Aclaris Therapeutics, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Aclaris Therapeutics is a clinical-stage biopharmaceutical company developing therapies for immuno-inflammatory diseases and pursuing strategic partnerships. The filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. The company also operates a contract research segment providing laboratory services.
Financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $1.8 million | $1.4 million | +$0.4 million |
| Contract research revenue | $1.5 million | $1.2 million | +$0.3 million |
| Other revenue, primarily RHOFADE royalties | $0.2 million | $0.2 million | +$0.02 million |
| Research and development | $7.8 million | $7.7 million | +$0.2 million |
| General and administrative | $4.8 million | $6.2 million | -$1.4 million |
| Revaluation of contingent consideration | $16.4 million expense | $1.8 million expense | +$14.7 million expense |
| Loss from operations | $(28.5) million | $(15.5) million | Loss increased $13.0 million |
| Net loss | $(28.8) million | $(15.6) million | Loss increased $13.2 million |
| Net loss per share | $(0.57) | $(0.37) | More diluted loss per share |
| Net cash used in operating activities | $(12.2) million | $(6.8) million | Use increased $5.4 million |
Gross margin was not presented because management does not consider gross profit meaningful at the company’s current revenue scale. Cash and cash equivalents were $35.3 million at March 31, 2021, while short- and long-term marketable securities totaled $107.4 million, for combined cash, cash equivalents and marketable securities of $142.7 million. The company had an accumulated deficit of $533.3 million.
Total debt was approximately $11.0 million of outstanding principal under the Silicon Valley Bank term loan, with a carrying value of $10.7 million. Interest-only payments continue through March 2022, followed by principal and interest payments through March 2024. The loan bears interest at the greater of prime plus 2% or 6.75% and is secured by substantially all assets other than intellectual property.
Material changes versus the prior comparable period
- Revenue increased 26%, primarily because of higher average billing rates in contract research.
- Research and development expense was broadly stable, but spending shifted toward ATI-2138, ATI-1777, discovery programs and clinical development of ATI-450.
- General and administrative expense declined 22%, principally because of lower headcount and lower stock-based compensation, partially offset by higher professional and legal fees.
- The quarterly net loss increased substantially because the company recorded a $16.4 million non-cash revaluation charge for contingent consideration, compared with a $1.8 million charge in Q1 2020.
- The contingent consideration liability increased to $20.5 million from $4.1 million at December 31, 2020. The increase reflected higher estimated probabilities of success and future sales assumptions following ATI-450 Phase 2a results and the addition of hidradenitis suppurativa and psoriatic arthritis indications.
- In January 2021, the company completed a public offering of 6.3 million shares at $17.50 per share, generating $103.3 million of net proceeds. Shares outstanding increased to approximately 52.1 million at March 31, 2021 from 45.1 million at December 31, 2020.
- Cash used in investing activities increased to $75.3 million, primarily because proceeds from the equity offering were invested in marketable securities.
Guidance, outlook, risks and unusual items
- Management expects to progress ATI-450 into a Phase 2b rheumatoid arthritis trial in the second half of 2021 and to pursue Phase 2 trials in hidradenitis suppurativa and psoriatic arthritis.
- Enrollment in the ATI-1777 Phase 2a atopic dermatitis trial was completed in March 2021, with data expected in the second quarter of 2021.
- The company expects to file an IND for ATI-2138 in the second half of 2021.
- Management expects continuing operating losses and significant research and development expenditures. It states that current cash, cash equivalents and marketable securities should fund operations and capital expenditures for more than 12 months from issuance of the financial statements, but additional capital will be required to complete development programs and support discovery activities.
- Key risks include clinical-trial failure or delay, regulatory non-approval, inability to secure partnerships or financing, dilution from future equity offerings, intellectual-property claims, dependence on third parties and COVID-19-related disruptions to enrollment, operations and supply chains.
- COVID-19 previously contributed to pausing enrollment in an ATI-450 cryopyrin-associated periodic syndrome trial and may continue to affect clinical development and manufacturing timelines.
- Material contingencies include up to $75.0 million of potential regulatory and commercial milestone payments and future royalties under the Confluence acquisition agreement, as well as potential RHOFADE sales milestones of up to $20.0 million and continuing royalties from EPI Health.
- Pending litigation includes a securities class action, a derivative stockholder action and an ESKATA product-liability lawsuit. The company disputes the claims and states that potential outcomes and losses cannot reasonably be predicted.
- The $16.4 million contingent-consideration charge is a significant non-cash and estimate-sensitive item; the liability is based on Level 3 inputs, including probabilities of success, projected sales and discount rates.
Important facts for investors to verify
- Validate the timing, design and funding requirements of the planned ATI-450 Phase 2b and additional Phase 2 trials.
- Review ATI-1777 Phase 2a results when reported and assess their effect on development priorities and contingent consideration.
- Reconcile the $142.7 million liquidity figure with cash balances, marketable securities maturities, operating cash burn and debt obligations.
- Monitor changes in the $20.5 million contingent consideration liability and the assumptions underlying its valuation.
- Assess potential dilution from outstanding options, restricted stock units and future capital raises.
- Track developments in the securities, derivative and product-liability proceedings, for which the filing provides no clear potential loss estimate.