Aclaris Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2017; filed August 8, 2017. Aclaris is a development-stage dermatology biopharmaceutical company with no product revenue. Its lead candidate, A-101 40% Topical Solution for seborrheic keratosis, was under FDA review with a December 24, 2017 PDUFA target action date.
Financial Condition and Results
| Metric | Three months ended June 30 | Six months ended June 30 | ||
|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | |
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $8.0 million | $9.8 million | $15.7 million | $19.4 million |
| General and administrative | $7.3 million | $3.2 million | $12.5 million | $6.8 million |
| Total operating expenses | $15.3 million | $13.0 million | $28.2 million | $26.1 million |
| Net loss | $14.8 million | $12.9 million | $27.4 million | $25.9 million |
| Net loss per share | $0.56 | $0.62 | $1.04 | $1.27 |
Margins: Gross and operating margins are not meaningful because the company had no revenue. Operating loss was $15.3 million in the quarter and $28.2 million year to date. Other income, primarily investment income, was $0.5 million in the quarter and $0.8 million year to date.
- Liquidity: Cash, cash equivalents and marketable securities totaled $170.5 million at June 30, 2017, including $32.7 million of cash and cash equivalents and $137.8 million of current marketable securities.
- Cash flow: Operating activities used $22.7 million in the first six months, compared with $16.6 million in the prior-year period. Investing activities provided $5.7 million, and financing activities provided $19.5 million. Cash and cash equivalents increased $2.5 million to $32.7 million.
- Capital raising: The company sold 635,000 common shares under its at-the-market facility for approximately $20.0 million gross and $19.3 million net proceeds. Approximately $55.0 million remained available under the facility at June 30, 2017.
- Debt: The filing does not report material debt, credit facilities or guarantees. Total liabilities were $8.7 million, primarily accounts payable and accrued expenses.
- Capitalization: Shares outstanding increased to 26.7 million at June 30, 2017 from 26.1 million at December 31, 2016. Accumulated deficit was $118.3 million.
Material Changes Versus the Prior Comparable Period
- Quarterly net loss increased $2.0 million, or approximately 15%, while the six-month net loss increased $1.5 million, or approximately 6%.
- Quarterly research and development expense declined $1.9 million, primarily because Phase 3 A-101 seborrheic keratosis trials were completed in November 2016. This was partly offset by higher JAK inhibitor development, personnel, medical affairs and stock-based compensation costs.
- Six-month research and development expense declined $3.6 million, mainly because the prior-year period included $3.4 million related to the Vixen acquisition. Excluding Vixen, research and development expense decreased only approximately $0.3 million.
- General and administrative expense increased $4.2 million in the quarter and $5.7 million year to date. Drivers included higher headcount, stock-based compensation, market research and a $1.0 million A-101 regulatory milestone payment in the second quarter.
- Stock-based compensation increased to $6.5 million for the first six months from $2.6 million in the prior-year period.
- The company paid a $2.0 million PDUFA filing fee, recorded in prepaid expenses while a requested waiver and refund remained pending.
Guidance, Outlook, Risks and Unusual Items
- Management expected continued net losses and significant research, development, regulatory and commercialization spending for the foreseeable future.
- Management stated that existing cash, cash equivalents and marketable securities were sufficient to fund operating and capital requirements for more than 12 months from the financial statement issuance date under current assumptions, including ongoing Phase 2 programs. Additional capital is expected to be required for commercialization, acquisitions and broader development activities.
- A-101 45% Topical Solution entered two additional Phase 2 common-wart trials in June 2017; results were expected in the first half of 2018. The company also planned Phase 2 programs for ATI-50001 and ATI-50002 in alopecia areata and potentially vitiligo.
- The company submitted an EU Marketing Authorization Application for A-101 40% in July 2017 and submitted an IND for ATI-50002 in July 2017.
- On August 3, 2017, after the reporting period, Aclaris agreed to acquire Confluence Life Sciences. The transaction closed with approximately $8.7 million cash consideration, 314,572 shares issued at closing and additional escrow consideration; the filing describes total upfront consideration of $20.0 million, subject to adjustments. Potential contingent consideration was up to $80.0 million, plus royalties and other obligations.
- Key risks include failure to obtain regulatory approval, unfavorable or delayed clinical results, inability to commercialize products, additional financing needs, dilution from future equity financing, intellectual-property challenges, dependence on third parties and integration risks related to Confluence.
- Contractual and contingent obligations include office lease payments totaling approximately $0.9 million through 2019, potential development and commercial milestones under licensing and acquisition agreements, royalties on future product sales, and a possible supply-agreement termination fee of up to $0.4 million.
Investor Verification Priorities
- Verify the FDA review outcome and labeling for A-101 40% after the December 24, 2017 PDUFA target date.
- Assess cash burn, remaining ATM capacity and the timing and terms of any additional financing.
- Review subsequent filings for the final accounting treatment, purchase-price allocation and integration performance of the Confluence acquisition.
- Track Phase 2 results for A-101 45%, ATI-50001 and ATI-50002 and the associated development costs.
- Confirm the status of the requested $2.0 million PDUFA fee refund or waiver.
- Monitor dilution, stock-based compensation and potential milestone, royalty and licensing payments.