents were $60.1 million at September 30, 2017, compared with $30.2 million at December 31, 2016. Marketable securities were $167.8 million, versus $144.0 million at year-end 2016. Total assets were $261.4 million and the accumulated deficit was $136.5 million.
Financing activities provided $100.5 million during the first nine months, consisting primarily of $19.3 million from the at-the-market offering and $80.9 million from the August public offering. Investing activities used $34.1 million, including $9.6 million for the Confluence acquisition. The company reported no debt or material credit facilities.
Material changes versus the prior comparable period
- Revenue began following the Confluence acquisition and consisted primarily of laboratory-services fees.
- Quarterly research and development expense increased $3.7 million, driven by A-101 45% trials, JAK-inhibitor development, manufacturing scale-up, medical affairs, increased headcount, stock compensation and Confluence research activities. These increases were partly offset by lower A-101 40% Phase 3 costs.
- Nine-month research and development expense was essentially unchanged because lower A-101 40% and Vixen-related costs offset higher JAK, A-101 45%, personnel, stock compensation, medical affairs and regulatory expenses.
- General and administrative expense increased $4.5 million in the quarter and $10.2 million year to date, primarily due to higher personnel and stock-based compensation, pre-commercial market research and sales operations, facilities costs, milestone payments and Confluence transaction costs.
- Net loss increased $7.5 million in the quarter and $9.0 million year to date, despite higher interest and investment income.
- Shares outstanding increased to 30.8 million at September 30, 2017 from 26.1 million at December 31, 2016, reflecting equity offerings, acquisition consideration and employee equity activity.
Guidance, outlook, risks and unusual items
Management expects continued net losses and significant research, development, regulatory and commercialization spending for the foreseeable future. It expects research and development expense to increase as A-101, JAK inhibitors and other programs advance, and as the company builds commercial capabilities.
Management 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 under current assumptions. Additional capital is expected to be required to commercialize A-101 if approved and to pursue further acquisitions or licensing transactions. Future equity or convertible-debt financing could dilute existing shareholders.
The Confluence transaction had total fair-value consideration of $24.3 million, including $10.3 million cash, $9.7 million of Aclaris stock and $4.4 million of contingent consideration. Potential additional Confluence milestone payments are up to $80.0 million, plus royalties and possible payments related to sublicensing or transfer of acquired intellectual property.
Other significant contingent obligations include potential payments and royalties under the Rigel, Vixen, Columbia, A-101 intellectual-property and Confluence arrangements. The filing does not provide a single aggregate maximum for all such obligations.
Key risks include FDA or foreign regulatory failure or delay, unsuccessful clinical trials, inability to commercialize products, competition, intellectual-property challenges, dependence on third parties, additional financing needs, integration of Confluence, potential goodwill or intangible-asset impairment and retention of key personnel. No material legal proceedings were reported.
Subsequent to quarter-end, Aclaris entered into a sublease for new headquarters space beginning December 1, 2017 and extending through October 31, 2023. Base rent is abated for the first three months and begins at $47,000 per month thereafter, excluding operating expenses. The sublease may terminate if the underlying master lease terminates.
Important facts for investors to verify
- FDA action on the A-101 40% NDA and the status of the EU marketing application.
- Cash runway relative to the timing and cost of potential A-101 commercialization.
- Progress, enrollment and results for A-101 45%, ATI-50001 and ATI-50002 clinical programs.
- Integration, revenue retention and operating performance of Confluence’s laboratory-services business.
- Potential milestone, royalty, sublicensing and contingent-consideration payments under the company’s licensing and acquisition agreements.
- Future equity issuance, dilution and availability under the remaining at-the-market facility.
- Potential impairment of the $18.5 million Confluence goodwill balance and the $7.4 million of acquired intangible assets.