Aclaris Therapeutics, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Unaudited results cover the three months ended March 31, 2017. Aclaris is a dermatologist-led biotechnology company developing therapies for medical and aesthetic dermatology. Its lead candidate, A-101 40% Topical Solution, is being developed for seborrheic keratosis. The company had completed Phase 3 trials and submitted an FDA New Drug Application in February 2017; the filing states that the FDA accepted the application in May 2017, after the quarter, with a PDUFA target action date of December 24, 2017.
Financial Performance and Liquidity
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $7.8 million | $9.5 million | Down $1.8 million |
| General and administrative expense | $5.2 million | $3.6 million | Up $1.6 million |
| Total operating expenses | $12.9 million | $13.1 million | Down $0.2 million |
| Net loss | $12.6 million | $13.0 million | Improved $0.5 million |
| Net loss per share | $0.48 | $0.65 | Improved |
| Net cash used in operations | $12.7 million | $6.9 million | Use increased $5.8 million |
Because the company generated no revenue, operating and profit margins were not meaningful. Other income increased to $0.4 million from $0.1 million, primarily due to higher invested balances. Stock-based compensation expense was $3.2 million, compared with $1.2 million in the prior-year quarter.
At March 31, 2017, cash and cash equivalents were $23.7 million and marketable securities were $137.8 million, for total cash, cash equivalents and marketable securities of $161.4 million. Total assets were $166.2 million and total liabilities were $5.9 million. The filing does not identify outstanding debt or credit facilities; it states that the company had no ongoing material financing commitments such as lines of credit or guarantees.
Operating cash use was driven by the net loss and a $2.0 million FDA PDUFA fee recorded as a prepaid asset. Investing activities provided $6.0 million, primarily from sales and maturities of marketable securities, while financing activities provided $0.2 million from employee stock-option exercises. Cash and cash equivalents declined by $6.5 million during the quarter.
Material Changes Versus the Prior Comparable Period
- Research and development expense declined primarily because Q1 2016 included $3.4 million of expenses related to the Vixen acquisition. Excluding Vixen, research and development expense increased $1.6 million.
- JAK inhibitor development, personnel costs, stock-based compensation, NDA filing costs and medical-affairs activity increased, while A-101 development costs declined after Phase 3 trials ended in November 2016.
- General and administrative expense increased $1.6 million, primarily from higher headcount, stock-based compensation and pre-commercial market research.
- Cash used in operations increased substantially, partly because of the $2.0 million PDUFA payment and payments of prior-year bonuses.
- Common shares outstanding increased modestly to 26.1 million at March 31, 2017 from 26.1 million at December 31, 2016; weighted-average shares increased to 26.1 million from 20.2 million in the prior-year quarter.
Outlook, Risks, Contingencies and Unusual Items
Management expects significant operating losses and cash requirements to continue for the foreseeable future. Near-term priorities include obtaining approval and potentially commercializing A-101 40% for seborrheic keratosis, advancing A-101 45% for common warts, and developing ATI-50001 and ATI-50002 for alopecia areata and potentially vitiligo.
The company plans additional Phase 2 trials for A-101 45% and JAK inhibitor programs during 2017, subject to regulatory and operational conditions. Management states that existing cash, cash equivalents and marketable securities were expected to fund operations for more than 12 months from the issuance of the financial statements under current assumptions, but additional capital will likely be required for commercialization and future in-licensing or acquisitions.
On April 21, 2017, after quarter-end, the company sold 635,000 common shares for approximately $20.0 million of gross proceeds through its at-the-market facility. Approximately $55.0 million remained available for future sales under that facility.
Material risks include failure to obtain regulatory approval, clinical-trial delays or unfavorable results, manufacturing and commercialization challenges, competition, intellectual-property risks, dependence on third parties, and the need for additional financing. The company also has potential milestone and royalty obligations under its intellectual-property and acquisition agreements, including up to $80.0 million plus an additional $10.0 million under its Rigel license, up to $18.0 million of Vixen pre-commercialization milestones and up to $22.5 million of Vixen commercial milestones. No material legal proceedings were reported.
Investor Verification Points
- Verify the FDA’s May 2017 acceptance of the A-101 40% NDA and the December 24, 2017 PDUFA target action date.
- Assess whether the reported $161.4 million liquidity balance and subsequent $20.0 million equity raise are sufficient for planned development and commercialization activities.
- Review the increase in operating cash burn and the company’s assumptions supporting funding for more than 12 months.
- Evaluate the timing, probability and potential cost of clinical, regulatory and commercialization milestones across A-101 and the JAK inhibitor programs.
- Review potential dilution from the remaining at-the-market facility and outstanding options and restricted stock units.
- Assess contingent milestone, royalty, licensing and acquisition obligations, which may become payable only if specified development, regulatory or commercial events occur.