2,937,121 shares remained available for grant under the 2015 Plan. The Company had 2,725,405 stock options and 2,385,853 RSUs outstanding as of March 31, 2021 under the 2015 Plan.

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-stockholder approved stock plan adopted pursuant to the “inducement exception” provided under Nasdaq listing rules. The Company had 439,500 stock options and 25,758 RSUs outstanding as of March 31, 2021 under the 2017 Inducement Plan. All shares of common stock that were eligible for issuance under the 2017 Inducement Plan after October 1, 2018, including any shares underlying any awards that expire or are otherwise terminated, reacquired to satisfy tax withholding obligations, settled in cash or repurchased by the Company in the future that would have been eligible for re-issuance under the 2017 Inducement Plan, were retired.

2012 Equity Compensation Plan

Upon the 2015 Plan becoming effective, no0 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 ~~1,003,647 and 1,049,667~~549,561 were outstanding as of ~~September 30, 2017 and December~~March 31, ~~2016, respectively.~~2021. 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 common shares as determined by the Company as of the date of grant.~~

~~Table of Contents~~

Stock Option Valuation

The weighted average assumptions the Company used to estimate the fair value of stock options granted during the three months ended March 31, 2021 and 2020 were as follows:


	Nine Months Ended
	September 30,
	2017		2016


					Three Months Ended
					March 31,
					2021		2020
Risk-free interest rate	1.89	%	1.41	%	0.90	%	0.97	%
Expected term (in years)	6.2		6.5		6.3		6.2
Expected volatility	93.84	%	96.60	%	76.60	%	85.28	%
Expected dividend yield	0	%	0	%	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, 2017 through September 30, 2017:~~for the three months ended March 31, 2021:


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number	Exercise		Contractual	Intrinsic
(In thousands, except share and per share data and years)	of Shares	Price		Term	Value
				(in years)
Outstanding as of December 31, 2020	2,871,498	$	15.16	6.8	$	4,890
Granted	880,600		24.06
Exercised	(27,632)		15.06			224
Forfeited and cancelled	(10,000)		21.93
Outstanding as of March 31, 2021	3,714,466	$	17.25	7.3	$	31,732
Options vested and expected to vest as of March 31, 2021	3,714,466	$	17.25	7.3	$	31,732
Options exercisable as of March 31, 2021	2,083,539	$	17.56	5.9	$	18,085

Weighted


Weighted

Average

Average

Remaining

Aggregate

Number

Exercise

Contractual

Intrinsic

of Shares

Price

Term

Value

(in years)

Outstanding as of December 31, 2016

2,702,350

$
18.94

9.05

$
24,434

Granted

617,500

26.47

Exercised

(36,738)

6.40

Forfeited and cancelled

(40,281)

21.09

Outstanding as of September 30, 2017

3,242,831

$
20.49

8.60

$
21,704

Options vested and expected to vest as of September 30, 2017

3,242,831

$
20.49

8.60

$
21,704

Options exercisable as of September 30, 2017

828,823
(1)
$
10.95

7.73

$
12,666

~~(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 September 30, 2017.

The weighted average grant date fair value of stock options granted during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 was ~~$20.41~~$16.15 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.~~

1513

Table of Contents

Restricted Stock Units

The following table summarizes RSU activity ~~from January 1, 2017 through September 30, 2017:~~for the three months ended March 31, 2021:

Weighted

Average

Grant Date

Number

Fair Value

of Shares

Per Share

Outstanding as of December 31, 2016

219,614

$
27.43

Granted

88,547

26.59

Vested

(9,299)

20.32

Forfeited and cancelled

(4,531)

27.05

Outstanding as of September 30, 2017

294,331

$
27.41

~~Stock‑Based~~


		Weighted
		Average
		Grant Date		Aggregate
	Number	Fair Value		Intrinsic
(In thousands, except share and per share data)	of Shares	Per Share		Value
Outstanding as of December 31, 2020	2,244,157	$	3.83
Granted	565,600		24.06
Vested	(377,371)		5.94	$	8,892
Forfeited and cancelled	(20,775)		2.85
Outstanding as of March 31, 2021	2,411,611	$	8.25

Stock-Based Compensation

~~The following table summarizes stock‑based~~Stock-based compensation expense ~~recorded by~~included in total costs and expenses on the ~~Company:~~condensed consolidated statement of operations included the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016

									Three Months Ended
									March 31,
(In thousands)									2021		2020
Cost of revenue	$	130	$	—	$	130	$	—	$	247	$	260
Research and development		1,332		623		3,853		1,577		876		816
General and administrative		2,211		995		6,147		2,617		1,552		2,377
Total stock-based compensation expense	$	3,673	$	1,618	$	10,130	$	4,194	$	2,675	$	3,453

As of ~~September 30, 2017,~~March 31, 2021, the Company had unrecognized ~~stock‑based~~stock-based compensation expense for stock options and RSUs of ~~$37,674~~$17.1 million and ~~$6,090,~~$17.8 million, respectively, each of which is expected to be recognized over a weighted average ~~periods~~period of ~~3.06 years and 2.93 years, respectively.~~3.4 years.

10. Net Loss per Share

Basic and diluted net loss per share is summarized in the following table:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016

									Three Months Ended
									March 31,
(In thousands, except for share and per share data)									2021		2020
Numerator:
Net loss	$	(18,192)	$	(10,694)	$	(45,589)	$	(36,604)	$	(28,754)	$	(15,586)
Denominator:
Weighted average shares of common stock outstanding		28,834,808		21,415,871		27,180,244		20,752,590
Weighted average shares of common stock outstanding, basic and diluted										50,337,807		41,618,429
Net loss per share, basic and diluted	$	(0.63)	$	(0.50)	$	(1.68)	$	(1.76)	$	(0.57)	$	(0.37)

The Company’s potentially dilutive securities, which included stock options, RSUs and ~~RSUs,~~warrants, have been excluded from the computation of diluted net loss per share since the effect would be to reduce the net loss per share. Therefore, the weighted average number of shares of common ~~shares~~stock outstanding used to calculate both basic and diluted net loss per share is the same. The following table presents potential shares of common ~~shares~~stock excluded from the calculation

Table of Contents

of diluted net loss per

~~Table of Contents~~

share for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016.~~2020. All share amounts presented in the table below represent the total number outstanding as of ~~September 30, 2017~~March 31, 2021 and ~~2016.~~2020.



	September 30,
	2017	2016



			March 31,
			2021	2020
Options to purchase common stock	3,242,831	1,913,419	3,714,466	3,429,933
Restricted stock unit awards	294,331	85,000	2,411,611	3,870,059
Total potential common shares	3,537,162	1,998,419
Warrants			—	460,251
Total potential shares of common stock			6,126,077	7,760,243

~~10. Commitments and Contingencies~~

11. Leases

Operating Leases

Agreements for Office Space

The Company has a sublease agreement with Auxilium Pharmaceuticals, LLC (the “Sublandlord”) pursuant to which it subleases 33,019 square feet of office space for its headquarters in Wayne, Pennsylvania. The sublease has a term that runs through October 2023. If for any reason the lease between Chesterbrook Partners, LP (“Landlord”) and Sublandlord is terminated or expires prior to October 2023, the Company’s sublease will automatically terminate. In December 2020, the Company entered into a sub-sublease agreement under which it sub-subleased 8,115 square feet. The sub-sublease term runs concurrently with the original sublease agreement.

In ~~August 2013,~~February 2019, the Company entered into a sublease agreement with a related party (see Note 11) for office space which is its corporate headquarters. The sublease was subsequently amended and restated in March 2014, for its office space with a term ending on November 30, 2016. The Company further amended the terms of this sublease agreement in December 2014, August 2015, February 2016, October 2016 and July 2017 to increase the square footage of the space being subleased and/or agree to new sublease terms. The August 2015 amendment extended the term of the lease to November 2019.

~~In November 2016, the Company entered into a lease agreement with a~~ third party for ~~additional office space in the same building as its headquarters with a term beginning in February 2017 and ending in November 2019.~~

~~Confluence occupies~~20,433 square feet of office and laboratory space in St. Louis, ~~Missouri under the terms~~Missouri. The lease commenced in June 2019 and has a term that runs through June 2029.

Supplemental balance sheet information related to operating leases is as follows:


		March 31,		December 31,
(In thousands)	2021		2020
Operating Leases:
Gross cost	$	5,240	$	5,240
Accumulated amortization		(1,279)		(1,111)
Other assets	$	3,961	$	4,129

Current portion of lease liabilities	$	625	$	603
Other liabilities		2,730		2,894
Total operating lease liabilities	$	3,355	$	3,497

Amortization expense related to operating lease right-of-use assets and accretion of ~~an agreement which it entered into in March 2017 and which expires in December 2017.~~

~~Rent expense was $110 and $66~~operating lease liabilities totaled $0.3 million for each of the three months ended ~~September 30,~~March 31, 2021 and 2020.

Finance Leases

Laboratory Equipment

The Company leased laboratory equipment which it used in its laboratory space in St. Louis, Missouri under 2 finance lease financing arrangements which the Company entered into in August 2017 and ~~2016, respectively,~~October 2017, with terms ended in October 2020 and ~~$284 and $178 for the nine months ended September 30, 2017 and 2016,~~December 2020, respectively. ~~The Company recognizes rent expense on a straight-line basis over the term of the lease and has accrued for rent expense incurred but not yet paid.~~

~~As of September 30, 2017, future minimum lease payments under these agreements were as follows:~~

Year Ending December 31,

2017

$
114

2018

394

2019

368

2020

—

2021

—

Thereafter

—

Total

$
876

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~~11.~~12. Related Party Transactions

Mallinckrodt plc

In ~~August 2013,~~April 2018, Bryan Reasons was appointed to the Company’s board of directors. Subsequently, in March 2019, Mr. Reasons became the Chief Financial Officer of Mallinckrodt plc. Prior to Mr. Reasons joining Mallinckrodt plc, the Company entered into a ~~sublease~~master services agreement with ~~NeXeption, Inc. ("NeXeption"), which was subsequently amended and restated in March 2014 and further amended in December 2014. In August 2015,~~a subsidiary of Mallinckrodt plc, pursuant to ~~an Assignment and Assumption Agreement, NeXeption, Inc. assigned all interests, rights, duties and obligations under~~which Confluence provides laboratory services to the ~~sublease to NST Consulting, LLC, a wholly-owned~~ subsidiary (“Mallinckrodt”) in the ordinary course of ~~NST, LLC. Following~~business. Mr. Reasons was not involved in the ~~Assignment and Assumption Agreement, the sublease was further amended in August 2015, February 2016, October 2016 and July 2017. Mr. Stephen Tullman, the chairman~~negotiation or execution of the ~~Company’s board of directors, was~~agreement, but may be deemed to have an interest in the ongoing transactions based on his employment as an executive officer of ~~NeXeption and is also the manager of NST Consulting, LLC and NST, LLC. Total payments made under the sublease during~~Mallinckrodt plc. During the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016 were $106~~2020, the Company invoiced Mallinckrodt for $20 thousand and ~~$64,~~$0.2 million, respectively, under the master services agreement. As of March 31, 2021 and December 31, 2020, the Company had $20 thousand and $24 thousand, respectively, of outstanding accounts receivable balances from Mallinckrodt. Mr. Reasons had no financial interest in these transactions.

13.Agreements Related to Intellectual Property

Asset Purchase Agreement – EPI Health, LLC

In October 2019, the Company sold RHOFADE (oxymetazoline hydrochloride) cream, 1% (“RHOFADE”) to EPI Health, LLC (“EPI Health”) pursuant to an asset purchase agreement. EPI Health agreed to pay the Company a high single-digit royalty calculated as a percentage of net sales on a country-by-country basis until the date that the patent rights related to RHOFADE have expired or, if later, ten years from the date of the first commercial sale of RHOFADE in such country. The Company recorded royalty income under the asset purchase agreement of $0.2 million during each of the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016 were $231 and $179, respectively.~~

In February 2014, the Company entered into a services agreement with NST, LLC (the “NST Services Agreement”), pursuant to which NST, LLC provided certain pharmaceutical development, management and other administrative services to the Company. Under the same agreement, the Company also provided services to another company under common control with the Company and NST, LLC and was reimbursed by NST, LLC for those services. In addition to Mr. Tullman’s role as manager of NST, LLC, several of the Company’s executive officers are members of NST, LLC.

The NST Services Agreement was amended in December 2014 pursuant to which NST, LLC assigned all interests, rights, duties and obligations under the NST Services Agreement to NST Consulting, LLC. Under the NST Services Agreement, as amended, NST Consulting, LLC provides services to the Company and the Company provides services to another company under common control with the Company and NST Consulting, LLC. The NST Services Agreement was further amended in August 2015, November 2015, January 2016, December 2016 and May 2017 to reduce the amount of services the Company2020. Royalty income is obligated to provide to NST Consulting, LLC and the amount of services NST Consulting, LLC is obligated to provide to the Company. The Company may offset any payments owed by the Company to NST Consulting, LLC against payments that are owed by NST Consulting, LLC to the Company for the provision of personnel, including consultants, to the Company.

~~Table of Contents~~

~~During the three and nine months ended September 30, 2017 and 2016, amounts~~ included in other revenue on the condensed consolidated ~~statement~~statements of operations and comprehensive ~~loss for~~loss. EPI Health has also agreed to pay the ~~NST Services Agreement are summarized~~Company potential sales milestone payments of up to $20.0 million in the ~~following table:~~aggregate upon the achievement of specified levels of net sales of products covered by the asset purchase agreement, and 25% of any upfront, license, milestone, maintenance or fixed payment received by EPI Health in connection with any license or sublicense of the assets transferred in the disposition in any territory outside of the United States, subject to specified exceptions.

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

Services provided by NST Consulting, LLC

$
49

$
79

$
161

$
237

Services provided to NST Consulting, LLC

—

(15)

(18)

(45)

General and administrative expense, net

$
49

$
64

$
143

$
192

Services provided by NST Consulting, LLC

$
—

$
60

$
—

$
181

Services provided to NST Consulting, LLC

—

(21)

—

(63)

Research and development expense, net

$
—

$
39

$
—

$
118

Services provided by NST Consulting, LLC

$
49

$
139

$
161

$
418

Services provided to NST Consulting, LLC

—

(36)

(18)

(108)

Total, net

$
49

$
103

$
143

$
310

Net payments made to NST

$
35

$
88

$
218

$
263

~~The Company had $17 and $91 payable to NST Consulting, LLC under the NST Services Agreement as of September 30, 2017 and December 31, 2016, respectively.~~

~~12.Agreements Related to Intellectual Property~~

~~Assignment~~ Agreement and ~~Finder’s Services Agreement~~Plan of Merger – Confluence

In August ~~2012,~~2017, the Company entered into an ~~assignment agreement with~~Agreement and Plan of Merger, pursuant to which it acquired Confluence (the “Confluence Agreement”). In November 2018, a development milestone specified in the ~~Estate~~Confluence Agreement was achieved, as a result of ~~Mickey Miller, or the Miller Estate, under~~ which the Company ~~acquired some~~paid the former Confluence equity holders $2.5 million in cash and issued 253,208 shares of its common stock with a fair value of $2.2 million. Under the ~~intellectual property rights covering A-101. In connection with obtaining the assignment of the intellectual property from the Miller Estate,~~Confluence Agreement, the Company also ~~entered into a separate finder’s services agreement with KPT Consulting, LLC. In February 2016, under~~agreed to pay the ~~terms~~former Confluence equity holders aggregate remaining contingent consideration of the assignment agreement and the finder’s services agreement, the Company made a milestone payment of $300 upon the dosing of the first human subject with A-101 40% Topical Solution in the Company’s Phase 3 clinical trial. In April 2017, the Company made an additional milestone payment of $1,000up to $75.0 million based upon the achievement of specified regulatory ~~milestones. The payments were recorded as general~~ and ~~administrative expenses~~commercial milestones set forth in the ~~Company’s consolidated statement of operations.~~

~~Under the finder’s services agreement,~~Confluence Agreement. In addition, the Company is obligated to make additional milestone payments of up to $4,500 upon the achievement of specified commercial milestones. Under each of the assignment agreement and the finder’s services agreement, the Company is also obligatedagreed to pay ~~royalties on sales of A-101 or related products, at~~the former Confluence equity holders future royalty payments calculated as a low single-digit ~~percentages~~percentage of net sales, subject to reduction in specified circumstances. The Company has not made any royalty payments to date under either agreement. Both agreements will terminate upon the expiration of the last pending, viable patent claim of the patents acquired under the assignment agreement, but no sooner than 15 years from the effective date of the agreements.

~~Table of Contents~~

~~Stock Purchase Agreement with Vixen Pharmaceuticals, Inc. and License Agreement with Columbia University~~

On March 24, 2016, the Company entered into a stock purchase agreement (the “Vixen Agreement”) with Vixen, JAK1, LLC, JAK2, LLC and JAK3, LLC (together with JAK1, LLC and JAK2, LLC, the “Selling Stockholders”) and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the representative of the Selling Stockholders. Pursuant to the Vixen Agreement, the Company acquired all shares of Vixen’s capital stock from the Selling Stockholders (the “Vixen Acquisition”). Following the Vixen Acquisition, Vixen became a wholly-owned subsidiary of the Company. Pursuant to the Vixen Agreement, the Company paid $600 upfront and issued an aggregate of 159,420 shares of the Company’s common stock to the Selling Stockholders. The Company is obligated to make annual ~~payments of $100 on March 24~~th ~~of each year, through March 24, 2022, with such amounts being creditable against specified future payments that may be paid under the Vixen Agreement.~~

The Company is obligated to make aggregate payments of up to $18,000 to the Selling Stockholders upon the achievement of specified pre-commercialization milestones for three products in the United States, the European Union and Japan, and aggregate payments of up to $22,500 upon the achievement of specified commercial milestones. With respect to any commercialized products covered by the Vixen Agreement, the Company is obligated to pay low single-digit royalties on 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. IfIn addition to the payments described above, if the Company ~~sublicenses~~sells, licenses or transfers any of ~~Vixen’s patent rights and know-how~~the intellectual property acquired from Confluence pursuant to the ~~Vixen~~Confluence Agreement to a third party, the Company will be obligated to pay ~~a portion of any consideration~~ the ~~Company receives from such sublicenses in specified circumstances.~~

As a result of the transaction with Vixen, the Company became party to the Exclusive License Agreement, by and between Vixen and the Trustees of Columbia University in the City of New York (“Columbia”), dated as of December 31, 2015 (the “License Agreement”). Under the License Agreement, the Company is obligated to pay Columbia an annual license fee of $10, subject to specified adjustments for patent expenses incurred by Columbia and creditable against any royalties that may be paid under the License Agreement. The Company is also obligated to pay up to an aggregate of $11,600 upon the achievement of specified commercial milestones, including specified levels of net sales of products covered by Columbia patent rights and/or know-how, and royalties at a sub-single-digit percentage of annual net sales of products covered by Columbia patent rights and/or know-how, subject to specified adjustments. If the Company sublicenses any of Columbia’s patent rights and know-how acquired pursuant to the License Agreement, it will be obligated to pay Columbiaformer Confluence equity holders a portion of any consideration received from such ~~sublicenses~~sale, license or transfer in specified circumstances. The royalties, as determined on a country-by-country and product-by-product basis, are payable until the date that all of the patent rights for that product have expired, the expiration of any market exclusivity period granted by a regulatory body or, in specified circumstances, ten years from the first commercial sale of such product. The License Agreement terminates on the date of expiration of all royalty obligations thereunder unless earlier terminated by either party for a material breach, subject to a specified cure period. The Company may also terminate the License Agreement without cause at any time upon advance written notice to Columbia.

The Company accounted for the transaction with Vixen as an asset acquisition as the arrangement did not meet the definition of a business pursuant to the guidance prescribed in Accounting Standards Codification Topic 805, ~~Business Combinations~~. The Company concluded the transaction with Vixen did not meet the definition of a business because the transaction principally resulted in the acquisition of the License Agreement. The Company did not acquire tangible assets, processes, protocols or operating systems. In addition, at the time of the transaction, there were no activities being conducted related to the licensed patents. The Company expensed the acquired intellectual property as of the acquisition date on the basis that the cost of intangible assets purchased from others for use in research and development activities, and that have no alternative future uses, are expensed at the time the costs are incurred. Accordingly, the Company recorded the $600 upfront payment, the fair value of the shares of common stock issued of $2,355, and the present value of the six non-contingent annual payments as research and development expense in the nine months ended September 30, 2016. Additionally, the Company will record as expense any contingent milestone payments or royalties in the period in which such liabilities are incurred.

2016

Table of Contents

~~13.~~14. Income Taxes

The Company did not record a federal or state income tax benefit for losses incurred during each of the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016 due~~2020. The Company concluded that it is more likely than not that its deferred tax assets will not be realized which resulted in recording a full valuation allowance during those periods.

15. Discontinued Operations

The following table presents information related to liabilities reported as discontinued operations in the Company’s ~~conclusion~~condensed consolidated balance sheet:


	March 31,		December 31,
(In thousands)	2021		2020
Accounts payable	$	971	$	1,175
Accrued expenses		2,018		1,936
Discontinued operations - current liabilities	$	2,989	$	3,111

16. Segment Information

The Company has 2 reportable segments, therapeutics and contract research. The therapeutics segment is focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases. The contract research segment earns revenue from the provision of laboratory services. Contract research revenue is generally evidenced by contracts with clients which are on an agreed upon fixed-price, fee-for-service basis. Corporate and other includes general and administrative expenses as well as eliminations of intercompany transactions. The Company does not report balance sheet information by segment since it is not reviewed by the chief operating decision maker, and all of the Company’s tangible assets are held in the United States.

The Company’s results of operations by segment for the three months ended March 31, 2021 and 2020 are summarized in the tables below:


(In thousands)			Contract		Corporate		Total
Three Months Ended March 31, 2021	Therapeutics		Research		and Other		Company
Total revenue	$	242	$	3,200	$	(1,665)	$	1,777
Cost of revenue		—		2,769		(1,567)		1,202
Research and development		7,936		—		(98)		7,838
General and administrative		—		629		4,198		4,827
Revaluation of contingent consideration		16,439		—		—		16,439
Loss from operations	$	(24,133)	$	(198)	$	(4,198)	$	(28,529)


(In thousands)			Contract		Corporate		Total
Three Months Ended March 31, 2020	Therapeutics		Research		and Other		Company
Total revenue	$	218	$	3,407	$	(2,218)	$	1,407
Cost of revenue		—		3,386		(2,117)		1,269
Research and development		7,778		—		(101)		7,677
General and administrative		—		753		5,447		6,200
Revaluation of contingent consideration		1,767		—		—		1,767
Loss from operations	$	(9,327)	$	(732)	$	(5,447)	$	(15,506)
Loss from discontinued operations	$	(257)	$	—	$	(1)	$	(258)

Table of Contents

Intersegment Revenue

Revenue for the contract research segment included $1.7 million and $2.2 million for services performed on behalf of the therapeutics segment for the three months ended March 31, 2021 and 2020, respectively. All intersegment revenue has been eliminated in the Company’s condensed consolidated statement of operations.

17. Legal Proceedings

Securities Class Action

On July 30, 2019, plaintiff Linda Rosi (“Rosi”) filed a putative class action complaint captioned Rosi v. Aclaris Therapeutics, Inc., et al. in the U.S. District Court for the Southern District of New York against the Company and certain of its executive officers. The complaint alleges that the defendants violated federal securities laws by, among other things, failing to disclose an alleged likelihood that regulators would scrutinize advertising materials related to ESKATA and find that the materials minimized the risks or overstated the efficacy of the product. The complaint seeks unspecified compensatory damages on behalf of Rosi and all other persons and entities that purchased or otherwise acquired the Company’s securities between May 8, 2018 and June 20, 2019.

On September 5, 2019, an additional plaintiff, Robert Fulcher (“Fulcher”), filed a ~~valuation allowance is required.~~substantially identical putative class action complaint captioned Fulcher v. Aclaris Therapeutics, Inc., et al. in the same court against the same defendants.

~~14. Subsequent Events~~

On November 6, 2019, the court consolidated the Rosi and Fulcher actions (together, the “Consolidated Securities Action”) and appointed Fulcher “lead plaintiff” for the putative class.

On January 24, 2020, Fulcher filed a consolidated amended complaint in the Consolidated Securities Action, naming 2 ~~2017,~~additional executive officers as defendants, extending the putative class period to August 12, 2019, and adding allegations concerning, among other things, alleged statements and omissions throughout the putative class period concerning ESKATA’s risks, tolerability and effectiveness. The defendants filed a motion to dismiss the consolidated amended complaint on April 17, 2020. Following briefing and oral argument on February 25, 2021, the motion was granted in part and denied in part on March 29, 2021, and the issues in dispute significantly narrowed. The defendants filed an answer to the remaining aspects of the consolidated amended complaint on April 19, 2021.

The Company and the other defendants dispute plaintiffs’ claims in the Consolidated Securities Action. At this time, the Company ~~entered into~~cannot reasonably predict the outcome or potential loss, if any, that could result from this matter.

Stockholder Derivative Action

On November 15, 2019, plaintiff Keith Allred (“Allred”) filed a ~~Sublease Agreement~~derivative stockholder complaint captioned Allred v. Walker et al. in the U.S. District Court for the Southern District of New York against certain of the Company’s directors and executive officers. The complaint alleges that the defendants, among other things, breached their fiduciary duties as directors and/or officers in connection with the claims alleged in the Consolidated Securities Action. The complaint seeks, among other things, unspecified compensatory damages on behalf of the Company.

On November 25, 2019, an additional plaintiff, Bruce Brown (“Brown”), filed a substantially identical complaint captioned Brown v. Walker et al. in the same court against the same defendants.

On December 12, 2019, the court consolidated the Allred and Brown actions under the caption In re Aclaris Therapeutics, Inc. Derivative Litigation (the ~~“Sublease”~~“Consolidated Derivative Action”) ~~with Auxilium Pharmaceuticals, LLC, a Delaware limited liability company (the “Sublandlord”), under which~~and directed that future derivative cases filed in or transferred to the court arising out of substantially the same transactions or events be similarly consolidated. Thereafter, on January 11, 2020, the court stayed – subject to certain conditions – all deadlines in the Consolidated Derivative Action pending resolution of the defendants’ anticipated motion to dismiss the Consolidated Securities Action. The stay expired on April 27, 2021, but may be reinstated pending further developments in the

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Consolidated Securities Action. No further proceedings have yet occurred or been scheduled in the Consolidated Derivative Action.

At this time, the Company ~~will lease 33,019 square feet~~cannot reasonably predict the outcome or potential loss, if any, that could result from this matter.

Product Liability Lawsuit

On December 18, 2020, plaintiff Daurie Mancini filed an amended complaint under the caption Daurie Mancini v. Aclaris Therapeutics, Inc. et al in the Superior Court of ~~space for its corporate headquarters. The term~~New Jersey Ocean County against the Company and certain third parties alleging injuries as a result of the ~~Sublease will begin~~plaintiff’s alleged treatment with ESKATA in 2019. The amended complaint seeks unspecified compensatory and punitive damages. The Company filed a motion to dismiss the amended complaint on ~~December 1, 2017~~March 15, 2021. Briefing on the Company’s motion to dismiss has not been completed.

The Company disputes plaintiff’s claims and ~~expire on October 31, 2023. Under~~intends to defend the ~~Sublease, base rent for the period from December 1, 2017 through February 28, 2018 shall be abated, after which~~matter vigorously. At this time, the Company ~~will pay an initial base rent of $47 per month through February 28, 2019. Beginning March 1, 2019,~~cannot reasonably predict the monthly base rent will increase annually as specified in the Sublease. In addition, the Company will pay its pro rata share of the annual operating expenses associated with the premises, calculated as set forth in the Sublease. outcome or potential loss, if any, that could result from this matter.

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

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words ~~or phrases “would~~“may,” “might,” “can,” “will,” “to be,” ~~“will allow,~~“could,” ~~“intends to,~~“would,” ~~“will likely result,~~“should,” ~~“are expected to,~~“expect,” ~~“will continue,~~“intend,” ~~“is anticipated,~~“plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “likely,” “continue,” “ongoing” or similar expressions, or the negative of such words, ~~or phrases,~~ are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking ~~statements due to a number of factors, including risks related to:~~

~~our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;~~

~~the success and timing of our preclinical studies and clinical trials and regulatory approval of protocols for future clinical trials;~~

~~the difficulties in obtaining and maintaining regulatory approval of our drug candidates, and the labeling under any approval we may obtain;~~

~~our plans and ability to develop, manufacture and commercialize our drug candidates;~~

~~the expected benefits of our acquisition of Confluence Life Sciences, Inc.;~~

~~our ability to recruit or retain key scientific or management personnel or to retain our executive officers;~~

~~the size and growth of the potential markets for our drug candidates and our ability to serve those markets;~~

~~regulatory developments in the United States and foreign countries;~~

~~the rate and degree of market acceptance of any of our drug candidates;~~

~~our ability to obtain and maintain intellectual property protection for our drug candidates and our proprietary technology;~~

~~the successful development of our commercialization capabilities, including sales and marketing capabilities;~~

~~the impact of recently enacted and future legislation and regulation regarding the healthcare system;~~

~~the success of competing therapies and products that are or become available; and~~

~~the performance of third parties, including contract research organizations and third-party manufacturers.~~

~~These and other factors~~statements. Factors that could cause or contribute to these differences ~~are described~~include those below in this Quarterly Report on Form 10-Q and those in ~~Part II – Item 1A,~~our Annual Report on Form 10-K, in each case under the caption “Risk Factors,” and ~~under similar captions~~ in our other filings with the Securities and Exchange ~~Commission.~~Commission, or SEC. Statements made herein are as of the date of the filing of this Form 10-Q with the

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~~Securities and Exchange Commission~~ SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes for the year ended December 31, ~~2016,~~2020, which are included in our ~~2016~~ Annual Report on Form 10-K filed with the ~~Securities and Exchange Commission, or~~ SEC on ~~March 15, 2017.~~February 25, 2021.

Overview

We are a ~~dermatologist-led~~clinical-stage biopharmaceutical company focused on ~~identifying,~~ developing ~~and commercializing innovative and differentiated therapies~~novel drug candidates for immuno-inflammatory diseases. In addition to ~~address significant unmet needs in medical and aesthetic dermatology. Our lead~~developing our novel drug ~~candidate, A-101 40% Topical Solution, is a proprietary formulation of high-concentration hydrogen peroxide topical solution that~~candidates, we are ~~developing as a prescription treatment~~pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for ~~seborrheic keratosis,~~ and/or SK, a common non-malignant skin tumor. In the first quarter of 2016, we initiated two multi-center, randomized, double blinded, vehicle-controlled Phase 3 clinical trials and one open-label Phase 3 clinical trial of A-101 40% Topical Solution in patients with SK. In November 2016, we announced positive top-line results from the two pivotal Phase 3 clinical trials, which are summarized below. Based on these results, wecommercialize our novel drug candidates.

ATI-450, an Investigational Oral MK2 Inhibitor

We submitted aan Investigational New Drug Application, or ~~NDA,~~IND, in April 2019 for ~~A-101 40% Topical Solution~~ATI-450, an investigational oral, novel, small molecule selective mitogen-activated protein kinase-activated protein kinase 2, or MK2, inhibitor compound, for the treatment of ~~SK to~~rheumatoid arthritis, which was allowed by the U.S. Food and Drug Administration, or FDA, in ~~February 2017,~~May 2019. MK2 is a key regulator of pro-inflammatory mediators including TNFα, IL1β, IL6, IL8 and other essential pathogenic signals in chronic immuno-inflammatory diseases, as well as in oncology. As an oral drug candidate, we are developing ATI-450 as a potential alternative to injectable anti-TNF/IL1/IL6 biologics and JAK inhibitors for treating certain immuno-inflammatory diseases.

We initiated a Phase 1 single (at 10mg, 30mg, 50mg and 100mg doses) and multiple ascending (at 10mg, 30mg and 50mg doses) dose clinical trial evaluating ATI-450 in 77 healthy subjects in August 2019 (ATI-450-PKPD-101). Final data from this trial demonstrated that ATI-450 resulted in marked inhibition of TNFα, IL1β, IL8 and IL6. We also observed that ATI-450 had dose-proportional pharmacokinetics with a terminal half-life of 9-12 hours in the ~~NDA~~multiple ascending dose cohort, and had no meaningful food effect or drug-drug interaction with methotrexate. ATI-450 was ~~accepted for filing~~generally well-tolerated at all doses tested in the trial. The most common adverse events (reported by 2 or more subjects who received ATI-450) were dizziness, headache, upper respiratory tract infection, constipation, abdominal pain and nausea.

ATI-450 was also evaluated at 80mg and 120mg doses twice daily in a second Phase 1 clinical trial in healthy subjects (ATI-450-PKPD-102). Preliminary topline data from this trial showed that no dose-limiting toxicity was observed. Ex vivo analysis of blood samples from this Phase 1 trial showed that increased cytokine inhibition was achieved with these higher doses of ATI-450 relative to doses tested in the ~~FDA~~first Phase 1 trial. No serious adverse events were reported and all adverse events were mild to moderate. The most common adverse events (reported by 2 or more subjects who received ATI-450) were headache, dizziness, nausea, parasthesia and, in ~~May 2017.~~ ~~The Prescription Drug User Fee Act, or PDUFA, target action date for~~the post-dosing follow-up period of the trial, dry skin. These adverse events were all mild in severity. A final analysis of this trial is underway.

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Moderate to Severe Rheumatoid Arthritis

Following the completion of the ~~FDA’s review~~first Phase 1 clinical trial, in March 2020 we initiated a 12-week, Phase 2a, multicenter, randomized, investigator and patient-blind, sponsor-unblinded, parallel group, placebo-controlled clinical trial to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of ATI-450 in subjects with moderate to severe rheumatoid arthritis (ATI-450-RA-201). In the trial, which consisted of a 12-week treatment period and a 4-week follow-up period, 19 subjects were randomized in a 3:1 ratio and received either ATI-450 at 50 mg twice daily or placebo, in combination with methotrexate, for 12 weeks.

The final per-protocol analysis, which consisted of the ~~NDA is December 24, 2017. We also submitted a Marketing Authorization Application, or MAA,~~17 subjects who completed the treatment period (15 in the ~~European Union~~treatment arm and two in ~~July 2017. We are also developing A-101 45% Topical Solution~~the placebo arm), confirmed that ATI-450 demonstrated durable clinical activity, as defined by a ~~prescription treatment for common warts, also known as verruca vulgaris. Additionally,~~marked and sustained reduction in ~~2015, we in-licensed exclusive, worldwide rights to certain inhibitors~~DAS28-CRP and improvement of the Janus kinase, or JAK, family of enzymes, for specified dermatological conditions, including alopecia areata, or AA, vitiligo and androgenetic alopecia, or AGA. In 2016, we acquired additional intellectual property rights for the development and commercialization of certain JAK inhibitors for specified dermatological conditions. We intend to continue to in-license or acquire additional drug candidates and technologies to build a fully integrated dermatology company.

In November 2016, we completed two pivotal Phase 3 clinical trials of A-101 40% Topical Solution in a combined 937 patients who each had a total of four target SK lesions located on the face, trunk and extremities. Each trial met all primary and secondary endpoints for that trial, achieving clinically and statistically significant clearance of SK lesions. Additionally, we completed an open-label safety trial of A-101 40% Topical Solution in November 2016, in which we enrolled 147 patients. Across all three clinical trials, there were no treatment-related seriousACR20/50/70 responses over 12 weeks. ATI-450 was generally well tolerated. All adverse events ~~among patients treated with A-101 40% Topical Solution, and the~~were mild to moderate. The most common adverse events (each reported in 2 subjects) were ~~nasopharyngitis~~urinary tract infection, or UTI, and ~~sinusitis~~ventricular extrasystoles, all of which were determined to be unrelated to ~~A-101 40% Topical Solution.~~ treatment except for one UTI. Two subjects withdrew from the trial during the treatment period, one in the treatment arm and one in the placebo arm. The subject in the treatment arm withdrew due to palpitations, which were unrelated to the trial medication, and an elevated creatine phosphokinase, or CPK, which was determined by the site investigator to be treatment-related. The subject in the placebo arm withdrew as a result of prohibited medication needed to treat muscle strain. There was also one non-treatment-related serious adverse event (COVID-19) reported in the 4-week follow-up period of the trial in a subject who was no longer receiving treatment. The subject withdrew during the 4-week follow-up period of the trial.

A final analysis, which consisted of the 17 subjects, of ex vivo stimulated cytokines from blood samples taken from the treatment arm showed a marked and durable inhibition of TNFα, IL1β, IL6, and IL8 over the 12-week treatment period. Similarly, analysis of endogenous inflammation biomarkers also demonstrated a marked and sustained inhibition of median concentrations of hsCRP, TNFα, IL6, IL8 and MIP1β in the treatment arm over the 12-week period.

We plan to submit for publication a full analysis of the Phase 2a data in a peer-reviewed scientific journal which will include data from other secondary and exploratory endpoints evaluated in the trial, including the 4-week follow-up data and a full analysis of MRI, pharmacodynamic and pharmacokinetic data.

Based on ~~these~~the results observed in the Phase 2a trial, we intend to progress ATI-450 into a Phase 2b trial in moderate to severe rheumatoid arthritis in the second half of 2021.

Hidradenitis Suppurativa and Psoriatic Arthritis

As part of the planned expansion of our Phase 2 immuno-inflammatory clinical development programs, we also plan to progress ATI-450 into Phase 2 trials in hidradenitis suppurativa and psoriatic arthritis.

ATI-1777, an Investigational Topical “Soft” JAK 1/3 Inhibitor

In June 2020, we submitted an ~~NDA~~IND for ~~A-101 40% Topical Solution~~ATI-1777, an investigational topical “soft” JAK 1/3 inhibitor compound, for the treatment of SKmoderate to ~~the FDA in February 2017,~~severe atopic dermatitis. “Soft” JAK inhibitors are designed to be topically applied and ~~the NDA was accepted by the FDA in May 2017. We also submitted an MAA~~active in the ~~European Union~~skin, but rapidly metabolized and inactivated when they enter the bloodstream, which may result in ~~July 2017.~~ ~~The PDUFA target action date for the completion of the FDA’s review of the NDA is December 24, 2017.~~ ~~If approved, A-101 40% Topical Solution would become the first FDA-approved medication for the treatment of SK.~~ low systemic exposure.

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We are also developing A-101 45% Topical Solution for the treatment of common warts. Although common warts are generally not harmful and in most cases eventually clear without medical treatment, they may be painful and aesthetically unattractive and are contagious. On an annual basis, 1.9 million people are diagnosed with common warts. Common warts can be removed with slow-acting, over-the-counter products containing salicylic acid. As with SK, cryosurgery is the most frequently used in-office treatment for common warts. No prescription drugs have been approved by the FDA for the treatment of common warts. We completedIn October 2020, we initiated a Phase 22a, multicenter, randomized, double-blind, vehicle-controlled, parallel-group clinical trial to determine the efficacy, safety, tolerability and pharmacokinetics of ATI-1777 in August 2016 evaluating 40% and 45% concentrations of A-101 for the treatment of common warts. In this Phase 2 clinical trial, in which 90 patients completed an eight-week treatment period, we observed statistically significant improvements in the mean change in the Physician’s Wart Assessment, or PWA, score and in complete clearance of common warts in patients treated50 subjects with ~~the 45% concentration of A-101 compared~~moderate to ~~placebo. In June 2017, we commenced two additional Phase 2 clinical trials of A-101 45% Topical Solution to assess the dose frequency in adult and pediatric patients with common warts.~~severe atopic dermatitis (ATI-1777-AD-201). We ~~have~~ completed enrollment in ~~these trials, with a total of 316 patients enrolled at 34 investigational centers in the United States. We~~March 2021 and expect ~~to report~~ data ~~from these additional Phase 2 clinical trials in the first half of 2018.~~

In addition, we are developing the JAK inhibitors, ATI-50001 and ATI-50002, which we in-licensed from Rigel Pharmaceuticals, Inc., or Rigel, as potential treatments for AA. AA is an autoimmune dermatologic condition typically characterized by patchy non-scarring hair loss on the scalp and body. More severe forms of AA include total scalp hair loss, known as alopecia totalis, and total hair loss on the scalp and body, known as alopecia universalis. AA affects up to 2.0% of people globally at some point during their lifetime (i.e. incidence) and up to 0.2% of people are affected at any given time (i.e. prevalence) - with two-thirds of affected individuals being 30 years old or younger at the time of disease onset. Treatment options for the less severe, patchy forms of AA include corticosteroids, either topically applied or injected directly into the scalp where the bare patches are located, or the induction of an allergic reaction at the site of hair loss using a topical contact sensitizing agent, an approach known as topical immunotherapy. The same treatment options are utilized for the more severe forms of AA, although utilization of these treatment options for the more severe forms of AA is limited due to limited efficacy, certain side effects, and their impracticality for extensive surface areas.

We are developing ATI-50001 as an oral treatment for AA and ATI-50002 as a topical treatment for AA and vitiligo, a disorder in which white patches of skin appear on different parts of the body. We submitted an Investigational New Drug application, or IND, to the FDA for ATI-50001 in October 2016, and we completed a Phase 1 clinical trial to evaluate the pharmacokinetic and pharmacodynamic properties of this drug candidate in the first quarter of 2017. We plan to initiate a Phase 2 dose-ranging clinical trial of ATI-50001 for the treatment of AA in the first half of 2018. We submitted an IND to the FDA for ATI-50002 for the treatment of AA in July 2017. We have initiated two Phase 2 clinical trials of ATI-50002 for the treatment of AA in which we expect to enroll a total of up to 36 patients, with data expected to be available in the first half of 2018. We expect to initiate one additional Phase 2 dose-ranging clinical trial of ATI-50002 for the treatment of AA in November 2017 in which we plan to enroll approximately 120 patients at 20 investigational centers in the United States. We expect data for this additional Phase 2 clinical trial to be available in the second ~~half~~quarter of ~~2018. We also plan to initiate a Phase 2 clinical trial~~2021.

Table of ~~ATI-50002 for the treatment of vitiligo by the end of 2017.~~ Contents

ATI-2138, an Investigational ITJ Inhibitor

We are also developing ~~another series of JAK inhibitors~~ATI-2138, an investigational oral ITK/TXK/JAK3, or ITJ, inhibitor compound, as a potential treatment for ~~the treatment of AGA.~~

~~In August 2017, we acquired Confluence Life Sciences, Inc.~~ psoriasis and/or ~~Confluence.~~inflammatory bowel disease, which are both T-cell mediated autoimmune diseases. The acquisition of Confluence adds small molecule drug discovery and preclinical development capabilities which, we expect, will allow us to bring early-stage research and development activities in-house that we currently outsource to third parties. Through the acquisition of Confluence, we also acquired several preclinical product candidates, including additional JAK inhibitors known as “soft” JAK inhibitors, as well as inhibitors of the MK-2 signaling pathway and inhibitors of interleukin-2-inducibleITJ compound interrupts T cell ~~kinase, or ITK.~~signaling through the combined inhibition of ITK/TXK/JAK3 pathways in lymphocytes. We ~~paid $10.3 million~~expect to file an IND for ATI-2138 in ~~cash and issued 349,527 shares~~the second half of 2021.

Our Other Drug Candidates

We continue to seek third-party partners for our common stock with a value of $9.7 million, to the former equity holders of Confluence. We are obligated to pay up to $80.0 million to the former Confluence equityholders upon the achievement of specified development, regulatory and commercial milestones, as well as low single-digit royalties upon net sales of covered products and a portion of any amounts we may receive from the further sale, out-license or transfer of the acquired intellectual property to third parties.

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~~Since our inception in July 2012, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, developing~~dermatology investigational drug candidate A-101 ~~40%~~45% Topical Solution as a potential treatment for the treatment of SK, building our intellectual property portfolio, developing our supply chain and engaging in other discovery and clinical activities in dermatology. Through the date of this report, we have financed our operations with sales of our convertible preferred stock, as well as net proceeds from our initial public offering, or IPO, in October 2015, a private placement of our common stock in June 2016, public offerings of our common stock in November 2016 and August 2017, and an at-the-market facility with Cowen and Company LLC, or Cowen that we entered into in November 2016. We do not expect to generate significant revenue unless and until we obtain marketing approval for and commercialize A-101 40% Topical Solution for the treatment of SK or one of our other current or future drug candidates.warts (verruca vulgaris).

Financial Overview

Since our inception, we have incurred significant operating losses. Our net loss was ~~$48.1~~$28.8 million for the three months ended March 31, 2021 and $51.0 million for the year ended December 31, ~~2016 and $45.6 million for the nine months ended September 30, 2017.~~2020. As of ~~September 30, 2017,~~March 31, 2021, we had an accumulated deficit of ~~$136.5~~$533.3 million. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical ~~development~~ and clinical ~~trials, seek marketing approval and pursue commercialization of any approved drug candidate.~~development. In addition, our drug candidates, even if wethey are approved by regulatory agencies for marketing, may not achieve commercial success. We may also not be successful in pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for ~~any of~~and/or commercialize our drug candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. In addition, we may incur expenses in connection with the in-license or acquisition of additional drug candidates. Furthermore, we have incurred and expect to continue to incur significant costs associated with operating as a public company, including legal, accounting, investor relations and other expenses. We also expect to add additional personnel to support our expanding and advancing development pipeline. As a result, we will need substantial additional funding to support our continuing operations.

We have historically financed our operations primarily with sales of equity securities and ~~pursue our growth strategy. Until such time as we can generate significant revenue~~incurring indebtedness in the form of loans from ~~product sales, if ever,~~commercial lenders. In the near term, we expect to finance our operations through ~~the sale of equity, debt financings or~~these and other capital sources, including potential ~~collaborations~~partnerships with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on commercially acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development ~~and commercialization~~ of one or more of our drug candidates.

Impact of COVID-19 on Our Business

The impacts of the global COVID-19 pandemic continue to evolve. We have implemented a virtual operations strategy, including teleworking and other alternative work arrangements for our employees, intended to protect the health and safety of our employees while enabling us to continue to develop our drug candidates and provide contract research services to our clients. We are focused on ensuring the continuity of our operations. However, COVID-19 has caused disruptions to our business. For example, due to the COVID-19 pandemic subject enrollment in our Phase 2a trial of ATI-450 in subjects with cryopyrin-associated periodic syndrome was paused as a result of which, among other reasons, we decided to focus our efforts and resources on other immuno-inflammatory diseases.

If COVID-19 continues to spread, we may experience additional disruptions that could severely impact our business, results of operations and prospects, including the timing of our development programs and our clinical trials, including our trials of ATI-450 as a potential treatment for moderate to severe rheumatoid arthritis and ATI-1777 as a potential treatment for moderate to severe atopic dermatitis and the supply of active pharmaceutical ingredients and drug product for our clinical trials. The extent to which the COVID-19 pandemic impacts our business, our preclinical and clinical development and our regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted, such as the geographic spread of the disease, the duration of the pandemic, travel restrictions, quarantines, stay-at-home orders, social distancing requirements, business closures and supply chain and other disruptions in the United States and other countries, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease, including the administration of vaccines. Accordingly, we do not yet know the full extent of the potential impacts on our business, our preclinical and clinical development and regulatory activities.

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Acquisition and License Agreements

Agreement and Plan of Merger with Confluence

In August 2017, we entered into an Agreement and Plan of Merger, or ~~delay~~the Confluence Agreement, with Confluence Life Sciences, Inc. (now known as Aclaris Life Sciences, Inc.), or Confluence, Aclaris Life Sciences, Inc., our ~~pursuit~~wholly-owned subsidiary, or Merger Sub, and Fortis Advisors LLC, as representative of ~~potential in-licenses~~the equity holders of Confluence. Pursuant to the terms of the Confluence Agreement, the Merger Sub merged with and into Confluence, with Confluence surviving as our wholly-owned subsidiary. We paid closing consideration of $10.3 million in cash and issued 349,527 shares of our common stock with a fair value of $9.7 million to the former Confluence equity holders.

In November 2018, a development milestone specified in the Confluence Agreement was achieved, as a result of which we paid the former Confluence equity holders $2.5 million in cash and issued 253,208 shares of our common stock with a fair value of $2.2 million. Under the Confluence Agreement, we also agreed to pay the former Confluence equity holders aggregate remaining contingent consideration of up to $75.0 million based upon the achievement of specified regulatory and commercial milestones set forth in the Confluence Agreement. In addition, we have agreed to pay the former Confluence equity holders 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, ~~acquisitions.~~in specified circumstances, ten years from the first commercial sale of such product. In addition to the payments described above, if we sell, license or transfer any of the intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party, we will be obligated to pay the former Confluence equity holders a portion of any consideration received from such sale, license or transfer in specified circumstances.

Asset Purchase Agreement with EPI Health

In October 2019, we entered into an asset purchase agreement with EPI Health, LLC, or EPI Health, pursuant to which we sold the worldwide rights to RHOFADE (oxymetazoline hydrochloride) cream, 1%, or RHOFADE, which included the assignment of certain licenses for related intellectual property assets, or the Disposition.

Pursuant to the asset purchase agreement, EPI Health paid us an upfront payment of $35.0 million, $1.75 million of which was placed in escrow, and $0.2 million for inventory. In addition, EPI Health has agreed to pay us (i) potential sales milestone payments of up to $20.0 million in the aggregate upon the achievement of specified levels of net sales of products covered by the agreement, (ii) a specified high single-digit royalty calculated as a percentage of net sales, on a product-by-product and country-by-country basis, until the date that the patent rights related to a particular product, such as RHOFADE, have expired, provided, that with respect to sales of RHOFADE in any territory outside of the United States, such royalty shall be paid on a country-by-country basis until the date that the RHOFADE patent rights in the particular country have expired or, if later, 10 years from the date of the first commercial sale of RHOFADE in such country and (iii) 25% of any upfront, license, milestone, maintenance or fixed payment received by EPI Health in connection with any license or sublicense of the assets transferred in the Disposition in any territory outside of the United States, subject to specified exceptions. In addition, EPI Health has agreed to assume our obligation to pay specified royalties and milestone payments under certain agreements with third parties.

Components of Our Results of Operations

Revenue

~~We recognize revenue when the earnings process is complete, which under SEC Staff Accounting~~Contract Research

Bulletin No. 104, Topic No. 13, “Revenue Recognition,” is when revenue is realized or realizable and earned, there is persuasive evidence a revenue arrangement exists, delivery of goods or services has occurred, the sales price is fixed or determinable, and collectability is reasonably assured.

We earn revenue from the provision of laboratory ~~services to clients through Confluence, our wholly-owned subsidiary. Laboratory service~~services. Contract research 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.~~

We also receive revenue from grants under the Small Business Innovation Research program of the National Institutes of Health, or NIH. Through our Confluence subsidiary, we currently have two active grants from NIH which are related to early-stage research. We recognize revenue related to these grants as amounts become reimbursable under each grant, which is generally when research is performed and the related costs are incurred.

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Other Revenue

Other revenue consists of royalties earned on net sales of RHOFADE pursuant to the asset purchase agreement with EPI Health described above.

Cost of Revenue

Cost of revenue consists of the costs incurred in connection with the provision of ~~laboratory services to our clients through Confluence.~~contract research services. Cost of revenue primarily includes:

●

employee-related expenses, which include salaries, benefits and stock-based compensation;

●

outsourced professional scientific services;

●

depreciation of laboratory equipment;

●

facility-related costs; and

●

laboratory materials and supplies used to support the services provided.

Research and Development Expenses

Research and development expenses consist of expenses incurred in connection with the discovery and development of our drug candidates. These expenses primarily include:

●

expenses incurred under agreements with contract research organizations, or CROs, as well as ~~investigative~~clinical trial sites and consultants that conduct our clinical trials and preclinical ~~studies;~~

studies, and investigator-initiated trials;

●

manufacturing scale-up expenses and the cost of acquiring and manufacturing active pharmaceutical ingredients and preclinical and clinical trial ~~materials and commercial materials, including manufacturing validation batches;~~

materials;

●

outsourced professional scientific development services;

●

medical affairs expenses related to our drug candidates;

●

employee-related expenses, which include salaries, benefits and stock-based compensation;

●

depreciation of manufacturing equipment;

●

payments made under agreements with third parties under which we have acquired or licensed intellectual property;

●

expenses relating to regulatory activities, including filing fees paid to regulatory agencies; and

●

laboratory materials and supplies used to support our research activities.

We expense research and development costs as incurred. Our direct research and development expenses primarily consist of external costs including fees paid to CROs, consultants, investigator sites, regulatory agencies and third parties that manufacture our preclinical and clinical trial materials, and are tracked on a program-by-program basis. We do not allocate personnel costs, facilities or other indirect expenses, which are included within “Personnel and other costs” in the table below, to specific research and development programs.

~~The following table summarizes our research and development expenses for the periods presented:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(In thousands)
A-101 Topical Solution (40% and 45%)

$
3,750

$
3,326

$
7,031

$
13,029
JAK inhibitors

2,753

1,893

7,639

4,901
Vixen acquisition

—

—

—

3,385
Other research expenses

407

50

508

140
Total project-related expenses

6,910

5,269

15,178

21,455
Personnel and other costs

2,622

1,270

7,570

3,501
Stock-based compensation

1,332

623

3,853

1,577
Total research and development expenses

$
10,864

$
7,162

$
26,601

$
26,533

~~Table of Contents~~

Research and development activities are central to our business model. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect ~~our~~to continue to incur research and development expenses ~~to increase significantly over~~in the ~~next several years~~near term as we ~~increase~~continue the clinical development of ATI-450 as a potential treatment for moderate to severe rheumatoid arthritis and other immuno-inflammatory diseases and ATI-1777 as a potential treatment for moderate to severe atopic dermatitis, continue the development of our preclinical compounds, and continue to discover and develop additional drug candidates. We expense research and development costs as incurred. Our direct research and development expenses primarily consist of external costs including fees paid to CROs, consultants, clinical trial sites, regulatory agencies and third parties that manufacture our preclinical and clinical trial materials, and are tracked on a program-by-program basis. We do not allocate personnel costs, ~~including stock-based compensation, continue~~facilities or other indirect expenses, to ~~conduct pre-commercial activities related to A-101 40% Topical Solution for the treatment of SK,~~specific research and ~~conduct clinical trials and prepare regulatory filings for our other drug candidates.~~development programs.

The successful development of our drug candidates is highly uncertain. ~~At this time, we~~We cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net cash inflows may commence from any of our drug candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including:

●

the number of clinical sites included in the trials;

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●

the length of time required to enroll suitable ~~patients;~~

subjects;

●

the number of ~~patients~~subjects that ultimately participate in the trials;

●

the number of doses ~~patients~~subjects receive;

●

the impact on the recruitment, enrollment, conduct and timing of our clinical trials due to the COVID-19 pandemic;

●

the duration of ~~patient~~subject follow-up; and

●

the results of our clinical trials.

Our expenditures are subject to additional uncertainties, including the ~~terms and timing~~preparation of ~~marketing approvals,~~regulatory filings for our drug candidates, and the expense of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights. We may ~~never succeed in achieving marketing approval for any of our drug candidates. We may~~ obtain unexpected results from our clinical ~~trials.~~trials or other development activities. We may elect to discontinue, delay or modify the development, including clinical trials, of some drug candidates or focus on others. A change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. ~~Drug commercialization will take several years and millions of dollars in development costs.~~

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs, including stock-based compensation, for personnel in executive, administrative, finance and legal ~~functions, including stock-based compensation, travel expenses and recruiting expenses. Other general~~functions. General and administrative expenses also include facility-related costs, patent filing and prosecution costs, professional fees for ~~marketing,~~ legal, auditing and tax services, ~~insurance costs, as well as payments made under our related party services agreement and milestone payments under our finder’s services agreement.~~

We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including stock-based compensation, expanded infrastructure and higher consulting, legal and tax-related services associated with maintaining compliance with NASDAQ and SEC requirements, accounting and investor relations costs, insurance costs and ~~director and officer insurance premiums associated with being a public company. Additionally, if and when we believe a marketing approval~~travel expenses.

Revaluation of ~~a drug candidate appears likely, we anticipate an increase~~Contingent Consideration

Revaluation of contingent consideration consists of changes in ~~payroll and other expenses as a result~~the fair value of our ~~preparation for commercial operations, especially as it relates to the sales and marketing of that drug candidate.~~contingent consideration liability between reporting dates.

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Other Income (Expense), Net

Other income (expense), net primarily consists of interest earned on our cash, cash equivalents and marketable securities, interest expense related to our debt obligations, and gains and losses on transactions denominated in foreign currencies.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with ~~GAAP.~~generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. ~~On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, contingent consideration and stock-based compensation.~~ We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. ~~Actual~~We evaluate our estimates and judgments on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. ~~We believe~~Except as described below, there have been no material changes to our ~~critical~~significant accounting policies and use of estimates as disclosed in the footnotes to our audited consolidated financial statements for the year ended December 31, ~~2016~~2020 included in our ~~2016~~ Annual Report on Form 10-K filed with the SEC on ~~March 15, 2017.~~February 25, 2021.

~~Intangible Assets~~

Intangible assets include both finite lived and indefinite lived assets. Finite lived intangible assets are amortized over their estimated useful life based on the pattern over which the intangible assets are consumed or otherwise used up. If that pattern cannot be reliably determined, the straight-line method of amortization is used. Indefinite lived intangible assets are not amortized. In-process research and development assets acquired in a business combination are considered indefinite lived until the completion or abandonment of the associated research and development efforts. We test intangible assets for impairment at least annually, or if indicators of impairment are present. We recognize impairment losses when and to the extent that the estimated fair value of an intangible asset is less than its carrying value.

Contingent Consideration

We initially recorded ~~the~~a contingent consideration liability at fair value on the date of acquisition 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~~based upon significant unobservable inputs including the ~~date~~

Table of ~~acquisition. Changes in fair value reflect new information about the likelihood~~Contents

achievement of the ~~payment~~development, regulatory and commercial milestones, as well as estimated future sales levels and the discount rates applied to calculate the present value of the potential payments. Significant judgement was involved in determining the appropriateness of these assumptions. These assumptions are considered Level 3 inputs. Revaluation of our contingent consideration ~~and the passage~~liability can result from changes to one or more of ~~time. Future changes in~~these assumptions. We evaluate the fair value estimate of ~~the~~our contingent consideration liability on a quarterly basis with changes, if any, ~~will be~~ recorded as income or expense in our condensed consolidated statement of ~~operations.~~ operations and which could have a material impact on our financial results.

The fair value of contingent consideration is estimated using a probability-weighted expected payment model for regulatory milestone payments and a Monte Carlo simulation model for commercial milestone and royalty payments and then applying a risk-adjusted discount rate to calculate the present value of the potential payments. Significant assumptions used in our estimates include the probability of achieving regulatory milestones and commencing commercialization, which are based on an asset’s current stage of development and a review of existing clinical data. Probability of success assumptions ranged between 4% and 40%. Additionally, estimated future sales levels and the risk-adjusted discount rate applied to the potential payments are also significant assumptions used in calculating the fair value. The discount rate ranged between 5.9% and 8.1% depending on the year of each potential payment.

During the three months ended March 31, 2021, we updated assumptions for probability of success and estimated future sales levels as a result of the completion of a Phase 2a clinical trial of ATI-450 in subjects with moderate to severe rheumatoid arthritis. We also included estimated future sales related to hidradenitis suppurativa and psoriatic arthritis which are additional planned indications for ATI-450. These updates resulted in a charge of $16.4 million.

Recently Issued Accounting Pronouncements

~~In January 2017, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or 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. We are assessing the potential impact of ASU 2017-01 on our consolidated financial statements. None.

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~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles-Goodwill and Other-Simplifying the Test for Goodwill Impairment (Topic 350)~~. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments in this ASU eliminate Step 2 from the goodwill impairment test. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. We are assessing the potential impact of ASU 2017-04 on our consolidated financial statements.

~~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. We are assessing the potential impact of ASU 2014-09 on our consolidated financial statements.

Results of Operations

Comparison of Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020

Three Months Ended September 30,


2017

2016

Change

(In thousands)

Revenue

$
684

$
—

$
684

Cost of revenue

453

—

453

Gross profit

231

—

231

Operating expenses:

Research and development

10,864

7,162

3,702

General and administrative

8,123

3,650

4,473

Total operating expenses

18,987

10,812

8,175

Loss from operations

(18,756)

(10,812)

(7,944)

Other income, net

564

118

446

Net loss

$
(18,192)

$
(10,694)

$
(7,498)


	Three Months Ended March 31,
(In thousands)	2021		2020		Change
Revenues:
Contract research	$	1,535	$	1,189	$	346
Other revenue		242		218		24
Total revenue		1,777		1,407		370

Costs and expenses:
Cost of revenue		1,202		1,269		(67)
Research and development		7,838		7,677		161
General and administrative		4,827		6,200		(1,373)
Revaluation of contingent consideration		16,439		1,767		14,672
Total costs and expenses		30,306		16,913		13,393
Loss from operations		(28,529)		(15,506)		(13,023)

Other income (expense), net		(225)		178		(403)
Loss from continuing operations		(28,754)		(15,328)		(13,426)
Loss from discontinued operations		—		(258)		258
Net loss	$	(28,754)	$	(15,586)	$	(13,168)

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Revenue

~~Revenue~~

~~Revenue~~Contract research revenue was ~~$ 0.7~~$1.5 million and $1.2 million for the three months ended ~~September 30, 2017,~~March 31, 2021 and 2020, respectively, and was comprised ~~primarily~~ of fees earned from the provision of laboratory ~~services to clients through Confluence, which we acquired in August 2017. We did not generate any~~services. The $0.3 million increase was primarily driven by higher average billing rates. Other revenue infor each of the three months ended ~~September 30, 2016.~~ March 31, 2021 and 2020 consisted of $0.2 million of royalties earned on net sales of RHOFADE.

Cost of Revenue

Cost of revenue was ~~$ 0.5~~$1.2 million and $1.3 million for the three months ended ~~September 30, 2017,~~March 31, 2021 and ~~was comprised entirely of costs incurred~~2020, respectively, and related to ~~provide~~providing laboratory services to our ~~clients through Confluence, which we acquired in August 2017. We did not incur any cost~~clients.

Research and Development Expenses

The following table summarizes our research and development expenses:


	Three Months Ended
	March 31,
(In thousands)	2021		2020		Change
ATI-450	$	2,073	$	1,976	$	97
ATI-1777		946		757		189
ATI-2138		1,383		301		1,082
Discovery		692		627		65
Other research and development		416		1,194		(778)
Personnel		1,452		2,006		(554)
Stock-based compensation		876		816		60
Total research and development expenses	$	7,838	$	7,677	$	161

Table of ~~revenue in~~Contents

ATI-450

Expenses for ATI-450 during the three months ended ~~September 30, 2016.~~

~~Research~~March 31, 2021 primarily consisted of costs associated with multiple clinical trials, including a Phase 2a trial in subjects with moderate to severe rheumatoid arthritis, drug product manufacturing expenses, and ~~Development Expenses~~

~~Research and~~other development expenses. ATI-450 expenses ~~were $10.9 million for~~during the three months ended ~~September 30, 2017, compared~~March 31, 2020 primarily consisted of preclinical development activities and activities related to ~~$7.2 million~~a Phase 1 clinical trial that was completed in January 2020.

ATI-1777

Expenses for ATI-1777 were higher during the three months ended ~~September 30, 2016. The increase of $3.7 million was~~March 31, 2021 compared to March 31, 2020 primarily ~~driven by an increase of $1.2 million of expenses related~~due to ~~our~~costs associated with a Phase ~~2 clinical trials of A-101 45% Topical Solution, an increase of $0.9 million in preclinical and~~2a clinical trial in subjects with moderate to severe atopic dermatitis which commenced in late 2020, partially offset by lower preclinical development ~~expenses related to the JAK inhibitor technology, an increase of $0.3 million in expenses related to the scale-up of commercial manufacturing~~activities.

ATI-2138

Expenses for ~~A-101 40% Topical Solution, an increase of $0.6 million in payroll-related expenses due to~~ATI-2138 were higher headcount, an increase of $0.7 million in stock-based compensation expense, and a $0.6 million increase in expenses related to medical affairs activities. We also incurred $0.3 million of expenses related to drug discovery research performed by Confluence, which we acquired in August 2017; and therefore did not incur similar expenses induring the three months ended ~~September 30, 2016. The increases noted above~~March 31, 2021 compared to March 31, 2020 primarily due to preclinical development activities and IND-enabling studies.

Discovery and other research and development

Expenses related to discovery increased during the three months ended March 31, 2021 compared to March 31, 2020 due to increased investment in our discovery-stage programs. Other research and development expenses, which primarily include expenses for our legacy dermatology assets and medical affairs activities, were ~~partially offset by~~lower during the three months ended March 31, 2021 compared to March 31, 2020 due to a ~~$1.2 million~~ decrease in costs ~~associated with~~for our legacy dermatology assets following the ~~development~~decision to discontinue investment in those programs. Additionally, travel expenses were lower during the three months ended March 31, 2021 compared to March 31, 2020 due to the COVID-19 pandemic.

Personnel and stock-based compensation

Personnel expenses and stock-based compensation decreased during the three months ended March 31, 2021 compared to March 31, 2020 due to lower headcount.

General and Administrative Expenses

The following table summarizes our general and administrative expenses:


	Three Months Ended
	March 31,
(In thousands)	2021		2020		Change
Personnel	$	959	$	1,597	$	(638)
Professional and legal fees		1,355		1,117		238
Facility and support services		398		510		(112)
Other general and administrative		563		599		(36)
Stock-based compensation		1,552		2,377		(825)
Total general and administrative expenses	$	4,827	$	6,200	$	(1,373)

Personnel and stock-based compensation expenses decreased during the three months ended March 31, 2021 compared to March 31, 2020 primarily due to lower headcount. Professional and legal fees included accounting, legal, investor relations and corporate communication costs, as well as legal fees related to patents and current lawsuits described in this report and were higher during the three months ended March 31, 2021 compared to March 31, 2020 primarily as a result of ~~A-101 40% Topical Solution~~a non-cash write-off of previously capitalized expenses related to an equity line of credit which was terminated in January 2021. Facility and support services included general office expenses, information technology costs and other expenses, and decreased during the three months ended March 31, 2021 compared to March 31, 2020 primarily due to lower information technology costs resulting from lower headcount. Other general and administrative expenses were

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lower during the three months ended March 31, 2021 compared to March 31, 2020 primarily due to reduced travel-related activities in light of the COVID-19 pandemic.

Revaluation of Contingent Consideration

The increase in revaluation of contingent consideration during the three months ended March 31, 2021 compared to March 31, 2020 primarily resulted from updates to the probability of success and estimated future sales level assumptions as a result of the completion of ~~our~~a Phase 32a clinical ~~trials~~trial of ATI-450 in ~~November 2016.~~ subjects with moderate to severe rheumatoid arthritis and the inclusion of estimated future sales related to hidradenitis suppurativa and psoriatic arthritis which are additional planned indications for ATI-450.

~~General and Administrative Expenses~~Other Income (Expense), net

~~General and administrative expenses were $8.1~~The $0.4 million ~~for~~decrease in other income (expense), net during the three months ended ~~September 30, 2017,~~March 31, 2021 compared to $3.7 million for the three months ended September 30, 2016. The increase of $4.5 million was primarily attributable to an increase of $0.7 million in payroll-related expenses due to increased headcount, $1.2 million in higher stock-based compensation expense. In addition, we had a $1.4 million increase in market research expenses and a $0.2 million increase in sales operations expenses, both related to pre-commercial activities for A-101 40% Topical Solution. We also incurred $0.4 million of professional fees in conjunction with our acquisition of Confluence, for which there were no similar amounts in the prior year period.

~~Other Income, Net~~

~~The $0.4 million increase in other income, net~~March 31, 2020 was primarily due to higher ~~invested balances of marketable securities as a result of funds received from our financing transactions in 2016~~interest expense and ~~2017.~~

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~~Comparison of Nine Months Ended September 30, 2017 and 2016~~

Nine Months Ended September 30,


2017

2016

Change

(In thousands)

Revenue

$
684

$
—

$
684

Cost of revenue

453

—

453

Gross profit

231

—

231

Operating expenses:

Research and development

26,601

26,533

68

General and administrative

20,611

10,407

10,204

Total operating expenses

47,212

36,940

10,272

Loss from operations

(46,981)

(36,940)

(10,041)

Other income, net

1,392

336

1,056

Net loss

$
(45,589)

$
(36,604)

$
(8,985)

~~Revenue~~

~~Revenue was $ 0.7 million for the nine months ended September 30, 2017, and was comprised primarily of~~ fees ~~earned from the provision of laboratory services to clients through Confluence, which we acquired in August 2017. We did not generate any revenue in the nine months ended September 30, 2016.~~

~~Cost of Revenue~~

Cost of revenue was $ 0.5 million for the nine months ended September 30, 2017, and was comprised entirely of costs incurred to provide laboratory services to our clients through Confluence, which we acquired in August 2017. We did not incur any cost of revenue in the nine months ended September 30, 2016.

~~Research and Development Expenses~~

Research and development expenses were $26.6 million for the nine months ended September 30, 2017 and $26.5 million for the nine months ended September 30, 2016. Although there was a minimal change in total research and development expenses, we had decreases of $7.6 million in the costs associated with ~~the development of A-101 40% Topical Solution as a result of the completion of our Phase 3 clinical trials in November 2016~~outstanding debt balances and ~~$3.4 million in expenses~~lower interest income associated with the acquisition of Vixen Pharmaceuticals, Inc., or Vixen, in the nine months ended September 30, 2016, for which there was no similar transaction in the current year period. These decreases were offset primarily by an increase of $2.7 million in preclinical and clinical development expenses related to the JAK inhibitor technology, an increase of $1.1 million of expenses related to our Phase 2 clinical trials of A-101 45% Topical Solution an increase of $1.8 million in payroll-related expenses due to higher headcount, a $2.3 million increase in stock-based compensation expense, a $2.0 million increase in expenses related to medical affairs activities, and $0.5 million of regulatory expenses associated with the NDA filing for A-101 40% Topical Solution incurred during the nine months ended September 30, 2017. We also incurred $0.3 million of expenses related to drug discovery research performed by Confluence, which we acquired in August 2017; therefore we did not incur similar expenses in the nine months ended September 30, 2016.marketable securities.

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~~General and Administrative Expenses~~

General and administrative expenses were $20.6 million for the nine months ended September 30, 2017, compared to $10.4 million for the nine months ended September 30, 2016. The increase of $10.2 million was primarily attributable to increases of $2.5 million in market research expenses and $0.3 million in sales operations expenses, both related to pre-commercial activities for A-101 40% Topical Solution, an increase of $1.6 million in payroll-related expenses due to increased headcount, $3.5 million in higher stock-based compensation expense and $0.5 million in higher facilities-related costs including rent expense. In addition, milestone payments pursuant to the finder’s services agreement related to A-101 40% Topical Solution increased $0.7 million over the prior year period. We also incurred $0.6 million of professional fees in conjunction with our acquisition of Confluence, for which there were no similar amounts in the prior year period.

~~Other Income, Net~~

~~The $1.1 million increase in other income, net was primarily due to higher invested balances of marketable securities as a result of funds received from our financing transactions 2016 and 2017.~~

Liquidity and Capital Resources

Overview

Since our inception, we have incurred net losses and negative cash flows from our operations. Prior to our acquisition of Confluence in August 2017, we ~~had never generated~~did not generate any revenue. We have financed our operations ~~since inception~~over the last several years primarily through sales of our ~~convertible preferred stock, as well as net proceeds~~equity securities and incurring indebtedness in the form of loans from commercial lenders. We may engage in additional debt and equity financing transactions in order to raise funds. In addition, to the extent we are able to consummate transactions with potential third-party partners to further develop, obtain marketing approval for and/or commercialize our ~~IPO in October 2015,~~drug candidates, we may receive upfront payments, milestone payments or royalties from such arrangements that would increase our ~~private placement in June 2016, our public offerings in November 2016 and August 2017 and our at-the-market facility with Cowen.~~liquidity.

As of ~~September 30, 2017,~~March 31, 2021, we had cash, cash equivalents and marketable securities of ~~$227.8~~$142.7 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view towards liquidity and capital preservation.

We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity, ~~over the next five years,~~ other than our ~~sublease~~term loan facility, lease obligations, and contingent obligations under ~~acquisition~~the Confluence Agreement, which is summarized above under “Overview—Acquisition and ~~intellectual property licensing agreements, which are summarized below under “Contractual Obligations and Commitments.~~License Agreements.”

~~Initial~~Equity Financing

January 2021 Public Offering

~~On October 13, 2015,~~In January 2021, we closed ~~our IPO~~a public offering in which we sold ~~5,750,000~~6,306,271 shares of common stock at a price to the public of ~~$11.00~~$17.50 per share, for aggregate gross proceeds of ~~$63.3~~$110.4 million. We paid underwriting discounts and commissions of ~~$4.4~~$6.6 million, and we also incurred expenses of ~~$2.3 million in connection with the IPO. As a result, the net offering proceeds to us, after deducting underwriting discounts and commissions and expenses, were $56.6 million.~~

~~Private Placement~~

On June 2, 2016, we closed a private placement in which we sold an aggregate of 1,081,082 shares of common stock at a price of $18.50 per share, for gross proceeds of $20.0 million. We incurred placement agent fees of $1.3 million, and expenses of $0.2 million in connection with the private placement. As a result, the net offering proceeds to us, after deducting placement agent fees and transaction expenses, were $18.5 million.

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~~November 2016 Public Offering~~

On November 23, 2016, we closed our follow-on public offering in which we sold 4,600,000 shares of common stock at a price to the public of $22.75 per share, for aggregate gross proceeds of $104.7 million. We paid underwriting discounts and commissions of $6.3 million, and we also incurred expenses of $0.2$0.4 million in connection with the offering. As a result, the net offering proceeds received by us, after deducting underwriting discounts, commissions and offering expenses, were ~~$98.2~~$103.3 million.

~~At-The-Market Facility~~Equity Purchase Agreement with Lincoln Park Capital Fund, LLC

~~On April 21, 2017,~~In August 2020, we ~~sold 635,000~~entered into a purchase agreement, or the Purchase Agreement, with Lincoln Park Capital Fund, LLC, or Lincoln Park, which provided that, upon the terms and subject to the conditions and limitations set forth therein, we could sell to Lincoln Park, at our discretion, up to $15.0 million of shares of our common stock ~~at a weighted average price per share~~over the 36-month term of ~~$31.50, for aggregate gross proceeds~~the Purchase Agreement. Upon execution of ~~approximately $20.0 million. We paid underwriting discounts and commissions of $0.6 million, and~~the Purchase Agreement, we also incurred expenses of $0.1 million in connection with this sale. The shares were sold through Cowen pursuant to a sales agreement with them dated November 2, 2016. Following these sales, we may offer and sell additionalissued 121,584 shares of our common stock ~~having~~to Lincoln Park as commitment shares in accordance with the closing conditions contained within the

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Purchase Agreement. The commitment shares were valued using the closing price of our common stock on the effective date of the Purchase Agreement resulting in an aggregate ~~offering price~~fair value of ~~up to approximately $55.0 million from time to time through Cowen pursuant to the sales agreement.~~

~~August 2017 Public Offering~~

~~On August 16, 2017, we closed our follow-on public offering in which~~$0.3 million. Through December 31, 2020, we sold ~~3,747,602~~2,111,170 shares of our common stock ~~at a price~~ to Lincoln Park under the ~~public of $23.02 per share,~~Purchase Agreement for ~~aggregate gross~~net proceeds of ~~$86.3~~$7.7 million. We ~~paid underwriting discounts and commissions of $5.2 million, and we also incurred expenses of $0.2 million~~terminated the Purchase Agreement in January 2021 in connection with the ~~offering. As~~public offering of common stock described above. We did not sell any additional shares during the three months ended March 31, 2021 prior to terminating the Purchase Agreement.

Debt Financing

Loan and Security Agreement with Silicon Valley Bank

In March 2020, we entered into a Loan and Security Agreement with Silicon Valley Bank, or SVB. The Loan and Security Agreement provides for $11.0 million in term loans, of which we borrowed the entire amount on March 30, 2020. The Loan and Security Agreement is secured by substantially all of our assets other than intellectual property.

The term loan repayment schedule provides for interest only payments beginning April 1, 2020 and continuing through March 1, 2022, followed by 24 consecutive equal monthly installments of principal, plus monthly payments of accrued interest, starting on April 1, 2022 and continuing through the maturity date of March 1, 2024. All outstanding principal and accrued and unpaid interest will be due and payable on the maturity date. The Loan and Security Agreement provides for an annual interest rate equal to the greater of (i) the prime rate then in effect as reported in The Wall Street Journal plus 2% and (ii) 6.75%.

The Loan and Security Agreement includes a final payment fee equal to 5% of the original principal amount borrowed. We have the option to prepay the outstanding balance of the term loans in full, subject to a prepayment premium of (i) 3% of the original principal amount borrowed for any prepayment on or prior to the first anniversary of March 30, 2020, (ii) 2% of the original principal amount borrowed for any prepayment after the first anniversary and on or before the second anniversary of March 30, 2020 or (iii) 1% of the original principal amount borrowed for any prepayment after the second anniversary of March 30, 2020 but before March 1, 2024.

The Loan and Security Agreement contains a customary covenant that limits our ability, subject to specified exceptions, to incur additional indebtedness without the prior written consent of SVB.

Liquidity and Cash Flows

Cash and cash equivalents were $35.3 million as of March 31, 2021 compared to $22.1 million as of December 31, 2020. We also had $107.4 million in short- and long-term marketable securities as of March 31, 2021 compared to $32.1 million as of December 31, 2020.

The sources and uses of cash that contributed to the change in cash and cash equivalents were:


	Three Months Ended March 31,
(In thousands)	2021		2020
Cash and cash equivalents beginning balance	$	22,063	$	35,937
Net cash used in operating activities		(12,232)		(6,805)
Net cash provided by (used in) investing activities		(75,314)		13,942
Net cash provided by financing activities		100,750		10,918
Cash and cash equivalents ending balance	$	35,267	$	53,992

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Operating Activities

Operating activities use of cash was the result of:



	Three Months Ended March 31,
(In thousands)	2021		2020
Net loss	$	(28,754)	$	(15,586)
Non-cash adjustments to reconcile net loss to net cash used in operating activities		19,402		5,796
Change in accounts payable and accrued expenses		(585)		(2,090)
Change in accounts receivable		(45)		4,737
Change in prepaid expenses and other assets		(2,250)		338
Net cash used in operating activities	$	(12,232)	$	(6,805)

Net cash used in operating activities increased for the three months ended March 31, 2021 compared to March 31, 2020 primarily as a result of larger charges related to revaluation of contingent consideration during the ~~net offering proceeds received by us, after deducting underwriting discounts, commissions and offering expenses, were $80.9 million.~~

~~Cash Flows~~

~~The following table summarizes our cash flows for the nine~~three months ended ~~September 30, 2017~~March 31, 2021. The revaluation of contingent consideration was due to updates to assumptions including the probability of success and ~~2016:~~

Nine Months Ended September 30,


2017

2016


(In thousands)

Net cash used in operating activities

$
(36,453)

$
(26,531)

Net cash (used in) provided by investing activities

(34,127)

15,915

Net cash provided by financing activities

100,464

18,561

Net increase in cash and cash equivalents

$
29,884

$
7,945

~~Operating Activities~~

~~During~~estimated future sales level assumptions as a result of the ~~nine months ended September 30, 2017, operating activities used $36.5 million~~completion of ~~cash, primarily resulting from our net loss~~a Phase 2a clinical trial of ~~$45.6 million~~ATI-450 in subjects with moderate to severe rheumatoid arthritis and ~~changes in our operating assets~~the inclusion of estimated future sales related to hidradenitis suppurativa and ~~liabilities of $1.2 million,~~psoriatic arthritis which are additional planned indications for ATI-450. The increase was partially offset by ~~non-cash adjustments of $10.4 million. Net cash used by changes in our operating assets~~lower stock-based compensation and ~~liabilities~~depreciation and amortization expenses during the ~~nine~~three months ended ~~September 30, 2017 consisted of a $4.3 million increase~~March 31, 2021 compared to March 31, 2020.

The change in prepaid expenses and other current assets partially offset by a $3.1 million increase in accounts payable and accrued expenses. The increase in prepaid expenses and other current assets was primarily due to a $2.0 million PDUFA fee paid to the FDA in conjunction with the filing of the NDA for A-101 40% Topical Solution, as well as deposits made for clinical supplies and development activities which are expected to be incurred during the fourth quarter of 2017. The increasechanges in accounts payable and accrued expenses was primarily ~~due to~~driven by expenses incurred, but not yet paid, as of March 31, 2021 compared to March 31, 2020. The change in ~~connection with our Phase 2 clinical trials for A-101 45% Topical Solution, ATI-50001 and ATI-50002, as well as~~changes in accounts receivable was primarily the ~~timing of vendor invoicing and payments. Non-cash expenses of $10.4 million were primarily composed of stock-based compensation expense.~~

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~~During the nine months ended September 30, 2016, operating activities used $26.5 million~~result of cash ~~primarily resulting~~received during the quarter ended March 31, 2020 from ~~our net loss~~Allergan Sales, LLC related to sales of ~~$36.6 million partially offset by cash provided by~~RHOFADE that occurred after the date we sold RHOFADE to EPI Health. The change in changes in ~~our operating~~prepaid expenses and other assets and liabilities of $3.0 million and by non-cash adjustments of $7.1 million. Net cash provided by changes in our operating assets and liabilities during the nine months ended September 30, 2016 consisted primarily of a $2.9 million increase in accounts payable and accrued expenses. The increase in accounts payable and accrued expenses was primarily due to ~~expenses incurred, but not yet paid,~~prepaid balances for drug product manufacturing agreements and other preclinical development contracts.

Investing Activities

Cash flow from investing activities was the result of:


	Three Months Ended March 31,
(In thousands)	2021		2020
Purchases of property and equipment	$	—	$	(124)
Purchases of marketable securities		(85,814)		(8,869)
Proceeds from sales and maturities of marketable securities		10,500		22,935
Net cash provided by (used in) investing activities	$	(75,314)	$	13,942

Net cash used in ~~connection with our Phase 3 clinical trials~~investing activities for ~~A-101 and~~ the timing of vendor invoicing and payments. Non-cash expenses of $7.1 million were primarily composed of $4.2 million of stock-based compensation expense and $2.8 million associated with the acquisition of Vixen.

~~Investing Activities~~

~~During the nine~~three months ended ~~September 30, 2017,~~March 31, 2021 resulted from purchases of marketable securities following our January 2021 public offering compared to net cash provided by investing activities ~~used $34.1 million of cash, consisting of proceeds~~for the three months ended March 31, 2020 which resulted from ~~sales and~~ maturities of marketable securities used primarily to fund operations.

Table of ~~$96.7 million,~~Contents

Financing Activities

Financing activities use of cash was the result of:


	Three Months Ended March 31,
(In thousands)	2021		2020
Proceeds from issuance of common stock in connection with public offering, net of issuance costs	$	103,348	$	—
Proceeds from debt financing (including warrants), net of issuance costs		—		10,950
Restricted stock unit employee tax withholdings		(3,014)		—
Finance lease payments		—		(57)
Proceeds from exercise of employee stock options and the issuance of stock		416		25
Net cash provided by financing activities	$	100,750	$	10,918

Cash provided by financing activities increased for the three months ended March 31, 2021 compared to March 31, 2020 primarily due to our January 2021 public offering. The increase was partially offset by ~~purchases~~an increase in cash used for tax withholdings in connection with the vesting of ~~marketable securities of $120.5 million, $9.6 million for the acquisition of Confluence and purchases of equipment of $0.7 million.~~restricted stock units.

During the nine months ended September 30, 2016, investing activities provided $15.9 million of cash, consisting of proceeds from sales and maturities of marketable securities of $49.8 million, partially offset by purchases of marketable securities of $33.7 million and purchases of equipment of $0.2 million.

~~Financing Activities~~

During the nine months ended September 30, 2017, financing activities provided $100.5 million including $19.3 million in April 2017 under our sales agreement with Cowen, and $80.9 million of net proceeds from our August 2017 public offering, as well as $0.2 million of cash received from the exercise of employee stock options.

~~During the nine months ended September 30, 2016, financing activities provided $18.6 million of cash primarily from the private placement of our common stock in June 2016.~~

Funding Requirements

~~We plan to focus in the near term on the development, marketing approval and potential commercialization of A-101 40% Topical Solution for the treatment of SK.~~ We anticipate we will incur net losses ~~for~~in the ~~next several years~~near term as we continue ~~our~~the clinical development of ~~A-101 40% Topical Solution~~ATI-450 as a potential treatment for moderate to severe rheumatoid arthritis and other immuno-inflammatory diseases and ATI-1777 as a potential treatment for moderate to severe atopic dermatitis, continue the ~~treatment~~development of SKour preclinical compounds, and continue ~~research~~to discover and development of A-101 45% Topical Solution for the treatment of common warts and ATI-50001 and ATI-50002 for the treatment of AA, and potentially for other dermatological conditions, as well as for development of other JAK inhibitor compounds. In addition, we plan to continue to invest in discovery efforts to exploredevelop additional drug ~~candidates, build commercial capabilities and expand our corporate infrastructure.~~candidates. We may not be able to ~~complete the development and initiate commercialization of~~generate revenue from these programs if, among other things, our clinical trials are not successful, ~~or if~~ the FDA does not approve ~~A-101 40% Topical Solution or~~ our ~~other~~ drug candidates currently in clinical trials when we expect, or at ~~all.~~all, or we are not able to identify and consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our drug candidates.

Our primary uses of capital are, and we expect will continue in the near term to be, compensation and related expenses, clinical ~~trial~~ costs, external research and development services, laboratory and related supplies, legal and other regulatory expenses, and administrative and overhead costs. Our future funding requirements will be heavily determined by the resources needed to support the development ~~and commercialization~~ of our drug candidates.

As a publicly traded company, we ~~have incurred~~incur and will continue to incur significant legal, accounting and other ~~expenses that we were not required to incur as a private company.~~similar expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC and the ~~NASDAQ~~Nasdaq Stock Market LLC, requires public companies to implement specified corporate governance practices that ~~were not applicable to us prior to our IPO. We expect ongoing compliance with these~~

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~~rules and regulations will~~could increase our ~~legal and financial~~ compliance ~~costs and will make some activities more time-consuming and costly.~~costs.

We believe our existing cash, cash equivalents and marketable securities are sufficient to fund our operating and capital expenditure requirements for a period greater than 12 months from the date of issuance of our ~~unaudited~~ condensed consolidated financial statements that appear in Item 1 of this Quarterly Report on Form 10-Q based on our current operating assumptions including the completion of our Phase 2 clinical trials for A-101 45% Topical Solution for the treatment of common warts and the continued development of ATI-50001 and ATI-50002 as potential treatments for AA and vitiligo. These assumptions may prove to be wrong, and we could utilize our available capital resources sooner than we expect.assumptions. We ~~expect that we~~ will require additional capital to ~~commercialize A-101 40% Topical Solution, if we receive marketing approval,~~complete the clinical development of ATI-450 and ATI-1777, to develop our preclinical compounds, and to pursue in-licenses or acquisitions of other drug candidates. If we receive marketing approval for A-101 40% Topical Solution, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize that drug candidate.support our discovery efforts. Additional funds may not be available on a timely basis, on commercially acceptable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If we are unable to raise sufficient additional capital or generate revenue from transactions with potential third-party partners for the development and/or commercialization of our drug candidates, we may need to substantially curtail our planned ~~operations and the pursuit of our growth strategy.~~operations.

We may raise additional capital through the sale of equity or ~~convertible~~ debt securities. In such an event, ~~your~~our stockholders’ ownership will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of a holder of our common stock.

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Because of the numerous risks and uncertainties associated with research ~~development~~ and ~~commercialization~~development of pharmaceutical drugs, we are unable to estimate the exact amount of our working capital requirements. Our ~~future~~ funding requirements in the near term will depend on many factors, including:

●

the number and ~~characteristics~~development requirements of the drug candidates that we may pursue;

●

the scope, progress, results and costs of ~~researching~~preclinical development, laboratory testing and ~~developing~~conducting preclinical and clinical trials for our drug candidates;

●

the costs, timing and outcome of regulatory review of our drug candidates;

●

the extent to which we in-license or acquire additional drug candidates and technologies;

●

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

●

the impact on the timing of our preclinical studies, the recruitment, enrollment, conduct and timing of our clinical trials and our business due to the COVID-19 pandemic;

●

our ability to identify and consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our drug candidates, and ~~conducting preclinical studies~~earn revenue from such arrangements; and ~~clinical trials;~~

●

the ~~timing~~revenue earned from our commercial products as a result of ~~and the costs involved in, obtaining marketing approvals for our drug candidates;~~

~~the cost of manufacturing our drug candidates and any drugs we successfully commercialize;~~

~~our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;~~

~~the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and~~

~~the timing, receipt and amount of sales of, or milestone payments related~~licenses to, or ~~royalties on, our current or future drug candidates, if any.~~

partnerships with, third parties.

Contractual Obligations and Commitments

We occupy ~~office~~ space for our headquarters in ~~Malvern,~~Wayne, Pennsylvania under ~~two operating lease agreements both of~~a sublease agreement which ~~have terms~~has a term through ~~November 2019, that require future aggregate rental payments of $0.1 million during~~October 2023. In December 2020, we entered into a sub-sublease agreement under which we sub-subleased 8,115 square feet. The sub-sublease term runs concurrently with the ~~three months ending December 31, 2017, $0.4 million during the year ending December 31, 2018, and $0.4 million during the year ending December 31, 2019.~~

~~Confluence occupies~~original sublease agreement. We occupy office and laboratory space in St. Louis, Missouri under ~~an operating lease~~a sublease agreement which has a term through ~~December 2017, which requires future rental payments of $0.1~~June 2029.

In March 2020, we borrowed $11.0 million ~~during the three months ending December 31, 2017.~~

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Under the assignment agreement pursuant to which we acquired intellectual property, we have agreed to pay royalties on sales of A-101 40% Topical Solution or related products at rates ranging in low single-digit percentages of net sales, as defined in the agreement. Under the related finder’s services agreement, we have agreed to make aggregate payments of up to $4.5 million upon the achievement of specified commercial milestones. In addition, we have agreed to pay royalties on sales of A-101 40% Topical Solution or related products at a low single-digit percentage of net sales, as defined in the agreement.

Under a commercial supply agreement with a third party, we have agreed to pay a termination fee of up to $0.4 million in the event we terminate the agreement without cause or the third party terminates the agreement for cause.

Under a license agreement with Rigel that we entered into in August 2015, we have agreed to make aggregate payments of up to $80.0 million upon the achievement of specified pre-commercialization milestones, such as clinical trials and regulatory approvals. Further, we have agreed to pay up to an additional $10.0 million to Rigel upon the achievement of a second set of development milestones. With respect to any products we commercialize under the ~~agreement, we will pay Rigel quarterly tiered royalties on our annual net sales of each product developed using~~Loan and Security Agreement with SVB. Amounts borrowed under the ~~licensed JAK inhibitors at a high single-digit percentage of annual net sales,~~Loan and Security Agreement are subject to ~~specified reductions.~~

~~Under a stock purchase agreement with the selling stockholders of~~ ~~Vixen, w~~e are obligated to make aggregate payments of up to $18.0 million upon the achievement of specified pre-commercialization milestones for three products covered by the Vixen patent rights in the United States, the European Union and Japan, and aggregate payments of up to $22.5 million upon the achievement of specified commercial milestones for products covered by the Vixen patent rights. ~~We are also obligated to make a payment of $0.1 million on March 24th of each year,~~interest only through March ~~24,~~ 2022, after which ~~amounts are creditable against any specified future payments that may be paid under the stock purchase agreement.~~ With respect to any covered products that we commercialize, we are obligated to pay 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. If we sublicense any of the patent rights and know-how acquired pursuant to the ~~stock purchase agreement~~, we will be ~~obligated to pay a portion of any consideration we receive from such sublicenses in specified circumstances.~~

Under a license agreement with The Trustees of Columbia University in the City of New York, or Columbia, we are obligated to pay an annual license fee of $10,000, subject to specified adjustments for patent expenses incurred by Columbia and creditable against any royalties that may be paid under the license agreement. We are also obligated to pay up to an aggregate of $11.6 million upon the achievement of specified commercial milestones, including specified levels of net sales of products covered by Columbia patent rights and/or know-how, and royalties at a sub-single-digit percentage of annual net sales of products covered by Columbia patent rights and/or know-how, subject to specified adjustments. If we sublicense any of Columbia’s patent rights and know-how acquired pursuant to the license agreement, we will be obligated to pay Columbia a portion of any consideration received from such sublicenses in specified circumstances.

~~Under an acquisition agreement with Confluence~~ w~~e are obligated~~required to make ~~aggregate~~principal and interest payments through the maturity date of up to $80.0 million upon the achievement of specified development, regulatory and commercialization milestones. With respect to any covered products we commercialize, we are obligated to pay 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. If we sublicense any of the patent rights and know-how acquired pursuant to the merger ~~agreement, we will be obligated to pay a portion of any consideration we receive from such sublicenses in specified circumstances.~~ March 2024.

We enter into contracts in the normal course of business with CROs and contract manufacturing organizations for clinical trials, preclinical ~~research~~ studies and testing, manufacturing and other services and products for operating purposes. These contracts generally

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provide for termination upon notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.

Segment Information

We have two reportable segments, therapeutics and contract research. The therapeutics segment is focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases. The contract research segment earns revenue from the provision of laboratory services.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

~~Emerging Growth Company Status~~

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~We are exposed to market risk related to changes in interest rates.~~ Our cash equivalents and marketable securities consist of money market funds, asset-backed debt securities, commercial paper, corporate debt securities and U.S. government agency ~~debt.~~debt securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Our marketable securities are subject to interest rate risk and will fall in value if market interest rates increase. However, due to the short-term nature and ~~risk~~low-risk profile of our investment portfolio, we do not expect that an immediate 10% change in market interest rates would have a material effect on the fair market value of our investment portfolio. We have the ability to hold our marketable securities until maturity, and therefore we dowould not expect our operating results or cash flows to be affected ~~significantly~~to any significant degree by the effect of a change in market interest rates on our investments.

The Loan and Security Agreement with SVB provides for an annual interest rate equal to the greater of (i) the prime rate then in effect as reported in The Wall Street Journal plus 2% and (ii) 6.75%. To the extent that any present or future credit facilities that we enter into are based on a floating interest rate, we will be subject to risks relating to changes in market interest rates. In periods of rising interest rates when we have such debt outstanding, our interest expense would increase. Based upon our debt outstanding of $11.0 million as of March 31, 2021, a 100 basis-point increase in the interest rate on our loan with SVB would result in $0.1 million of additional interest expense on an annualized basis.

The uncertainty that exists with respect to the economic impact of the global COVID-19 pandemic has introduced significant volatility in the financial markets during and subsequent to our quarter ended March 31, 2021.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2017,~~March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of such date at the reasonable assurance level.

Management’s assessment of disclosure controls and procedures excluded consideration of Confluence’s internal control over financial reporting, which was acquired during the third quarter of 2017. This exclusion is consistent with guidance provided by the staff of the SEC that an assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting for up to one year from the date of acquisition, subject to specified conditions. Confluence’s total assets were $1.3 million as of September 30, 2017 and Confluence’s total revenues were $0.7 million during the three months ended September 30, 2017.

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(b)Changes in Internal ~~Controls~~Control Over Financial Reporting

There have not been any changes in our internal ~~controls~~control over financial reporting during our fiscal quarter ended ~~September 30, 2017~~March 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ~~As a result of our acquisition of Confluence, we are in the process of designing and implementing controls over intangible assets.~~

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we ~~may be~~are subject to litigation and claims arising in the ordinary course of ~~business. We~~business including intellectual property and product liability litigation, but, except as stated below, we are not currently a party to any material legal proceedings and we are not aware of any other pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.

Securities Class Action

On July 30, 2019, plaintiff Linda Rosi, or Rosi, filed a putative class action complaint captioned Rosi v. Aclaris Therapeutics, Inc., et al. in the U.S. District Court for the Southern District of New York against us and certain of our executive officers. The complaint alleges that the defendants violated federal securities laws by, among other things, failing to disclose an alleged likelihood that regulators would scrutinize advertising materials related to ESKATA (hydrogen peroxide) topical solution, 40% (w/w), or ESKATA, our non-marketed FDA-approved product, and find that the materials minimized the risks or overstated the efficacy of the product. The complaint seeks unspecified compensatory damages on behalf of Rosi and all other persons and entities that purchased or otherwise acquired our securities between May 8, 2018 and June 20, 2019.

On September 5, 2019, an additional plaintiff, Robert Fulcher, or Fulcher, filed a substantially identical putative class action complaint captioned Fulcher v. Aclaris Therapeutics, Inc., et al. in the same court against the same defendants.

On November 6, 2019, the court consolidated the Rosi and Fulcher actions, or together, the Consolidated Securities Action, and appointed Fulcher “lead plaintiff” for the putative class.

On January 24, 2020, Fulcher filed a consolidated amended complaint in the Consolidated Securities Action, naming two additional executive officers as defendants, extending the putative class period to August 12, 2019, and adding allegations concerning, among other things, alleged statements and omissions throughout the putative class period concerning ESKATA’s risks, tolerability and effectiveness. The defendants filed a motion to dismiss the consolidated amended complaint on April 17, 2020. Following briefing and oral argument on February 25, 2021, the motion was granted in part and denied in part on March 29, 2021, and the issues in dispute significantly narrowed. The defendants filed an answer to the remaining aspects of the consolidated amended complaint on April 19, 2021.

We and the other defendants dispute plaintiffs’ claims in the Consolidated Securities Action.

Stockholder Derivative Action

On November 15, 2019, plaintiff Keith Allred, or Allred, filed a derivative stockholder complaint captioned Allred v. Walker et al. in the U.S. District Court for the Southern District of New York against certain of our directors and executive officers. The complaint alleges that the defendants, among other things, breached their fiduciary duties as directors and/or officers in connection with the claims alleged in the Consolidated Securities Action. The complaint seeks, among other things, unspecified compensatory damages on behalf of our company.

On November 25, 2019, an additional plaintiff, Bruce Brown, or Brown, filed a substantially identical complaint captioned Brown v. Walker et al. in the same court against the same defendants.

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On December 12, 2019, the court consolidated the Allred and Brown actions under the caption In re Aclaris Therapeutics, Inc. Derivative Litigation, or the Consolidated Derivative Action, and directed that future derivative cases filed in or transferred to the court arising out of substantially the same transactions or events be similarly consolidated. Thereafter, on January 11, 2020, the court stayed – subject to certain conditions – all deadlines in the Consolidated Derivative Action pending resolution of the defendants’ then-anticipated motion to dismiss the Consolidated Securities Action. The stay expired on April 27, 2021, but may be reinstated pending further developments in the Consolidated Securities Action. No further proceedings have yet occurred or been scheduled in the Consolidated Derivative Action.

Item 1A. Risk Factors

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. ~~Except for the new risk factors set forth immediately below, our~~Our risk factors have not changed materially from those described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2020, filed with the SEC on ~~March 15, 2017.~~ February 25, 2021.

~~We may not realize the anticipated benefits of our acquisition of Confluence.~~

In August 2017, we acquired Confluence Life Sciences, Inc., or Confluence, including several preclinical drug candidates and Confluence’s contract research services business. Acquisitions are inherently risky, and we may not realize the anticipated benefits of the acquisition of Confluence. Specifically, we are subject to the risks that:

~~we fail to successfully develop or integrate Confluence’s preclinical drug candidates into our pipeline in order to achieve our strategic objectives;~~

~~we are unable to adequately integrate or continue operating Confluence’s contract research services business;~~

~~we receive inadequate or unfavorable data from preclinical studies or clinical trials evaluating the acquired preclinical drug candidates; and~~

our due diligence processes in connection with the acquisition fail to identify significant problems, liabilities or other shortcomings or challenges of Confluence, including problems, liabilities or other shortcomings or challenges with respect to intellectual property, product quality and safety and other known and unknown liabilities.

~~If we are unable to successfully integrate Confluence’s business and employees, it could have an adverse effect on our future results and the market price of our common stock.~~

The success of our acquisition of Confluence will depend, in large part, on our ability to realize operating synergies from combining our business with Confluence’s business. To realize these anticipated benefits, we must successfully integrate Confluence’s business and employees. This integration will be complex and time-consuming.

The failure to successfully integrate and manage the challenges presented by the integration process may result in our failure to achieve some or all of the anticipated benefits of the merger. Potential difficulties that may be encountered in the integration process include the following:

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~~complexities associated with managing the larger combined company with distant business locations;~~

~~integrating personnel from the two companies;~~

~~current and prospective employees may experience uncertainty regarding their future roles with our company, which might adversely affect our ability to retain, recruit and motivate key personnel~~;

~~lost sales and customers as a result of customers of Confluence’s contract research services business deciding not to do business with the combined company;~~

~~potential unknown liabilities and unforeseen expenses associated with the merger; and~~

~~performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the merger and integrating the companies’ operations.~~

If any of these events were to occur, the ability of the combined company to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits of the merger could be adversely affected, or could reduce our future earnings or otherwise adversely affect our business and financial results and, as a result, adversely affect the market price of our common stock.

~~Charges to earnings resulting from the merger may cause our operating results to suffer.~~

~~Under accounting principles, we will allocate the total purchase price of the merger to Confluence’s net tangible assets and intangible assets based on their fair values as of the date of the~~ merger, and we will record the excess of the purchase price over those fair values as goodwill. Our management’s estimates of fair value will be based upon assumptions that they believe to be reasonable but that are inherently uncertain. The following factors, among others, could result in material charges that would cause our financial results to be negatively impacted:

~~impairment of goodwill~~

~~charges for the amortization of identifiable intangible assets and for stock-based compensation; and~~

~~accrual of newly identified pre-merger contingent liabilities that are identified subsequent to the finalization of the purchase price allocation.~~

Additional costs may include costs of employee redeployment, relocation and retention, including salary increases or bonuses, taxes and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would negatively impact our results of operations.

~~Our sublease could terminate if the master lease is terminated for any reason, thus terminating our rights to access our corporate headquarters.~~

We sublease space for our corporate headquarters. While the term of the sublease extends until October 31, 2023, if for any reason the master lease is terminated or expires prior to October 31, 2023, our sublease will also automatically terminate. ~~In such an event, we would need to obtain a new direct lease with the master landlord or negotiate and enter into a new lease for office space at a different location, which may harm our business.~~

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

Issuances of Common Stock upon the Exercise of Warrants

On January 15, 2021, we issued 388,119 shares of our common stock to one warrantholder upon the net exercise of warrants. The issuance of these securities was exempt from registration under Section 3(a)(9) of the Securities Act.

~~None.~~

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Item 6. Exhibits


Exhibit No.		Document
Exhibit No.		~~Document~~

~~2.1*+^~~		~~Agreement and Plan of Merger, dated as of August 3, 2017, by and among the Registrant, Aclaris Life Sciences, Inc., Confluence Life Sciences, Inc. and Fortis Advisors LLC~~
3.1		Amended and Restated Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37581), filed with the SEC on October 13, 2015).

3.2		Amended and Restated Bylaws of the Registrant (incorporated herein by reference to Exhibit ~~3.2~~3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37581), filed with the SEC on ~~October 13, 2015)~~June 24, 2020).

10.1*		~~Fifth Amendment to Amended and Restated Sublease, by and between the Registrant and NST Consulting, LLC, dated as of July 17, 2017.~~
~~10.2~~		Aclaris Therapeutics, Inc. Inducement Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37581), filed with the SEC on August 1, 2017).
~~10.3~~		Form of Stock Option Grant Notice and Stock Option Agreement used in connection with the Aclaris Therapeutics, Inc. Inducement Plan (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37581), filed with the SEC on August 1, 2017).
~~10.4~~		Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement used in connection with Aclaris Therapeutics, Inc. Inducement Plan (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-37581), filed with the SEC on August 1, 2017).

31.1*		Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act.

31.2*		Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act.

32.1**		Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act.

101.INS		XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

Table of Contents


101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document


104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*	Filed herewith.

~~Table of Contents~~

**	These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
+	~~Confidential treatment has been requested with respect to portions of this exhibit, indicated by asterisks, which has been filed separately with the SEC.~~

^	Pursuant to Item 601(b)(2) of Regulation S-K promulgated by the SEC, certain exhibits and schedules to this agreement have been omitted. The Registrant hereby agrees to furnish supplementally to the SEC, upon its request, any or all of such omitted exhibits or schedules

4337

Table of Contents

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ACLARIS THERAPEUTICS, INC.

Date: ~~November~~May 7, ~~2017~~2021	By:	/s/ Neal Walker
		Neal Walker
		President and Chief Executive Officer
		(On behalf of the Registrant)


Date: ~~November~~May 7, ~~2017~~2021	By:	/s/ Frank Ruffo
		Frank Ruffo
		Chief Financial Officer
		(Principal Financial Officer)

4438


(Mark one)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~September 30, 2017~~March 31, 2021
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware (State or Other Jurisdiction of Incorporation or Organization)	46-0571712 (I.R.S. Employer Identification No.)
~~101 Lindenwood Drive,~~640 Lee Road, Suite ~~400~~200 ~~Malvern,~~Wayne, PA (Address of principal executive offices)	~~19355~~19087 (Zip Code)


Title of Each Class:	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock, $0.00001 par value	ACRS	The Nasdaq Stock Market, LLC


Large accelerated filer ☐◻		Accelerated filer ☒◻

Non-accelerated filer ☐⌧		Smaller reporting company ☐☒
~~(Do not check if a smaller reporting company)~~
		Emerging growth company ☒☐


		PAGE
	~~PAGE~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	2

Unaudited Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020	2

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020	3

Unaudited Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021and 2020	4

Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020	5

Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22 20

Item 3. Quantitative and Qualitative Disclosures about Market Risk	38 34

Item 4. Controls and Procedures	38 34

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	40 35

Item 1A. Risk Factors	40 36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41 36

Item 6. Exhibits	42 36

Signatures	44 38


	September 30,		December 31,
	2017		2016

Assets
Current assets:
Cash and cash equivalents	$	60,055	$	30,171
Marketable securities		167,793		107,051
Accounts receivable, net		658		—
Prepaid expenses and other current assets		5,616		1,334
Total current assets		234,122		138,556
Marketable securities		—		36,912
Property and equipment, net		1,203		481
Intangible assets		7,367		—
Goodwill		18,504		—
Other assets		195		136
Total assets	$	261,391	$	176,085
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,483	$	2,845
Accrued expenses		3,510		3,378
Total current liabilities		9,993		6,223
Contingent consideration		4,378		—
Other liabilities		375		372
Deferred tax liability		2,386		—
Total liabilities		17,132		6,595
Stockholders’ Equity:
Preferred stock, $0.00001 par value; 10,000,000 shares authorized and no shares issued or outstanding at September 30, 2017 and December 31, 2016		—		—
Common stock, $0.00001 par value; 100,000,000 shares authorized at September 30, 2017 and December 31, 2016; 30,834,679 and 26,059,181 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		—		—
Additional paid‑in capital		380,873		260,671
Accumulated other comprehensive loss		(113)		(269)
Accumulated deficit		(136,501)		(90,912)
Total stockholders’ equity		244,259		169,490
Total liabilities and stockholders’ equity	$	261,391	$	176,085


						Accumulated
	Common Stock			Additional		Other				Total
		Par		Paid‑in		Comprehensive		Accumulated		Stockholders’
	Shares	Value		Capital		Loss		Deficit		Equity
Balance at December 31, 2016	26,059,181	$	—	$	260,671	$	(269)	$	(90,912)	$	169,490
Issuance of common stock under the at-the-market sales agreement, net of offering costs of $691	635,000		—		19,311		—		—		19,311
Issuance of common stock in connection with public offering, net of underwriting discounts and commissions and offering costs of $5,352	3,747,602		—		80,918		—		—		80,918
Issuance of common stock in connection with the acquisition of Confluence	349,527				9,675		—		—		9,675
Exercise of stock options and vesting of restricted stock units	43,369		—		168		—		—		168
Unrealized loss on marketable securities	—		—		—		7		—		7
Foreign currency translation adjustment	—		—		—		149		—		149
Stock-based compensation expense	—		—		10,130		—		—		10,130
Net loss	—		—		—		—		(45,589)		(45,589)
Balance at September 30, 2017	30,834,679	$	—	$	380,873	$	(113)	$	(136,501)	$	244,259


						Accumulated
	Common Stock			Additional		Other				Total
		Par		Paid‑in		Comprehensive		Accumulated		Stockholders’
	Shares	Value		Capital		Loss		Deficit		Equity
Balance at December 31, 2020	45,109,314	$	—	$	542,286	$	(94)	$	(504,542)	$	37,650
Issuance of common stock in connection with exercise of stock options and warrants and vesting of restricted stock units	666,144		—		(2,579)		—		—		(2,579)
Issuance of common stock in connection with public offering, net of offering costs of $7,011	6,306,271		—		103,348		—		—		103,348
Unrealized loss on marketable securities	—		—		—		(35)		—		(35)
Foreign currency translation adjustment	—		—		—		(11)		—		(11)
Stock-based compensation expense	—		—		2,675		—		—		2,675
Net loss	—		—		—		—		(28,754)		(28,754)
Balance at March 31, 2021	52,081,729	$	—	$	645,730	$	(140)	$	(533,296)	$	112,294


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


Cash and cash equivalents	$	622
Accounts receivable, net		574
Other current assets		89
Property and equipment		268
Other intangible assets		751
IPR&D		6,629
Goodwill		18,504
Total assets acquired		27,437

Accounts payable and accrued expenses		656
Deferred tax liability		2,386
Other liabilities		73
Total liabilities assumed		3,115

Total net assets acquired	$	24,322


	March 31, 2021
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	29,132	$	—	$	—	$	29,132
Marketable securities		—		107,390		—		107,390
Total assets	$	29,132	$	107,390	$	—	$	136,522


Liabilities:
Contingent consideration	$	—	$	—	$	20,500	$	20,500
Total liabilities	$	—	$	—	$	20,500	$	20,500


	September 30, 2017
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	44,670	$	13,983	$	—	$	58,653
Marketable securities		—		167,793		—		167,793
Total Assets	$	44,670	$	181,776	$	—	$	226,446


Liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	4,378	$	4,378
Total liabilities	$	—	$	—	$	4,378	$	4,378


	December 31, 2016
	Level 1		Level 2		Level 3		Total

									December 31, 2020
(In thousands)									Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	11,522	$	12,691	$	—	$	24,213	$	14,955	$	1,500	$	—	$	16,455
Marketable securities		—		143,963		—		143,963		—		32,068		—		32,068
Total	$	11,522	$	156,654	$	—	$	168,176
Total assets									$	14,955	$	33,568	$	—	$	48,523


Liabilities:
Contingent consideration									$	—	$	—	$	4,061	$	4,061
Total liabilities									$	—	$	—	$	4,061	$	4,061


	March 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gain		Loss		Value
Marketable securities:
Corporate debt securities	$	21,556	$	—	$	(31)	$	21,525
Commercial paper		54,045		—		—		54,045
Asset-backed debt securities		14,062		1		(6)		14,057
U.S. government agency debt securities		17,760		3		—		17,763
Total marketable securities	$	107,423	$	4	$	(37)	$	107,390


	September 30, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value

Marketable securities:
Corporate debt securities	$	39,432	$	—	$	(9)	$	39,423
Commercial paper		76,130		—		—		76,130
Asset-backed securities		20,752		—		(3)		20,749
U.S. government agency debt securities		31,521		—		(30)		31,491
Total marketable securities	$	167,835	$	—	$	(42)	$	167,793


		Gross Cost				Accumulated Amortization
	Remaining		March 31,		December 31,		March 31,		December 31,
(In thousands, except years)	Life (years)	2021		2020		2021		2020
Other intangible assets	6.3	$	751	$	751	$	275	$	257
In-process research and development	na		6,629		6,629		—		—
Total intangible assets		$	7,380	$	7,380	$	275	$	257


		Year Ending
(In thousands)		December 31,
2021	$	56
2022		75
2023		75
2024		75
2025		75
Thereafter		120
Total	$	476


					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number		Exercise		Contractual	Intrinsic
	of Shares		Price		Term	Value
					(in years)
Outstanding as of December 31, 2016	2,702,350		$	18.94	9.05	$	24,434
Granted	617,500			26.47
Exercised	(36,738)			6.40
Forfeited and cancelled	(40,281)			21.09
Outstanding as of September 30, 2017	3,242,831		$	20.49	8.60	$	21,704
Options vested and expected to vest as of September 30, 2017	3,242,831		$	20.49	8.60	$	21,704
Options exercisable as of September 30, 2017	828,823	(1)	$	10.95	7.73	$	12,666


		Weighted
		Average
		Grant Date
	Number	Fair Value
	of Shares	Per Share
Outstanding as of December 31, 2016	219,614	$	27.43
Granted	88,547		26.59
Vested	(9,299)		20.32
Forfeited and cancelled	(4,531)		27.05
Outstanding as of September 30, 2017	294,331	$	27.41


Year Ending December 31,
2017	$	114
2018		394
2019		368
2020		—
2021		—
Thereafter		—
Total	$	876


	Three Months Ended September 30,
	2017		2016		Change
	(In thousands)
Revenue	$	684	$	—	$	684
Cost of revenue		453		—		453
Gross profit		231		—		231
Operating expenses:
Research and development		10,864		7,162		3,702
General and administrative		8,123		3,650		4,473
Total operating expenses		18,987		10,812		8,175
Loss from operations		(18,756)		(10,812)		(7,944)
Other income, net		564		118		446
Net loss	$	(18,192)	$	(10,694)	$	(7,498)


	Nine Months Ended September 30,
	2017		2016		Change
	(In thousands)
Revenue	$	684	$	—	$	684
Cost of revenue		453		—		453
Gross profit		231		—		231
Operating expenses:
Research and development		26,601		26,533		68
General and administrative		20,611		10,407		10,204
Total operating expenses		47,212		36,940		10,272
Loss from operations		(46,981)		(36,940)		(10,041)
Other income, net		1,392		336		1,056
Net loss	$	(45,589)	$	(36,604)	$	(8,985)