Aclaris Therapeutics, Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and nine months ended September 30, 2020, filed November 4, 2020. Aclaris is a clinical-stage biopharmaceutical company focused on immuno-inflammatory diseases, with contract research services provided through Aclaris Life Sciences. Following its 2019 strategic review, the company refocused resources on development programs and pursued partners for its drug candidates and non-marketed FDA-approved ESKATA.
Financial statements recast commercial-product activity as discontinued operations following the sale of RHOFADE rights in October 2019. All amounts below are in thousands unless otherwise noted.
Financial performance and key metrics
| Metric | Q3 2020 | Q3 2019 | Change |
|---|---|---|---|
| Total revenue | $1,449 | $983 | +$466 |
| Contract research revenue | $1,331 | $983 | +$348 |
| Other revenue | $118 | $0 | +$118 |
| Cost of revenue | $1,189 | $826 | +$363 |
| Research and development | $6,866 | $16,183 | -$9,317 |
| General and administrative | $3,859 | $6,838 | -$2,979 |
| Loss from operations | $(10,465) | $(22,864) | +$12,399 |
| Net loss | $(10,659) | $(55,319) | +$44,660 |
| Net loss per share | $(0.25) | $(1.34) | Improved |
- For the nine months ended September 30, 2020, revenue was $4,902 versus $3,132 in 2019; operating loss was $37,352 versus $93,505; and net loss was $37,842 versus $142,760.
- Implied operating margin was approximately negative 722% in Q3 and negative 762% for the nine-month period. The filing does not present gross profit as a separate line because management considers it not meaningful at the company’s current revenue scale.
- Q3 other revenue primarily represented RHOFADE royalties. Nine-month other revenue was $529, including $0.5 million of RHOFADE royalty income.
- Cash, cash equivalents and restricted cash totaled $25,396 at September 30, 2020. Cash, cash equivalents, restricted cash and marketable securities totaled approximately $55.2 million. Marketable securities were $29,834.
- Net cash used in operating activities was $29,776 for the first nine months of 2020, compared with $76,055 in 2019. Investing activities provided $8,692 and financing activities provided $10,543.
- Total assets were $71,902 and stockholders’ equity was $40,757 at September 30, 2020. Accumulated deficit was $491,369.
Debt, financing and liquidity
- In March 2020, Aclaris borrowed $11.0 million under a Silicon Valley Bank term loan; the carrying value of long-term debt was $10,613 at September 30, 2020.
- The loan bears interest at the greater of prime plus 2% or 6.75%, requires interest-only payments through March 2022, and principal amortization from April 2022 through maturity in March 2024. It is secured by substantially all company assets other than intellectual property and includes a 5% final payment fee.
- In August 2020, Aclaris entered into a 36-month equity purchase agreement with Lincoln Park Capital allowing sales of up to $15.0 million of common stock. As of September 30, no shares had been sold under the facility; 121,584 commitment shares were issued.
- 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. The company nevertheless expects to require additional capital to complete ATI-450 and ATI-1777 development, advance preclinical compounds and support discovery activities.
Material changes versus the prior comparable period
- Revenue increased 47% in Q3 and 57% for the first nine months, driven by higher contract research activity and new RHOFADE royalty revenue.
- Research and development expense declined 58% for the first nine months, primarily because of reduced spending on completed or de-emphasized programs, lower headcount and the absence of the $4.0 million Rigel development milestone paid in 2019. Spending shifted toward ATI-450, ATI-1777 and ATI-2138.
- General and administrative expense declined 28% for the first nine months, primarily due to restructuring-related headcount reductions, lower stock-based compensation and lower facility and travel costs.
- The 2019 period included an $18.5 million goodwill impairment charge and $27.6 million intangible asset impairment charge related to discontinued operations; no comparable impairment charges were recorded in 2020.
- Discontinued-operations loss fell to $285 for the first nine months of 2020 from $48,666 in 2019. There were no product sales in discontinued operations during 2020, compared with $13,734 in the first nine months of 2019.
- Contingent consideration increased to $4,061 from $1,668 at December 31, 2019, reflecting updated assumptions following the ATI-450 Phase 1 completion and ATI-1777 IND submission and allowance.
Guidance, outlook, commentary and risks
- No quantitative revenue or earnings guidance was provided. Management expects continued net losses and significant expenses as it advances clinical and preclinical programs.
- ATI-450 Phase 1 results showed generally good tolerability and inhibition of several inflammatory mediators. Its rheumatoid arthritis Phase 2a enrollment was temporarily paused because of COVID-19, resumed in May 2020, and data timing was moved to the first half of 2021.
- ATI-1777 received IND allowance and a Phase 2a atopic dermatitis trial began enrollment in October 2020. Aclaris expected to file an IND for ATI-2138 in 2021. These developments occurred after the quarter-end but were disclosed in the filing.
- COVID-19 may delay clinical enrollment, trial execution, regulatory activities, manufacturing and supply chains, and may impair access to capital. The filing states that the full impact remains uncertain.
- Material contingencies include up to $75.0 million of remaining Confluence milestone payments, up to $76.0 million of remaining Rigel development milestones plus an additional potential $10.5 million milestone pool, and other milestone, royalty and sublicense obligations.
- The company faces a consolidated securities class action and a consolidated derivative action relating principally to ESKATA disclosures. Management disputes the claims; the filing states that potential losses cannot reasonably be estimated.
- Clinical failure, adverse events, regulatory delays, inability to obtain partners or financing, debt covenant defaults and reliance on third-party manufacturers and contract research organizations could materially affect operations.
Investor verification checklist
- Verify the assumed cash runway against the pace of operating cash burn and planned ATI-450, ATI-1777 and ATI-2138 expenditures.
- Track ATI-450 rheumatoid arthritis data timing and enrollment, the CAPS program, and the investigator-initiated COVID-19 trial.
- Confirm whether Aclaris draws on the Lincoln Park facility and assess resulting dilution.
- Review SVB loan covenants, collateral provisions, interest costs and the April 2022 principal amortization start date.
- Assess the probability and timing of Confluence, Rigel and other contingent milestone obligations and royalties.
- Monitor the securities and derivative litigation, including any motion-to-dismiss ruling, settlement or potential financial exposure.
- Confirm whether RHOFADE royalties and potential sales milestones continue to offset the loss of direct commercial-product revenue.