Aclaris Therapeutics, Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
Aclaris is a clinical-stage biopharmaceutical company developing therapies for immuno-inflammatory diseases, supported by a contract research laboratory-services business and royalties from the divested RHOFADE product. The filing covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $1.7 million | $1.4 million | $5.3 million | $4.9 million |
| Research and development expense | $14.0 million | $6.2 million | $29.7 million | $20.4 million |
| General and administrative expense | $6.0 million | $3.9 million | $16.7 million | $15.6 million |
| Loss from operations | $(20.3) million | $(10.5) million | $(66.8) million | $(37.4) million |
| Net loss | $(21.1) million | $(10.7) million | $(68.1) million | $(37.8) million |
| Net loss per share | $(0.35) | $(0.25) | $(1.23) | $(0.90) |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(35.1) million | $(29.8) million |
Revenue increased 14% for both the quarter and nine-month period. Contract research revenue was $1.4 million in Q3 and $4.6 million for the nine months; other revenue, primarily RHOFADE royalties, was $0.2 million and $0.7 million, respectively.
As of September 30, 2021, cash and cash equivalents were $53.6 million and short- and long-term marketable securities were $190.0 million, for total cash, cash equivalents and marketable securities of approximately $243.6 million. The company had an accumulated deficit of $572.6 million. It reported no long-term debt after repaying its Silicon Valley Bank loan in July 2021 for total consideration of $11.7 million.
Financing activities generated $225.1 million during the nine months, including $238.2 million of net proceeds from January and June public offerings, partly offset by debt repayment and employee tax withholdings. Investing activities used $158.5 million, primarily because the company invested offering proceeds in marketable securities.
Material changes versus the prior comparable period
- Research and development expense increased by $7.7 million in Q3 and $9.3 million for the nine months, primarily due to higher zunsemetinib development and manufacturing costs, increased work on ATI-2138 and ATI-2231, discovery investment, and higher stock-based compensation.
- General and administrative expense increased by $2.1 million in Q3 and $1.0 million for the nine months, driven mainly by stock-based compensation, professional and legal fees, information technology and insurance costs.
- The contingent consideration revaluation charge increased to $22.1 million for the nine months from $2.4 million in the prior-year period. The increase reflected updated probability-of-success and future-sales assumptions following Phase 2a trial completions and the addition of potential zunsemetinib indications.
- Quarterly and year-to-date net losses increased substantially, despite modest revenue growth and lower cost of revenue. The cost-of-revenue reduction was primarily attributed to COVID-19 employee-retention tax credits.
- Shares outstanding increased to 61.2 million at September 30, 2021 from 45.1 million at December 31, 2020, principally because of the two public offerings and equity awards.
Guidance, outlook, risks and unusual items
Management expects continued net losses and significant spending as it advances zunsemetinib, ATI-1777, preclinical programs and discovery activities. It intended to advance zunsemetinib into a Phase 2b rheumatoid arthritis trial in the fourth quarter of 2021 and ATI-1777 into a Phase 2b atopic dermatitis trial in the first half of 2022. An IND for ATI-2138 was submitted in October 2021; the filing does not provide a specific revenue or earnings forecast.
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, while also stating that additional capital will be required for continued development. Additional financing or partnering may be unavailable or dilutive, and failure to obtain funding could require the company to delay, scale back or discontinue programs.
- Clinical development, regulatory approval, commercialization and partnering remain uncertain, and drug candidates may fail or may not achieve commercial success.
- COVID-19 may disrupt clinical-trial timing, enrollment, operations and the supply of active pharmaceutical ingredients and drug products.
- The $26.2 million contingent consideration liability is based on Level 3 assumptions, including milestone probabilities, projected sales and discount rates; changes in assumptions may materially affect results.
- The company accrued $2.65 million for a proposed securities class-action settlement and $0.425 million for a proposed derivative-action settlement. Both settlements remained subject to court approval as of September 30, 2021, and the company expected insurance coverage to offset the obligations.
- On November 1, 2021, the chief legal and compliance officer announced retirement effective January 3, 2022. The related severance agreement provides for a $615,000 cash payment, benefits continuation and equity-vesting acceleration.
- The company reported effective disclosure controls as of September 30, 2021 and no material changes to internal control over financial reporting during the quarter.
Investor verification points
- Verify subsequent clinical, regulatory and enrollment updates for zunsemetinib, ATI-1777 and ATI-2138, including whether the planned Phase 2b programs commenced on schedule.
- Assess whether the $243.6 million liquidity balance and operating cash burn remain sufficient under updated development plans.
- Review the assumptions supporting the $26.2 million contingent consideration liability and the potential for additional milestone or royalty payments.
- Confirm final court approval, insurance recoveries and cash impacts of the securities and derivative-action settlements.
- Monitor dilution from outstanding options and restricted stock units, public-equity financing needs and future partnering activity.