acrs_Current_Folio_10Q_Taxonomy2018

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q

 


 

 

 

(Mark one)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                        

 

Commission File Number 001-37581


Aclaris Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

46-0571712
(I.R.S. Employer
Identification No.)

640 Lee Road, Suite 200
Wayne, PA
(Address of principal executive offices)

19087
(Zip Code)

 

Registrant’s telephone number, including area code: (484) 324‑7933

 

N/A

 

(Former name, former address and former fiscal year, if changed since last report)


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Securities Exchange Act of 1934:

 

 

 

 

Large accelerated filer  ☐

 

Accelerated filer  ☒

 

 

 

Non-accelerated filer  ☐

 

Smaller reporting company  ☐

(Do not check if a smaller reporting company)

 

 

 

 

Emerging growth company  ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).   Yes ☐  No ☒

 

The number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, as of the close of business on August 2, 2018 was 30,980,663.

 

 

 

 

 


 

Table of Contents

ACLARIS THERAPEUTICS, INC.

 

INDEX TO FORM 10-Q

 

 

 

 

 

 

    

PAGE

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

 

Item 1. Financial Statements 

 

2

 

 

 

Unaudited Condensed Consolidated Balance Sheet as of June 30, 2018 and December 31, 2017 

 

2

 

 

 

Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and six months ended June 30, 2018 and 2017 

 

3

 

 

 

Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2018 

 

4

 

 

 

Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2018 and 2017 

 

5

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements 

 

6

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

21

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk 

 

39

 

 

 

Item 4. Controls and Procedures 

 

40

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

 

Item 1. Legal Proceedings 

 

41

 

 

 

Item 1A. Risk Factors 

 

41

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

 

41

 

 

 

Item 6. Exhibits 

 

42

 

 

 

Signatures 

 

43

 

 

 

 

 


 

Table of Contents

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

    

June 30, 

 

December 31, 

 

 

    

2018

    

2017

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

46,035

 

$

20,202

 

Marketable securities

 

 

118,569

 

 

173,655

 

Accounts receivable, net

 

 

2,182

 

 

481

 

Inventory

 

 

1,026

 

 

 —

 

Prepaid expenses and other current assets

 

 

3,360

 

 

5,883

 

Total current assets

 

 

171,172

 

 

200,221

 

Marketable securities

 

 

 —

 

 

14,997

 

Property and equipment, net

 

 

4,375

 

 

2,159

 

Intangible assets

 

 

7,311

 

 

7,349

 

Goodwill

 

 

18,504

 

 

18,504

 

Other assets

 

 

457

 

 

279

 

Total assets

 

$

201,819

 

$

243,509

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

12,504

 

$

7,822

 

Accrued expenses

 

 

7,565

 

 

4,940

 

Total current liabilities

 

 

20,069

 

 

12,762

 

Contingent consideration

 

 

5,244

 

 

4,378

 

Other liabilities

 

 

1,754

 

 

558

 

Deferred tax liability

 

 

549

 

 

549

 

Total liabilities

 

 

27,616

 

 

18,247

 

Stockholders’ Equity:

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value; 10,000,000 shares authorized and no shares issued or outstanding at June 30, 2018 and December 31, 2017

 

 

 —

 

 

 —

 

Common stock, $0.00001 par value; 100,000,000 shares authorized at June 30, 2018 and December 31, 2017; 30,965,296 and 30,856,505 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

 

 

 —

 

 

 —

 

Additional paid‑in capital

 

 

395,273

 

 

384,943

 

Accumulated other comprehensive loss

 

 

(188)

 

 

(246)

 

Accumulated deficit

 

 

(220,882)

 

 

(159,435)

 

Total stockholders’ equity

 

 

174,203

 

 

225,262

 

Total liabilities and stockholders’ equity

 

$

201,819

 

$

243,509

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

ESKATA product sales, net

    

$

1,533

    

$

 —

    

$

1,533

    

$

 —

 

Contract research

 

 

1,143

 

 

 —

 

 

2,261

 

 

 —

 

Other revenue

 

 

1,000

 

 

 —

 

 

1,000

 

 

 —

 

Total revenue, net

 

 

3,676

 

 

 —

 

 

4,794

 

 

 —

 

Cost of revenue

 

 

1,181

 

 

 —

 

 

2,148

 

 

 —

 

Gross profit

 

 

2,495

 

 

 —

 

 

2,646

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

13,984

 

 

7,965

 

 

27,590

 

 

15,737

 

Sales and marketing

 

 

12,368

 

 

2,188

 

 

23,601

 

 

3,626

 

General and administrative

 

 

8,121

 

 

5,142

 

 

14,381

 

 

8,862

 

Total operating expenses

 

 

34,473

 

 

15,295

 

 

65,572

 

 

28,225

 

Loss from operations

 

 

(31,978)

 

 

(15,295)

 

 

(62,926)

 

 

(28,225)

 

Other income, net

 

 

760

 

 

457

 

 

1,479

 

 

828

 

Net loss

 

$

(31,218)

 

$

(14,838)

 

$

(61,447)

 

$

(27,397)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(1.01)

 

$

(0.56)

 

$

(1.99)

 

$

(1.04)

 

Weighted average common shares outstanding, basic and diluted

 

 

30,944,899

 

 

26,594,854

 

 

30,915,577

 

 

26,339,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities, net of tax of $0

 

$

111

 

$

(4)

 

$

46

 

$

(56)

 

Foreign currency translation adjustments

 

 

28

 

 

87

 

 

12

 

 

159

 

Total other comprehensive income

 

 

139

 

 

83

 

 

58

 

 

103

 

Comprehensive loss

 

$

(31,079)

 

$

(14,755)

 

$

(61,389)

 

$

(27,294)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF

STOCKHOLDERS’ EQUITY

(Unaudited)

 

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional

 

Other

 

 

 

Total

 

 

 

 

 

Par

 

Paid‑in

 

Comprehensive

 

Accumulated

 

Stockholders’

 

 

  

  Shares 

  

Value

  

Capital

  

Loss

  

Deficit

  

Equity

 

Balance at December 31, 2017

 

30,856,505

 

$

 —

 

$

384,943

 

$

(246)

 

$

(159,435)

 

$

225,262

 

Exercise of stock options and vesting of RSUs

 

108,791

 

 

 —

 

 

(62)

 

 

 —

 

 

 —

 

 

(62)

 

Unrealized gain on marketable securities

 

 —

 

 

 —

 

 

 —

 

 

46

 

 

 —

 

 

46

 

Foreign currency translation adjustment

 

 —

 

 

 —

 

 

 —

 

 

12

 

 

 —

 

 

12

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

10,392

 

 

 —

 

 

 —

 

 

10,392

 

Net loss 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(61,447)

 

 

(61,447)

 

Balance at June 30, 2018

 

30,965,296

 

$

 —

 

$

395,273

 

$

(188)

 

$

(220,882)

 

$

174,203

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30, 

 

 

    

2018

    

2017

 

Cash flows from operating activities:

    

 

    

    

 

    

 

Net loss

 

$

(61,447)

 

$

(27,397)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

537

 

 

105

 

Stock-based compensation expense

 

 

10,392

 

 

6,457

 

Change in fair value of contingent consideration

 

 

866

 

 

 —

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

  Accounts receivable

 

 

(1,701)

 

 

 —

 

  Inventory

 

 

(1,026)

 

 

 —

 

Prepaid expenses and other assets

 

 

2,345

 

 

(3,897)

 

Accounts payable

 

 

4,693

 

 

3,161

 

Accrued expenses

 

 

1,636

 

 

(1,168)

 

Net cash used in operating activities

 

 

(43,705)

 

 

(22,739)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(650)

 

 

(388)

 

Purchases of marketable securities

 

 

(74,246)

 

 

(41,534)

 

Proceeds from sales and maturities of marketable securities

 

 

144,375

 

 

47,652

 

Net cash provided by investing activities

 

 

69,479

 

 

5,730

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock under the at-the-market sales agreement, net of issuance costs

 

 

 —

 

 

19,311

 

Capital lease payments

 

 

(335)

 

 

 —

 

Proceeds from the exercise of employee stock options

 

 

394

 

 

235

 

Net cash provided by financing activities

 

 

59

 

 

19,546

 

Net increase in cash and cash equivalents

 

 

25,833

 

 

2,537

 

Cash and cash equivalents at beginning of period

 

 

20,202

 

 

30,171

 

Cash and cash equivalents at end of period

 

$

46,035

 

$

32,708

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

Additions to property and equipment included in accounts payable

 

$

442

 

$

190

 

Property and equipment obtained pursuant to capital lease financing arrangements

 

$

1,896

 

$

 —

 

Offering costs included in accounts payable

 

$

20

 

$

 —

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ACLARIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Amounts in thousands, except share and per share data)

 

1. Organization and Nature of Business

 

Aclaris Therapeutics, Inc. was incorporated under the laws of the State of Delaware in 2012.  In July 2015, Aclaris Therapeutics International Limited (“ATIL”) was established under the laws of the United Kingdom as a wholly-owned subsidiary of Aclaris Therapeutics, Inc.  In March 2016, Vixen Pharmaceuticals, Inc. (“Vixen”) became a wholly-owned subsidiary of Aclaris Therapeutics, Inc.  In August 2017, Aclaris Life Sciences Inc. (formerly known as Confluence Life Sciences Inc.) (“Confluence”) was acquired by Aclaris Therapeutics, Inc. and became a wholly-owned subsidiary thereof (see Note 3).  Aclaris Therapeutics, Inc., ATIL, Vixen and Confluence are referred to collectively as the “Company”.  The Company is a dermatologist-led biopharmaceutical company focused on identifying, developing and commercializing innovative therapies to address significant unmet needs in medical and aesthetic dermatology and immunology. The Company’s lead drug, ESKATA (hydrogen peroxide) Topical Solution, 40% (w/w) (“ESKATA”), is a proprietary high‑concentration formulation of hydrogen peroxide that the Company is commercializing as an office-based prescription treatment for raised seborrheic keratosis (“SK”), a common non‑malignant skin tumor. The Company submitted a New Drug Application (“NDA”) for ESKATA to the U.S. Food and Drug Administration (“FDA”) in February 2017, and it was approved in December 2017.  The Company launched ESKATA in May 2018. 

 

Liquidity

 

The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. At June 30, 2018, the Company had cash, cash equivalents and marketable securities of $164,604 and an accumulated deficit of $220,882. Since inception, the Company has incurred net losses and negative cash flows from its operations.  Prior to the acquisition of Confluence in August 2017, and the commercial launch of ESKATA in May 2018, the Company had never generated any revenue.  There can be no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing of the Company’s drug candidates, and commercialization of the Company’s products will require significant additional financing.  The future viability of the Company is dependent on its ability to generate cash from operating activities or to raise additional capital to finance its operations.  The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. 

 

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  The condensed consolidated financial statements of the Company include the accounts of the operating parent company, Aclaris Therapeutics, Inc., and its wholly-owned subsidiaries, ATIL, Confluence and Vixen.  All significant intercompany transactions have been eliminated. 

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods.  Significant

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estimates and assumptions reflected in these financial statements include, but are not limited to, research and development expenses, contingent consideration and the valuation of stock-based awards.  Estimates are periodically reviewed in light of changes in circumstances, facts and experience.  Actual results could differ from the Company’s estimates. 

 

Unaudited Interim Financial Information

 

The accompanying condensed consolidated balance sheet as of June 30, 2018, the condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2018 and 2017, the condensed consolidated statement of stockholders’ equity for the six months ended June 30, 2018, and the condensed consolidated statement of cash flows for the six months ended June 30, 2018 and 2017 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements contained in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 12, 2018 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2018, the results of its operations and comprehensive loss for the three and six months ended June 30, 2018 and 2017 and its cash flows for the six months ended June 30, 2018 and 2017. The condensed consolidated balance sheet data as of December 31, 2017 was derived from audited financial statements but does not include all disclosures required by GAAP.  The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2018 and 2017 are unaudited. The results for the three and six months ended June 30, 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2018, any other interim periods, or any future year or period.  The unaudited interim financial statements of the Company included herein have been prepared, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2017 included in the Company’s annual report on Form 10-K filed with the SEC on March 12, 2018.

 

Significant Accounting Policies

 

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2017 included in the Company’s annual report on Form 10-K filed with the SEC on March 12, 2018.  Since the date of such financial statements, there have been no changes to the Company’s significant accounting policies other than those noted below. 

 

In February 2017, the Company paid a $2.0 million Prescription Drug User Fee Act (“PDUFA”) fee to the FDA in conjunction with the filing of its NDA for ESKATA.  The Company requested a waiver and refund of this PDUFA fee, which was approved by the FDA in December 2017, and was received by the Company in January 2018. 

 

Revenue Recognition

 

The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.  Under ASC Topic 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. 

 

To determine revenue recognition in accordance with ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) performance obligations are satisfied.  At contract inception, the Company assesses the goods or services promised within a contract with a customer to identify the performance obligations, and to determine if they are distinct.  The Company recognizes the revenue that is allocated to each distinct performance obligation when (or as) that

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performance obligation is satisfied.  The Company only recognizes revenue when collection of the consideration it is entitled to under a contract with a customer is probable. 

 

ESKATA Product Sales

 

The Company sells ESKATA to McKesson Specialty Care Distribution (“McKesson”) which resells ESKATA to healthcare providers, group purchasing organizations (“GPOs”) and hospitals.  The Company has entered into an agreement directly with one GPO, and may enter into additional agreements directly with other GPOs and corporate accounts, that provide for discounted pricing in the form of volume-based rebates and chargebacks, and administrative fees.  The Company does not accept product returns. 

 

The Company recognizes revenue from sales of ESKATA at the point when control has transferred to the customer, which generally occurs when McKesson takes delivery of the product.  The Company includes estimates for variable consideration, including rebates, chargebacks and administrative fees, as a reduction of revenue when it is recognized.  Estimates of variable consideration include reserves for rebates, chargebacks and administrative fees related to units remaining in the distribution channel at McKesson.  The Company considers all relevant factors when estimating variable consideration including the terms of current contracts, market trends, industry data and forecasted buying patterns as available and appropriate. 

 

The Company has determined that its arrangement with McKesson, its only direct customer, does not include a financing component since payment terms under the agreement do not exceed one year.  The Company expenses incremental costs of contracts with direct and indirect customers, which generally include sales commissions, in the period they are incurred. 

 

Contract Research

 

The Company earns revenue from the provision of laboratory services to clients through Confluence, its wholly-owned subsidiary.  Laboratory service revenue is generally evidenced by contracts with clients which are on an agreed upon fixed-price, fee-for-service basis and are generally billed on a monthly basis in arrears for services rendered.  Revenue related to these contracts is generally recognized as the laboratory services are performed, based upon the rates specified in the contracts.  Under ASC Topic 606, the Company elected to apply the “right to invoice” practical expedient when recognizing laboratory service revenue.  The Company recognizes laboratory service revenue in the amount to which it has the right to invoice. 

 

The Company also receives revenue from grants under the Small Business Innovation Research program of the National Institutes of Health (“NIH”).  During the six months ended June 30, 2018, the Company, through Confluence, its wholly-owned subsidiary, had two active grants from NIH which were related to early-stage research.  The Company recognizes revenue related to grants as amounts become reimbursable under each grant, which is generally when research is performed, and the related costs are incurred. 

 

Inventory

 

Inventory includes the third-party cost of manufacturing and assembly of the finished product form of ESKATA, quality control and other overhead costs.  Inventory is stated at the lower of cost or market.  Inventory is adjusted for short-dated, unmarketable inventory equal to the difference between the cost of inventory and the estimated value based upon assumptions about future demand and market conditions.  The Company had $1,026 and $0 of inventory as of June 30, 2018 and December 31, 2017, respectively, which was comprised solely of finished goods. 

 

 

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Contingent Consideration

 

The Company initially recorded the contingent consideration related to future potential payments based upon the achievement of certain development, regulatory and commercial milestones, resulting from the acquisition of Confluence, at its estimated fair value on the date of acquisition.  Changes in fair value reflect new information about the likelihood of the payment of the contingent consideration and the passage of time.  For example, if the timing of the development of an acquired drug candidate, or the size of potential commercial opportunities related to an acquired drug, differ from the Company’s assumptions, then the fair value of contingent consideration would be adjusted accordingly.  Future changes in the fair value of the contingent consideration, if any, will be recorded as income or expense in the Company’s condensed consolidated statement of operations. 

 

Recently Issued Accounting Pronouncements

 

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718).  The amendments in this ASU expand the scope of Topic 718 to include stock-based compensation arrangements with nonemployees except for specific guidance on option pricing model inputs and cost attribution.  ASU 2018-07 is effective for annual reporting periods beginning after December 31, 2018, including interim periods within that year, and early adoption is permitted.  The Company is evaluating the impact of ASU 2018-07 on its consolidated financial statements. 

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations-Clarifying the Definition of a Business (Topic 805).  The amendments in this ASU provide a screen to determine when a set of acquired assets and/or activities is not a business.  The screen requires that when substantially all of the fair value of the gross assets acquired, or disposed of, is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.  The amendments in this ASU will reduce the number of transactions that meet the definition of a business.  ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those years, and early adoption will be permitted.  The Company adopted the provisions of this standard on January 1, 2018, the impact of which on its consolidated financial statements was not significant. 

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  Under this ASU, entities should recognize revenue in an amount that reflects the consideration to which they expect to be entitled to in exchange for goods and services provided.  ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017.  The Company adopted the provisions of this standard on January 1, 2018, using the modified retrospective transition method.  The Company did not recognize any transition adjustments as a result of adopting ASU 2014-09 and, accordingly, comparative information has not been restated for the periods reported. 

 

3. Acquisition of Confluence

 

In August 2017, the Company acquired Confluence, at which time, Confluence became a wholly-owned subsidiary of the Company.  The Company gave aggregate consideration with a fair value of $24,322 to the equity holders of Confluence.  The Company also agreed to pay the Confluence equity holders contingent consideration of up to $80,000, based upon the achievement of certain development, regulatory and commercial milestones, including $2,500 of which may be paid in shares of the Company’s common stock upon the achievement of a specified development milestone.  In addition, the Company has agreed to pay the Confluence equity holders specified future royalty payments calculated as a low single-digit percentage of annual net sales, subject to specified reductions, limitations and other adjustments, until the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first commercial sale of such product. 

 

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The following table summarizes the fair value of total consideration given to the Confluence equity holders in connection with the acquisition: 

 

 

 

 

 

Cash consideration paid

 

$

10,269

Aclaris common stock issued

 

 

9,675

Contingent consideration

 

 

4,378

Total fair value of consideration to Confluence equity holders

 

$

24,322

 

The Company accounted for the acquisition of Confluence as a business combination using the acquisition method of accounting.  Under the acquisition method of accounting, the assets acquired and liabilities assumed in this transaction were recorded at their respective fair values on the date of acquisition using assumptions that are subject to change.  The Company finalized the purchase price allocation for the acquisition of Confluence in the second quarter of 2018. 

 

The following supplemental unaudited pro forma information presents the Company’s financial results, for the periods presented, as if the acquisition of Confluence had occurred on January 1, 2017.  This supplemental unaudited pro forma financial information has been prepared for comparative purposes only, and is not necessarily indicative of what actual results would have been had the acquisition of Confluence occurred on January 1, 2017, nor is this information indicative of future results. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2018

    

2017

    

2018

    

2017

Revenue

    

$

3,676

    

$

1,067

    

$

4,794

 

$

2,303

Gross profit

 

 

995

 

 

243

 

 

1,146

 

 

805

Total operating expenses

 

 

32,973

 

 

16,133

 

 

64,072

 

 

29,449

Net loss

 

 

(31,218)

 

 

(15,432)

 

 

(61,447)

 

 

(28,106)

 

The supplemental unaudited pro forma financial results for the three and six months ended June 30, 2017 include adjustments to exclude $370 and $670, respectively, of revenue billed to the Company by Confluence.  The supplemental unaudited pro forma financial results for the three and six months ended June 30, 2017 also include an adjustment for amortization expense related to the other intangible asset acquired. 

 

4. Fair Value of Financial Assets and Liabilities

 

The following tables present information about the Company’s assets and liabilities, which are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets:

    

 

    

    

 

    

    

 

    

    

 

    

 

Cash equivalents

 

$

33,722

 

$

11,182

 

$

 —

 

$

44,904

 

Marketable securities

 

 

 —

 

 

118,569

 

 

 —

 

 

118,569

 

Total Assets

 

$

33,722

 

$

129,751

 

$

 —

 

$

163,473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related contingent consideration

 

$

 —

 

$

 —

 

$

5,244

 

$

5,244

 

Total liabilities

 

$

 —

 

$

 —

 

$

5,244

 

$

5,244

 

 

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December 31, 2017

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets:

    

 

    

    

 

    

    

 

    

    

 

    

 

Cash equivalents

 

$

19,339

 

$

 —

 

$

 —

 

$

19,339

 

Marketable securities

 

 

 —

 

 

188,652

 

 

 —

 

 

188,652

 

Total Assets

 

$

19,339

 

$

188,652

 

$

 —

 

$

207,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related contingent consideration

 

$

 —

 

$

 —

 

$

4,378

 

$

4,378

 

Total liabilities

 

$

 —

 

$

 —

 

$

4,378

 

$

4,378

 

 

As of June 30, 2018 and December 31, 2017, the Company’s cash equivalents consisted of investments with maturities of less than three months and included a money market fund, which was valued based upon Level 1 inputs, and commercial paper which was valued based upon Level 2 inputs.  In determining the fair value of its Level 2 investments the Company relied on quoted prices for identical securities in markets that are not active. These quoted prices were obtained by the Company with the assistance of a third-party pricing service based on available trade, bid and other observable market data for identical securities.  On a quarterly basis, the Company compares the quoted prices obtained from the third-party pricing service to other available independent pricing information to validate the reasonableness of those quoted prices. The Company evaluates whether adjustments to third-party pricing is necessary and, historically, the Company has not made adjustments to the quoted prices obtained from the third-party pricing service. During the three and six months ended June 30, 2018 and the year ended December 31, 2017, there were no transfers between Level 1, Level 2 and Level 3.  The change in contingent consideration related to acquisition of Confluence of $866 during the six months ended June 30, 2018 was the result of updates to the Company’s assumptions related to drug discovery research on the soft-JAK inhibitors, which progressed more quickly than originally planned. 

 

The following tables present the fair value of the Company’s available for sale marketable securities by type of security:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gain

 

Loss

 

Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

18,084

 

$

 —

 

$

(59)

 

$

18,025

 

Commercial paper

 

 

53,626

 

 

 —

 

 

 —

 

 

53,626

 

Asset-backed securities

 

 

22,021

 

 

 —

 

 

(16)

 

 

22,005

 

U.S. government agency debt securities

 

 

24,962

 

 

 1

 

 

(50)

 

 

24,913

 

Total marketable securities

 

$

118,693

 

$

 1

 

$

(125)

 

$

118,569

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gain

 

Loss

 

Value

 

Marketable securities:

    

 

    

    

 

    

    

 

    

    

 

    

 

Corporate debt securities

 

$

37,401

 

$

 —

 

$

(68)

 

$

37,333

 

Commercial paper

 

 

85,202

 

 

 —

 

 

 —

 

 

85,202

 

Asset-backed securities

 

 

16,708

 

 

 —

 

 

(13)

 

 

16,695

 

U.S. government agency debt securities

 

 

49,511

 

 

 —

 

 

(89)

 

 

49,422

 

Total marketable securities

 

$

188,822

 

$

 —

 

$

(170)

 

$

188,652

 

 

 

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5. Property and Equipment, Net

 

Property and equipment, net consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

 

December 31, 

 

 

 

2018

 

2017

 

Computer equipment

    

$

1,276

    

$

650

 

Fleet vehicles

 

 

1,896

 

 

 —

 

Manufacturing equipment

 

 

562

 

 

511

 

Lab equipment

 

 

838

 

 

721

 

Furniture and fixtures

 

 

523

 

 

327

 

Leasehold improvements

 

 

259

 

 

430

 

Property and equipment, gross

 

 

5,354

 

 

2,639

 

Accumulated depreciation

 

 

(979)

 

 

(480)

 

Property and equipment, net

 

$

4,375

 

$

2,159

 

 

Depreciation expense was $296 and $55 for the three months ended June 30, 2018 and 2017, respectively, and $499 and $105 for the six months ended June 30, 2018 and 2017, respectively. 

 

6. Accrued Expenses

 

Accrued expenses consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

 

December 31, 

 

 

 

2018

 

2017

 

Employee compensation expenses

 

$

3,922

 

$

3,010

 

Sales and marketing expenses

 

 

1,237

 

 

39

 

Research and development expenses

 

 

938

 

 

627

 

Capital leases, current portion

 

 

552

 

 

142

 

Professional fees

 

 

389

 

 

108

 

Payable to NST

 

 

 —

 

 

590

 

Other

 

 

527

 

 

424

 

Total accrued expenses

 

$

7,565

 

$

4,940

 

 

 

7. Stockholders’ Equity

 

Preferred Stock

 

As of June 30, 2018 and December 31, 2017, the Company’s amended and restated certificate of incorporation authorized the Company to issue 10,000,000 shares of undesignated preferred stock.  No shares of preferred stock were outstanding as of June 30, 2018 or December 31, 2017.

 

Common Stock

 

As of June 30, 2018 and December 31, 2017, the Company’s amended and restated certificate of incorporation authorized the Company to issue 100,000,000 shares of $0.00001 par value common stock.

 

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to any preferential dividend rights of any series of preferred stock that may be outstanding.  The Company did not declare any dividends through June 30, 2018. 

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At-The-Market Equity Offering 

 

In November 2016, the Company entered into an at-the-market sales agreement with Cowen and Company, LLC to sell the Company’s securities under a shelf registration statement filed in November 2016. During the six months ended June 30, 2018, the Company did not issue any shares of common stock under the at-the-market sales agreement.  As of June 30, 2018, the Company had issued and sold an aggregate of 635,000 shares of common stock under the at-the-market sales agreement at a weighted average price per share of $31.50, for aggregate gross proceeds of $20,003.  The Company has incurred expenses of $691 in connection with the shares issued under the at-the-market sales agreement.    

 

Public Offering of Common Stock

 

In August 2017, the Company entered into an underwriting agreement pursuant to which the Company issued and sold 3,747,602 shares of common stock under a registration statement on Form S-3 (the “Public Offering”), including the underwriters’ partial exercise of their option to purchase additional shares.  The shares of common stock were sold to the public at a price of $23.02 per share, for gross proceeds of $86,270. 

 

The Company paid underwriting discounts and commissions of $5,176 to the underwriters in connection with the Public Offering.  In addition, the Company incurred expenses of $176 in connection with the Public Offering.  The net offering proceeds received by the Company, after deducting underwriting discounts and commissions and offering expenses, were $80,918. 

 

8. Stock‑Based Awards

 

2017 Inducement Plan

 

In July 2017, the Company’s board of directors adopted the 2017 Inducement Plan (the “2017 Inducement Plan”).  The 2017 Inducement Plan is a non-shareholder approved stock plan adopted pursuant to the “inducement exception” provided under Nasdaq listing rules.  The only employees eligible to receive grants of awards under the 2017 Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq listing rules, generally including individuals who were not previously an employee or director of the Company. Under the terms of the 2017 Inducement Plan upon adoption, the Company may grant up to 1,000,000 shares of common stock pursuant to nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit (“RSU”) awards, and other stock awards.  The shares of common stock underlying any awards that expire, or are otherwise terminated, settled in cash or repurchased by the Company under the 2017 Inducement Plan will be added back to the shares of common stock available for issuance under the 2017 Inducement Plan.  As of June 30, 2018, 112,224 shares of common stock were available for grant under the 2017 Inducement Plan. 

 

2015 Equity Incentive Plan

 

In September 2015, the Company’s board of directors adopted the 2015 Equity Incentive Plan (the “2015 Plan”), and on September 16, 2015, the Company’s stockholders approved the 2015 Plan. The 2015 Plan became effective in connection with the Company’s initial public offering in October 2015.  Beginning at the time the 2015 Plan became effective, no further grants may be made under the Company’s 2012 Equity Compensation Plan, as amended and restated (the “2012 Plan”).  The 2015 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, RSU awards, performance stock awards, cash-based awards and other stock-based awards. The number of shares initially reserved for issuance under the 2015 Plan was 1,643,872 shares of common stock. The number of shares of common stock that may be issued under the 2015 Plan will automatically increase on January 1 of each year, beginning on January 1, 2016 and ending on January 1, 2025, in an amount equal to the lesser of (i) 4.0% of the shares of the Company’s common stock outstanding on December 31 of the preceding calendar year or (ii) an amount determined by the Company’s board of directors. The shares of common stock underlying any awards that

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expire, are otherwise terminated, settled in cash or repurchased by the Company under the 2015 Plan and the 2012 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan. As of January 1, 2018, the number of shares of common stock that may be issued under the 2015 Plan was automatically increased by 1,234,260 shares. As of June 30, 2018, 1,671,239 shares remained available for grant under the 2015 Plan. 

 

2012 Equity Compensation Plan

 

Upon the 2015 Plan becoming effective, no further grants can be made under the 2012 Plan.  The Company granted stock options to purchase a total of 1,140,524 shares under the 2012 Plan, of which 957,013 and 984,720 were outstanding as of June 30, 2018 and December 31, 2017, respectively.  Stock options granted under the 2012 Plan vest over four years and expire after ten years.  As required, the exercise price for the stock options granted under the 2012 Plan was not less than the fair value of the shares of common stock underlying the awards as determined by the Company as of the date of grant. 

 

Stock Option Valuation

 

The weighted average assumptions the Company used to estimate the fair value of stock options granted were as follows:

 

 

 

 

 

 

 

 

 

 

    

Six Months Ended

 

 

 

June 30, 

 

 

 

2018

 

 

2017

 

 

Risk-free interest rate

 

2.63

%

 

1.93

%

 

Expected term (in years)

 

6.3

 

 

6.0

 

 

Expected volatility

 

95.78

%

 

94.09

%

 

Expected dividend yield

 

 0

%

 

 0

%

 

 

The Company recognizes compensation expense for awards over their vesting period.  Compensation expense for awards includes the impact of forfeitures in the period when they occur. 

 

Stock Options

 

The following table summarizes stock option activity from January 1, 2018 through June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted

    

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

Number

 

Exercise

 

Contractual

 

Intrinsic

 

 

 

of Shares

 

Price

 

Term

 

Value

 

 

 

 

 

 

 

 

(in years)

 

 

 

 

Outstanding as of December 31, 2017

 

3,328,757

 

$

20.69

 

8.28

 

$

19,812

 

Granted

 

1,215,000

 

 

21.70

 

 

 

 

 

 

Exercised

 

(46,700)

 

 

8.43

 

 

 

 

 

 

Forfeited and cancelled

 

(181,115)

 

 

24.79

 

 

 

 

 

 

Outstanding as of June 30, 2018

 

4,315,942

 

$

20.93

 

8.34

 

$

13,650

 

Options vested and expected to vest as of June 30, 2018

 

4,315,942

 

$

20.93

 

8.34

 

$

13,650

 

Options exercisable as of June 30, 2018

 

1,377,080

(1)

$

15.25

 

7.21

 

$

10,725

 


(1)

All options granted under the 2012 Plan are exercisable immediately, subject to a repurchase right in the Company’s favor that lapses as the option vests. This amount reflects the number of shares under options that were vested, as opposed to exercisable, as of June 30, 2018.

 

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The weighted average grant date fair value of stock options granted during the six months ended June 30, 2018 was $17.04 per share.

 

The intrinsic value of a stock option is calculated as the difference between the exercise price of the stock option and the fair value of the underlying common stock, and cannot be less than zero. 

 

Restricted Stock Units

 

The following table summarizes RSU activity from January 1, 2018 through June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

 

 

Grant Date

 

 

 

Number

 

Fair Value

 

 

 

of Shares

 

Per Share

 

Outstanding as of December 31, 2017

 

283,553

 

$

27.02

 

Granted

 

357,360

 

 

21.62

 

Vested

 

(87,357)

 

 

27.13

 

Forfeited and cancelled

 

(20,800)

 

 

23.70

 

Outstanding as of June 30, 2018

 

532,756

 

$

23.51

 

 

Stock‑Based Compensation

 

The following table summarizes stock‑based compensation expense recorded by the Company:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

     

2018

     

2017

     

2018

     

2017

 

Cost of revenue

    

$

190

    

$

 —