Aclaris Therapeutics, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Aclaris is a clinical-stage biopharmaceutical company developing therapies for immuno-inflammatory diseases and operating a contract research laboratory-services business. The filing covers the quarter and six months ended June 30, 2021, compared with the corresponding 2020 periods. The company reported 61.2 million common shares outstanding as of July 30, 2021.
Financial performance and position
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Total revenue | $1.8 million | $2.0 million | $3.6 million | $3.5 million |
| Contract research revenue | $1.6 million | $1.9 million | $3.1 million | $3.0 million |
| Other revenue | $0.2 million | $0.2 million | $0.5 million | $0.4 million |
| Research and development expense | $7.9 million | $6.5 million | $15.7 million | $14.1 million |
| General and administrative expense | $5.9 million | $5.6 million | $10.7 million | $11.8 million |
| Revaluation of contingent consideration | $4.8 million | — | $21.2 million | $1.8 million |
| Loss from operations | $(18.0) million | $(11.4) million | $(46.5) million | $(26.9) million |
| Net loss | $(18.2) million | $(11.6) million | $(46.9) million | $(27.2) million |
| Basic and diluted loss per share | $(0.34) | $(0.28) | $(0.90) | $(0.65) |
The filing does not present gross profit or gross margin as management considers gross profit less meaningful given the company’s revenue profile. Contract research revenue less cost of revenue implies approximately $0.3 million of segment-level gross profit in Q2 2021 and $0.7 million for the six-month period, before other operating expenses.
- Cash and cash equivalents were $113.4 million at June 30, 2021, compared with $22.1 million at December 31, 2020.
- Short- and long-term marketable securities totaled $152.7 million at June 30, 2021, compared with $32.1 million at year-end 2020. Total cash, cash equivalents and marketable securities were $266.2 million.
- Net cash used in operating activities was $24.5 million for the first six months of 2021, versus $17.6 million in the prior-year period.
- Net cash used in investing activities was $120.8 million, primarily reflecting purchases of marketable securities.
- Net cash provided by financing activities was $236.6 million, including $238.2 million of net proceeds from January and June public offerings.
- Long-term debt was $10.7 million at June 30, 2021. In July 2021, the company repaid the $11.0 million SVB term loan for total consideration of $11.7 million, including interest, fees and a prepayment fee.
- Accumulated deficit was $551.5 million at June 30, 2021. Total stockholders’ equity was $233.8 million.
Material changes versus the prior comparable period
- Second-quarter revenue declined $0.2 million, or approximately 11%, primarily because contract research revenue decreased $0.3 million as a result of fewer hours billed, partly offset by higher billing rates. Six-month revenue increased $0.1 million.
- Research and development expense increased $1.4 million in Q2 and $1.6 million for the six months. ATI-450 spending increased as the company prepared for a Phase 2b rheumatoid arthritis trial and incurred additional manufacturing and development costs. ATI-2138 and discovery spending also increased, while ATI-1777 spending declined following completion of Phase 2a activities.
- The $21.2 million six-month increase in contingent consideration expense primarily reflected higher estimated probabilities of success and future sales assumptions following Phase 2a results for ATI-450 and ATI-1777, including potential ATI-450 indications in hidradenitis suppurativa and psoriatic arthritis. The liability increased to $25.3 million from $4.1 million at December 31, 2020.
- General and administrative expense decreased $1.1 million for the six months, primarily from lower personnel and restructuring costs, partly offset by higher legal, compliance, patent and litigation expenses.
- The company issued 6.3 million shares in January and 8.1 million shares in June 2021, generating combined net proceeds of $238.2 million. Shares outstanding increased from 45.1 million at December 31, 2020 to 61.2 million at June 30, 2021.
Guidance, outlook, commentary and risks
- Management expects continued net losses and significant research and development spending as it advances ATI-450, ATI-1777, ATI-2138, ATI-2231 and discovery programs.
- The company intends to advance ATI-450 into a Phase 2b rheumatoid arthritis trial in the fourth quarter of 2021 and plans Phase 2 trials in hidradenitis suppurativa and psoriatic arthritis.
- ATI-1777’s Phase 2a atopic dermatitis trial met its primary endpoint. The company reported a 74.4% reduction in mEASI score from baseline at week four versus 41.4% for vehicle, with a reported one-sided p-value below 0.001. Management intends to advance the program into Phase 2b.
- The company expected to submit an IND for ATI-2138 in the second half of 2021 and was conducting IND-enabling studies for ATI-2231.
- Management stated that existing cash, cash equivalents and marketable securities should fund operating and capital requirements for more than 12 months from issuance of the financial statements. However, additional capital will be required for clinical development, preclinical compounds and discovery efforts.
- Potential funding sources include equity or debt financing and strategic partnerships. Additional financing may be unavailable or dilutive, and failure to obtain funding or partnerships could require the company to delay, scale back or discontinue programs.
- COVID-19 could disrupt clinical-trial timing, enrollment, operations, regulatory activities and the supply of active pharmaceutical ingredients and clinical-trial materials.
- The company accrued $2.65 million for a proposed securities class-action settlement and $0.4 million for a proposed derivative-action settlement. Both settlements were subject to court approval, and the company expected insurance coverage to offset the financial obligations.
- Potential future obligations under the Confluence acquisition include up to $75.0 million of regulatory and commercial milestone payments, royalties and certain transaction-related payments. The company also remains eligible for RHOFADE royalties and potential sales milestones from EPI Health.
- Management reported effective disclosure controls as of June 30, 2021 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the final status and insurance treatment of the securities and derivative litigation settlements.
- Verify completion and cash impact of the July 2021 SVB loan repayment.
- Track Phase 2b timing, design, enrollment and funding for ATI-450 and ATI-1777, and compare final clinical data with preliminary topline results.
- Assess the assumptions underlying the $25.3 million contingent consideration liability, particularly probability-of-success estimates, projected sales and discount rates.
- Monitor cash burn, additional financing needs and potential dilution following the 2021 public offerings.
- Evaluate whether contract research revenue remains stable and whether it can offset only a small portion of continuing therapeutics-related operating costs.
- Review the full risk factors in the company’s Form 10-K and subsequent filings for clinical, regulatory, intellectual-property, COVID-19, financing and partnership risks.