Aclaris Therapeutics, Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and nine months ended September 30, 2018, filed November 6, 2018. Aclaris is a dermatologist-led biopharmaceutical company developing and commercializing dermatology and immunology therapies. ESKATA was FDA-approved in December 2017 and launched in the United States in May 2018. The company also operates a contract research business through Confluence.
Financial results and key metrics
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Revenue | $1.6 million | $0.7 million | $6.4 million | $0.7 million |
| Gross profit | $0.4 million | $0.2 million | $3.1 million | $0.2 million |
| Gross margin | 26.7% | 33.8% | 48.0% | 33.8% |
| Operating loss | $(33.5) million | $(18.8) million | $(96.4) million | $(47.0) million |
| Net loss | $(32.7) million | $(18.2) million | $(94.2) million | $(45.6) million |
| Net loss per share | $(1.06) | $(0.63) | $(3.04) | $(1.68) |
| Operating cash flow | Not separately provided | Not separately provided | $(73.6) million | $(36.5) million |
- Q3 revenue included $0.5 million of net ESKATA sales and $1.1 million of contract research revenue. Nine-month revenue included $2.0 million of net ESKATA sales, $3.4 million of contract research revenue, and a $1.0 million upfront payment from Cipher.
- Operating expenses were $33.9 million in Q3 and $99.5 million for the nine-month period, including research and development of $15.9 million and $43.5 million, sales and marketing of $11.4 million and $35.0 million, and general and administrative expense of $6.6 million and $21.0 million, respectively.
- Cash, cash equivalents and marketable securities totaled $134.3 million at September 30, 2018, comprising $26.6 million of cash and cash equivalents and $107.7 million of current marketable securities.
- Total assets were $176.2 million and total liabilities were $29.8 million at September 30, 2018. The filing does not report funded debt outstanding at the quarter-end date; contingent consideration was $5.2 million.
- Accumulated deficit was $253.6 million. Stock-based compensation expense was $15.1 million for the first nine months.
Material changes versus the prior comparable period
- Revenue increased by $0.9 million in Q3 and $5.7 million for the first nine months, primarily because ESKATA sales began in 2018 and Confluence contributed a full period of contract research revenue.
- Operating expenses increased by $14.9 million in Q3 and $52.2 million for the first nine months. Research and development spending rose with A-101 45% and JAK-inhibitor programs, while sales and marketing spending increased substantially due to the ESKATA launch and the hiring of a 50-person field sales force.
- Net loss increased by $14.5 million in Q3 and $48.6 million for the first nine months. The increase reflects commercialization costs, expanded clinical development, increased headcount, and higher stock-based compensation.
- Operating cash use more than doubled year over year to $73.6 million for the first nine months. Investing activities provided $79.9 million, mainly from sales and maturities of marketable securities, while financing activities provided only $0.1 million compared with $100.5 million in the prior-year period.
Guidance, outlook, risks and unusual items
- Management expects significant operating losses and cash needs for the next several years while commercializing ESKATA, potentially commercializing RHOFADE, and advancing A-101 45%, ATI-501, ATI-502, ATI-450 and other discovery programs.
- Phase 3 trials of A-101 45% for common warts began in September 2018, with data expected in the second half of 2019. Management planned additional clinical studies and potential regulatory submissions thereafter.
- On October 15, 2018, the company agreed to acquire worldwide rights to RHOFADE from Allergan for $65.0 million in cash, plus approximately $1.0 million of inventory, potential milestone payments, and royalties. Closing remained subject to regulatory and other conditions and was expected in the fourth quarter of 2018.
- Also on October 15, 2018, the company entered into an Oxford term-loan facility of up to $65.0 million and borrowed $30.0 million on October 31, 2018. The additional $35.0 million was available only following the RHOFADE closing and subject to specified conditions. The facility carries interest at the greater of 8.35% or 30-day U.S. LIBOR plus 6.25%, with interest-only payments through 2021 and maturity in October 2023.
- On October 17, 2018, the company sold 9,941,750 shares in a public offering for gross proceeds of $106.9 million, before $6.4 million of underwriting discounts and commissions.
- Management stated that existing resources were expected to fund requirements for more than 12 months from issuance of the interim financial statements, based on assumptions including the RHOFADE acquisition and commercialization. The company nevertheless expects additional capital will be required for later-stage development, commercialization, and potential acquisitions.
- Key risks include continued losses and negative operating cash flow, dependence on additional financing, execution and integration risks relating to RHOFADE, debt covenant and repayment risk, clinical and regulatory uncertainty, commercialization risk for ESKATA, competition, and patent challenges.
- The company reported no material legal proceedings and concluded that disclosure controls and procedures were effective as of September 30, 2018.
Most important facts for investors to verify
- Whether ESKATA sales accelerate sufficiently to offset the substantially higher sales, marketing, research and development expenses.
- Actual cash burn and remaining liquidity after the October 2018 equity offering, the $30.0 million Oxford borrowing, and the planned RHOFADE acquisition.
- Whether the RHOFADE acquisition closed on the expected terms and whether the additional $35.0 million loan tranche was drawn.
- Compliance with Oxford’s minimum-revenue covenants and other secured-loan restrictions.
- Progress, enrollment, results and regulatory timelines for A-101 45%, ATI-501, ATI-502 and ATI-450.
- Potential milestone, royalty and contingent-consideration obligations, including the remaining $3.0 million commercial milestone under the KPT agreement and up to $80.0 million of Confluence-related milestones.
- Customer concentration: McKesson was the company’s only direct ESKATA customer, and ESKATA sales remained limited during the initial launch period.