Aclaris Therapeutics, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2019, compared with the three months ended March 31, 2018. Aclaris is a physician-led biopharmaceutical company focused on dermatology and immuno-inflammatory diseases. Its commercial products were ESKATA for raised seborrheic keratosis and RHOFADE for rosacea-associated facial erythema. RHOFADE was acquired from Allergan in November 2018 and began contributing revenue during the quarter. The company also operates a contract research business through Aclaris Life Sciences.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue, net | $5.0 million | $1.1 million | +$3.9 million |
| Product sales, net | $3.8 million | $0 | +$3.8 million |
| Contract research revenue | $1.3 million | $1.1 million | +$0.1 million |
| Cost of revenue | $2.8 million | $1.0 million | +$1.8 million |
| Research and development | $19.9 million | $13.6 million | +$6.3 million |
| Sales and marketing | $9.8 million | $11.2 million | -$1.4 million |
| General and administrative | $8.2 million | $6.3 million | +$1.9 million |
| Operating loss | $37.3 million | $30.9 million | Loss increased $6.4 million |
| Net loss | $37.6 million | $30.2 million | Loss increased $7.3 million |
| Net loss per share | $0.91 | $0.98 | Improved due to higher share count |
| Net cash used in operating activities | $31.3 million | $21.9 million | Use increased $9.4 million |
The filing does not present a consolidated gross profit or gross margin, stating that gross profit is not a meaningful measure because revenue combines product sales and contract research services. Product sales comprised $3.7 million from RHOFADE and $0.1 million from ESKATA. Product-related cost of revenue was approximately $1.6 million, including $1.3 million for RHOFADE and $0.3 million for ESKATA, before considering the broader consolidated cost structure.
At March 31, 2019, cash and cash equivalents were $34.2 million, marketable securities were $102.6 million, and total cash, cash equivalents and marketable securities were $136.8 million. Total assets were $253.2 million, total liabilities were $70.9 million, and stockholders’ equity was $182.3 million. Accounts receivable increased to $15.8 million from $4.9 million at year-end, primarily due to RHOFADE sales.
The company reported $29.9 million of long-term debt on the balance sheet. It borrowed $30.0 million under an Oxford Finance term loan facility that permits up to $65.0 million, carries interest at the greater of 8.35% or 30-day LIBOR plus 6.25%, requires interest-only payments through 2021, and matures in October 2023. The filing indicates that the remaining $35.0 million was available through March 31, 2019; the balance sheet reflects approximately $30.0 million of debt outstanding.
Material changes versus the prior comparable period
- Revenue increased primarily because RHOFADE was acquired in November 2018 and generated $3.7 million of Q1 2019 net sales.
- Research and development expense increased 46%, driven by Phase 3 trials for A-101 45% Topical Solution for common warts, continued Phase 2 JAK inhibitor trials, and preclinical work on MK2 inhibitors.
- Amortization expense increased by $1.7 million because of the RHOFADE intellectual property acquired in 2018.
- Sales and marketing expense declined 13%, primarily because the prior-year period included ESKATA launch preparation costs; 2019 included expenses related to the RHOFADE relaunch.
- General and administrative expense increased 31%, reflecting higher headcount, professional fees, medical affairs activity, and Allergan transition-service costs.
- Operating cash use increased to $31.3 million, partly because accounts receivable increased by $11.0 million as RHOFADE sales grew.
- The company adopted the new lease standard on January 1, 2019, recording additional assets of $2.1 million and liabilities of $2.3 million without a material effect on earnings or cash flows.
Guidance, outlook, risks, contingencies and unusual items
- Management expects continued net losses for the next several years while commercializing ESKATA and RHOFADE and advancing its pipeline.
- The company completed enrollment of more than 1,000 patients in the THWART-1 and THWART-2 Phase 3 trials for A-101 45% Topical Solution and expected to report data in the second half of 2019. Subject to positive results, an NDA was expected in the first half of 2020.
- Preliminary results were expected during 2019 for several ATI-501 and ATI-502 trials. The company expected to file an IND for ATI-450 in 2019 and an IND for ATI-1777 by the end of the first half of 2020, subject to development progress and regulatory review.
- Management stated that existing cash, cash equivalents and marketable securities were expected to 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 for product commercialization, clinical development, discovery activities and potential acquisitions or licenses.
- Key risks include continued operating losses, uncertain clinical and regulatory outcomes, dependence on third-party manufacturers, reliance on Allergan for RHOFADE distribution, concentration of customers, market acceptance of commercial products, intellectual property obligations, and the possibility that additional financing may be unavailable or dilutive.
- The top five customers represented 93% of aggregate gross product and contract research revenue in Q1 2019. Allergan-related receivables were $15.1 million at March 31, 2019.
- Contractual obligations include RHOFADE royalties to Allergan ranging from mid-single-digit to mid-teen percentages of net sales, a potential $5.0 million Allergan milestone, and various development, regulatory and commercial milestone payments under other license and acquisition agreements.
- Stock-based compensation was $4.9 million in Q1 2019. The company also incurred $0.4 million of RHOFADE royalties and $0.2 million related to royalties or milestones payable to entities associated with current or former insiders.
- Management reported no material legal proceedings, no material change in previously disclosed risk factors, and effective disclosure controls as of March 31, 2019. Internal-control assessment excluded the recently acquired RHOFADE business.
Investor verification checklist
- Verify RHOFADE prescription demand, wholesaler inventory, payer rebates, returns and the sustainability of the $3.7 million quarterly sales contribution.
- Verify the remaining availability and covenant requirements of the Oxford term loan, including interest-rate exposure and repayment timing.
- Track operating cash burn, accounts receivable collection and the expected duration of the reported cash runway.
- Review results and timing for the A-101 45% Phase 3 trials and the planned NDA submission.
- Assess clinical, regulatory and financing milestones for ATI-501, ATI-502, ATI-450 and ATI-1777.
- Quantify future royalty, milestone and contingent consideration obligations, including those related to Allergan, Rigel, Vixen, Confluence and other licensors.