SEC Filing | Aclaris Therapeutics, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark one)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-37581

Aclaris Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

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

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

N/A

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

Securities registered pursuant to Section 12(b) of the Act:


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

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


Large accelerated filer ⌧		Accelerated filer ◻

Non-accelerated filer ◻		Smaller reporting company ◻

		Emerging growth company ☐

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

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

The number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, as of the close of business on July 31, 2023 was 70,794,642.

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ACLARIS THERAPEUTICS, INC.

INDEX TO FORM 10-Q

		PAGE

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements		2

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022		2

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022		3

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022		4

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022		5

Notes to Unaudited Condensed Consolidated Financial Statements		6

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk		34

Item 4. Controls and Procedures		34

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		36

Item 1A. Risk Factors		36

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

Item 5. Other Information		36

Item 6. Exhibits		36

Signatures		38

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)


	June 30,		December 31,
	2023		2022

Assets
Current assets:
Cash and cash equivalents	$	31,150	$	45,277
Short-term marketable securities		88,625		172,294
Accounts receivable, net		431		484
Prepaid expenses and other current assets		12,729		13,495
Total current assets		132,935		231,550
Marketable securities		90,992		12,242
Property and equipment, net		1,899		1,099
Intangible assets		6,935		6,973
Other assets		2,888		2,732
Total Assets	$	235,649	$	254,596
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	11,425	$	10,351
Accrued expenses		8,744		8,701
Current portion of lease liabilities		458		684
Discontinued operations		2,202		2,202
Total current liabilities		22,829		21,938
Other liabilities		1,903		1,570
Contingent consideration		30,800		33,100
Deferred tax liability		367		367
Total liabilities		55,899		56,975
Commitments and contingencies (Note 14)
Stockholders’ Equity:
Preferred stock, $0.00001 par value; 10,000,000 shares authorized and no shares issued or outstanding at June 30, 2023 and December 31, 2022		—		—
Common stock, $0.00001 par value; 200,000,000 and 100,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively; 70,769,702 and 66,688,647 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		1		1
Additional paid‑in capital		920,904		880,832
Accumulated other comprehensive loss		(1,111)		(897)
Accumulated deficit		(740,044)		(682,315)
Total stockholders’ equity		179,750		197,621
Total liabilities and stockholders’ equity	$	235,649	$	254,596

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

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ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenues:
Contract research	$	875	$	1,218	$	1,764	$	2,439
Licensing		994		280		2,633		481
Other		—		30		—		61
Total revenue		1,869		1,528		4,397		2,981

Costs and expenses:
Cost of revenue		1,042		1,068		1,850		2,223
Research and development		25,275		18,779		47,862		33,085
General and administrative		8,317		6,075		17,107		12,174
Licensing		550		—		1,611		—
Revaluation of contingent consideration		(1,500)		(3,400)		(2,300)		(4,600)
Total costs and expenses		33,684		22,522		66,130		42,882
Loss from operations		(31,815)		(20,994)		(61,733)		(39,901)

Other income, net		2,246		462		4,004		580
Net loss	$	(29,569)	$	(20,532)	$	(57,729)	$	(39,321)

Net loss per share, basic and diluted	$	(0.42)	$	(0.31)	$	(0.84)	$	(0.62)
Weighted average common shares outstanding, basic and diluted		70,633,528		65,990,031		68,763,542		63,723,123

Other comprehensive loss:
Unrealized loss on marketable securities, net of tax of $0	$	(757)	$	(354)	$	(214)	$	(1,101)
Total other comprehensive loss		(757)		(354)		(214)		(1,101)
Comprehensive loss	$	(30,326)	$	(20,886)	$	(57,943)	$	(40,422)

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

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ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)


						Accumulated
	Common Stock			Additional		Other				Total
		Par		Paid‑in		Comprehensive		Accumulated		Stockholders’
	Shares	Value		Capital		Loss		Deficit		Equity
Balance at December 31, 2022	66,688,647	$	1	$	880,832	$	(897)	$	(682,315)	$	197,621
Issuance of common stock in connection with vesting of restricted stock units	517,378		—		—		—		—		—
Unrealized gain on marketable securities	—		—		—		543		—		543
Stock-based compensation expense	—		—		6,806		—		—		6,806
Net loss	—		—		—		—		(28,160)		(28,160)
Balance at March 31, 2023	67,206,025	$	1	$	887,638	$	(354)	$	(710,475)	$	176,810
Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units	163,677		—		30		—		—		30
Issuance of common stock under at-the-market sales agreement, net of offering costs of $826	3,400,000		—		26,714		—		—		26,714
Unrealized loss on marketable securities	—		—		—		(757)		—		(757)
Stock-based compensation expense	—		—		6,522		—		—		6,522
Net loss	—		—		—		—		(29,569)		(29,569)
Balance at June 30, 2023	70,769,702	$	1	$	920,904	$	(1,111)	$	(740,044)	$	179,750


						Accumulated
	Common Stock			Additional		Other				Total
		Par		Paid‑in		Comprehensive		Accumulated		Stockholders’
	Shares	Value		Capital		Loss		Deficit		Equity
Balance at December 31, 2021	61,228,446	$	1	$	792,971	$	(224)	$	(595,407)	$	197,341
Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units	509,037		—		49		—		—		49
Unrealized loss on marketable securities	—		—		—		(748)		—		(748)
Stock-based compensation expense	—		—		2,346		—		—		2,346
Net loss	—		—		—		—		(18,789)		(18,789)
Balance at March 31, 2022	61,737,483	$	1	$	795,366	$	(972)	$	(614,196)	$	180,199
Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units	91,388		—		88		—		—		88
Issuance of common stock under at-the-market sales agreement, net of offering costs of $2,341	4,838,709		—		72,659		—		—		72,659
Unrealized loss on marketable securities	—		—		—		(354)		—		(354)
Stock-based compensation expense	—		—		3,692		—		—		3,692
Net loss	—		—		—		—		(20,532)		(20,532)
Balance at June 30, 2022	66,667,580	$	1	$	871,805	$	(1,326)	$	(634,728)	$	235,752

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

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ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Six Months Ended
	June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(57,729)	$	(39,321)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		416		414
Stock-based compensation expense		13,328		6,038
Revaluation of contingent consideration		(2,300)		(4,600)
Changes in operating assets and liabilities:
Accounts receivable		53		(14)
Prepaid expenses and other assets		(1,605)		1,309
Accounts payable		1,074		(4,283)
Accrued expenses		(244)		(178)
Net cash used in operating activities		(47,007)		(40,635)
Cash flows from investing activities:
Purchases of property and equipment		(784)		(350)
Purchases of marketable securities		(118,513)		(85,096)
Proceeds from sales and maturities of marketable securities		125,433		94,155
Net cash provided by investing activities		6,136		8,709
Cash flows from financing activities:
Proceeds from issuance of common stock under the at-the-market sales agreement, net of issuance costs		26,714		72,744
Payments of employee withholding taxes related to restricted stock unit award vesting		—		(23)
Proceeds from exercise of employee stock options and the issuance of stock		30		120
Net cash provided by financing activities		26,744		72,841
Net (decrease) increase in cash and cash equivalents		(14,127)		40,915
Cash and cash equivalents at beginning of period		45,277		27,349
Cash and cash equivalents at end of period	$	31,150	$	68,264

Supplemental disclosure of non-cash investing and financing activities:
Additions to property and equipment included in accounts payable	$	394	$	72

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

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ACLARIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Business

Overview

Aclaris Therapeutics, Inc. was incorporated under the laws of the State of Delaware in 2012. In 2017, Confluence Life Sciences, Inc. (now known as Aclaris Life Sciences, Inc.) (“Confluence”) was acquired by Aclaris Therapeutics, Inc. and became a wholly owned subsidiary thereof. Aclaris Therapeutics, Inc. and its wholly owned subsidiaries are referred to collectively as the “Company.” The Company is a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-inflammatory diseases. In addition to developing its novel drug candidates, the Company is pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize its novel drug candidates.

Liquidity

The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. As of June 30, 2023, the Company had cash, cash equivalents and marketable securities of $210.8 million and an accumulated deficit of $740.0 million. Since inception, the Company has incurred net losses and negative cash flows from its operations. Prior to the acquisition of Confluence, the Company had never generated revenue. There can be no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. In addition, development activities, including clinical and preclinical testing of the Company’s drug candidates, will require significant additional financing. The future viability of the Company is dependent on its ability to successfully develop its drug candidates and to generate revenue from identifying and consummating transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize its development assets or to raise additional capital to finance its operations. The Company will require additional capital to complete the clinical development of zunsemetinib (ATI-450), ATI-1777, ATI-2138 and ATI-2231, to develop its preclinical compounds, and to support its 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 the Company to continue to implement its long-term business strategy. The Company's ability to raise additional capital may be adversely impacted by potential worsening global economic conditions caused by a variety of factors including geopolitical tensions, rising interest rates, the closure of financial institutions and inflationary pressures. If the Company is unable to raise sufficient additional capital or generate revenue from transactions with potential third-party partners for the development and/or commercialization of its drug candidates, it may need to substantially curtail planned operations. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

In accordance with Accounting Standards Codification (“ASC”) Subtopic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that its condensed consolidated financial statements are issued. As of the report date, the Company does not believe that substantial doubt exists about its ability to continue as a going concern. The Company believes its existing cash, cash equivalents and marketable securities are sufficient to fund its operating and capital expenditure requirements for a period greater than 12 months from the date of issuance of these condensed consolidated financial statements.

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2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022, the condensed consolidated statement of stockholders’ equity for the three and six months ended June 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 23, 2023 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2023, the results of its operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022, its changes in stockholders’ equity for the three and six months ended June 30, 2023 and 2022 and its cash flows for the six months ended June 30, 2023 and 2022. The condensed consolidated balance sheet data as of December 31, 2022 was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”). The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2023 and 2022 are unaudited. The results for the three and six months ended June 30, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period. The unaudited interim financial statements of the Company included herein have been prepared, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2023.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP. The condensed consolidated financial statements of the Company include the accounts of the operating parent company, Aclaris Therapeutics, Inc., and its wholly owned subsidiaries. All intercompany transactions have been eliminated. Based upon the Company’s revenue, the Company believes that gross profit does not provide a meaningful measure of profitability and, therefore, has not included a line item for gross profit on the condensed consolidated statement of operations.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, contingent consideration and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require an update to its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Actual results could differ from the Company’s estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year’s financial statement presentation.

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Concentration of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company holds all cash, cash equivalents and marketable securities balances at three accredited financial institutions, the majority of which are in amounts that exceed or are not subject to federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on third-party manufacturers to supply drug product, including all underlying components, for its research and development activities, including preclinical and clinical testing. These activities could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients or other components.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2023. There have been no changes to the Company’s significant accounting policies from those disclosed in the annual report.

Contingent Consideration

The Company initially recorded a contingent consideration liability at fair value on the date of acquisition related to future potential payments resulting from the acquisition of Confluence based upon significant unobservable inputs including the achievement of 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 the contingent consideration liability can result from changes to one or more of these assumptions. The Company evaluates the fair value estimate of the contingent consideration liability on a quarterly basis with changes, if any, recorded as income or expense in the condensed consolidated statement of operations.

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 the Company’s 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 10% and 41% at June 30, 2023. 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 8.5% and 10.0% depending on the year of each potential payment.

Revenue Recognition

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

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

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Contract Research

The Company earns contract research 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 and are generally billed on a monthly basis in arrears for services rendered. Revenue related to these contracts is generally recognized as the laboratory services are performed, based upon the rates specified in the contracts. Under ASC Topic 606, the Company elected to apply the “right to invoice” practical expedient when recognizing contract research revenue and as such, recognizes revenue in the amount which it has the right to invoice. ASC Topic 606 also provides an optional exemption, which the Company has elected to apply, from disclosing remaining performance obligations when revenue is recognized from the satisfaction of the performance obligation in accordance with the “right to invoice” practical expedient.

Licensing

Licenses of Intellectual Property – The Company recognizes revenue received from non-refundable, upfront fees related to the licensing of intellectual property when the intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the license has been transferred to the customer, and the customer is able to use and benefit from the license.

Milestone and Royalty Payments – The Company considers any future potential milestones and sales-based royalties to be variable consideration. The Company recognizes revenue from development, regulatory and anniversary milestone payments as they are achieved. The Company recognizes revenue from commercial milestones and royalty payments as the sales occur.

Discontinued Operations

In September 2019, the Company announced the completion of a strategic review and its decision to refocus its resources on its immuno-inflammatory development programs and to actively seek partners for its commercial products.

As of June 30, 2023 and December 31, 2022, the Company had $2.2 million in accrued expenses reported as discontinued operations in the Company’s consolidated balance sheet.

3. Fair Value of Financial Assets and Liabilities

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


	June 30, 2023
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	26,229	$	—	$	—	$	26,229
Marketable securities		—		179,617		—		179,617
Total assets	$	26,229	$	179,617	$	—	$	205,846


Liabilities:
Contingent consideration	$	—	$	—	$	30,800	$	30,800
Total liabilities	$	—	$	—	$	30,800	$	30,800

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	December 31, 2022
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	38,516	$	—	$	—	$	38,516
Marketable securities		—		184,536		—		184,536
Total assets	$	38,516	$	184,536	$	—	$	223,052


Liabilities:
Contingent consideration	$	—	$	—	$	33,100	$	33,100
Total liabilities	$	—	$	—	$	33,100	$	33,100

As of June 30, 2023 and December 31, 2022, the Company’s cash equivalents consisted of a money market fund, which was valued based upon Level 1 inputs. The Company’s marketable securities as of June 30, 2023 consisted of commercial paper, treasury bills, and corporate debt, asset-backed debt and U.S. government and government agency debt securities, which were all valued based upon Level 2 inputs. The Company’s marketable securities as of December 31, 2022 consisted of commercial paper and corporate debt, asset-backed debt and U.S. government and government agency debt securities, which were all valued based upon Level 2 inputs.

In determining the fair value of its Level 2 investments, the Company relies on quoted prices for identical securities in markets that are not active. These quoted prices are obtained by the Company with the assistance of a third-party pricing service based on available trade, bid and other observable market data for identical securities. During the three and six months ended June 30, 2023 and 2022, there were no transfers into or out of Level 3.

The overall $2.3 million decrease in the fair value of the contingent consideration liability during the six months ended June 30, 2023 was primarily due to the removal of estimated sales levels from zunsemetinib (ATI-450) for moderate to severe hidradenitis suppurativa following the Company’s decision to cease pursuing this indication. This decrease was partially offset by lower discount rates, resulting from lower risk-free rates and changes in credit spreads being applied to potential payments relative to prior periods, as well as the passage of time.

As of June 30, 2023 and December 31, 2022, the fair value of the Company’s available-for-sale marketable securities by type of security was as follows:


	June 30, 2023
			Gross		Gross
	Book		Unrealized		Unrealized		Fair
(In thousands)	Value		Gain		Loss		Value
Marketable securities:
Corporate debt securities⁽¹⁾	$	44,339	$	—	$	(373)	$	43,966
Commercial paper		43,789		4		(73)		43,720
Treasury bills		4,982		—		(9)		4,973
Asset-backed debt securities⁽²⁾		19,125		—		(92)		19,033
U.S. government and government agency debt securities⁽³⁾		68,495		2		(572)		67,925
Total marketable securities	$	180,730	$	6	$	(1,119)	$	179,617
⁽¹⁾ Included in Corporate debt securities is $29.3 million with maturity dates between one and two years.
⁽²⁾ Included in Asset-backed debt securities is $19.0 million with maturity dates between two and four years.
⁽³⁾ Included in U.S. government and government agency debt securities is $42.7 million with maturity dates between one and two years.

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	December 31, 2022
			Gross		Gross
	Book		Unrealized		Unrealized		Fair
(In thousands)	Value		Gain		Loss		Value
Marketable securities:
Corporate debt securities⁽¹⁾	$	40,626	$	—	$	(251)	$	40,375
Commercial paper		79,598		—		—		79,598
Asset-backed debt securities⁽²⁾		14,641		4		(123)		14,522
U.S. government and government agency debt securities⁽³⁾		50,571		—		(530)		50,041
Total marketable securities	$	185,436	$	4	$	(904)	$	184,536
(1) Included in Corporate debt securities is $4.8 million with maturity dates between one and five years.
(2) Included in Asset-backed debt securities is $2.4 million with maturity dates between one and five years.
(3) Included in U.S. government and government agency debt securities is $5.0 million with maturity dates between one and five years.

4. Property and Equipment, Net

Property and equipment, net consisted of the following:


		June 30,		December 31,
(In thousands)	2023		2022
Computer equipment	$	1,449	$	1,381
Lab equipment		3,087		2,010
Furniture and fixtures		649		620
Leasehold improvements		1,123		1,123
Property and equipment, gross		6,308		5,134
Accumulated depreciation		(4,409)		(4,035)
Property and equipment, net	$	1,899	$	1,099

Depreciation expense was $0.2 million for each of the three months ended June 30, 2023 and 2022, and $0.4 million for each of the six months ended June 30, 2023 and 2022.

5. Intangible Assets

Intangible assets consisted of the following:


		Gross Cost				Accumulated Amortization
	Remaining		June 30,		December 31,		June 30,		December 31,
(In thousands, except years)	Life (years)	2023		2022		2023		2022
Other intangible assets	4.1	$	751	$	751	$	445	$	407
In-process research and development	n/a		6,629		6,629		—		—
Total intangible assets		$	7,380	$	7,380	$	445	$	407

Amortization expense was $19 thousand for each of the three months ended June 30, 2023 and 2022, and $38 thousand for each of the six months ended June 30, 2023 and 2022.

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As of June 30, 2023, estimated future amortization expense was as follows:


		Year Ending
(In thousands)		December 31,
2023	$	37
2024		75
2025		75
2026		75
2027		44
Total	$	306

6. Accrued Expenses

Accrued expenses consisted of the following:


	June 30,		December 31,
(In thousands)	2023		2022
Employee compensation expenses	$	3,905	$	5,295
Research and development expenses		4,089		2,689
Other		750		717
Total accrued expenses	$	8,744	$	8,701

7. Stockholders’ Equity

Preferred Stock

As of June 30, 2023 and December 31, 2022, the Company’s amended and restated certificate of incorporation (the “Charter”) authorized the Company to issue 10,000,000 shares of undesignated preferred stock. There were no shares of preferred stock outstanding as of June 30, 2023 or December 31, 2022.

Common Stock

On June 1, 2023, at the 2023 Annual Meeting of Stockholders, the Company’s stockholders approved an amendment to the Charter to increase the authorized number of shares of common stock from 100,000,000 shares to 200,000,000 shares. On June 1, 2023, the Company filed a Certificate of Amendment to the Charter with the Secretary of State of the State of Delaware, which became effective upon filing.

As of June 30, 2023 and December 31, 2022, the Company’s Charter authorized the Company to issue 200,000,000 and 100,000,000 shares, respectively, of $0.00001 par value common stock. There were 70,769,702 and 66,688,647 shares of common stock issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to any preferential dividend rights of any series of preferred stock that may be outstanding. No dividends have been declared through June 30, 2023.

Sales of Common Stock Pursuant to At-The-Market Facility

In April 2023, the Company sold 3.4 million shares of its common stock for aggregate gross proceeds of $27.5 million, pursuant to a sales agreement with SVB Securities LLC and Cantor Fitzgerald & Co., as sales agents, dated February 23, 2023. The Company paid selling commissions of $0.8 million in connection with the sale.

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In April 2022, the Company sold 4.8 million shares of its common stock for aggregate gross proceeds of $75.0 million, pursuant to a sales agreement with SVB Securities LLC and Cantor Fitzgerald & Co., as sales agents, dated May 20, 2021. The Company paid selling commissions and other fees of $2.3 million in connection with the sale.

8. Stock-Based Awards

2015 Equity Incentive Plan

In September 2015, the Company’s board of directors adopted the 2015 Equity Incentive Plan (the “2015 Plan”), and the Company’s stockholders approved the 2015 Plan. The 2015 Plan became effective in connection with the Company’s initial public offering in October 2015. Beginning at the time the 2015 Plan became effective, no further grants may be made under the Company’s 2012 Equity Compensation Plan, as amended and restated (the “2012 Plan”). The 2015 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit (“RSU”) awards, performance stock awards, cash-based awards, and other stock-based awards. The number of shares initially reserved for issuance under the 2015 Plan was 1,643,872 shares of common stock. The number of shares of common stock that may be issued under the 2015 Plan will automatically increase on January 1 of each year ending on January 1, 2025, in an amount equal to the lesser of (i) 4.0% of the shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or (ii) an amount determined by the Company’s board of directors. The shares of common stock underlying any awards that expire, are otherwise terminated, settled in cash, or repurchased by the Company under the 2015 Plan and the 2012 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan. As of January 1, 2023, the number of shares of common stock that may be issued under the 2015 Plan was automatically increased by 2,667,545 shares. As of June 30, 2023, 3,035,430 shares remained available for grant under the 2015 Plan. The Company had 6,177,197 stock options and 1,720,040 RSUs outstanding as of June 30, 2023 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 370,600 stock options outstanding as of June 30, 2023 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, no further grants can be made under the 2012 Plan. The Company had 466,497 stock options outstanding as of June 30, 2023 under the 2012 Plan.

Stock Option Valuation

The weighted average assumptions the Company used to estimate the fair value of stock options granted during the six months ended June 30, 2023 and 2022 were as follows:


	Six Months Ended
	June 30,
	2023		2022
Risk-free interest rate	3.48	%	1.90	%
Expected term (in years)	6.2		6.2
Expected volatility	77.73	%	77.95	%
Expected dividend yield	0	%	0	%

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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 for the six months ended June 30, 2023:


				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, 2022	5,167,164	$	16.04	7.2	$	15,288
Granted	2,074,550		16.26
Exercised	(23,980)		1.20
Forfeited and cancelled	(203,440)		15.59
Outstanding as of June 30, 2023	7,014,294	$	16.17	7.3	$	6,426
Options vested and expected to vest as of June 30, 2023	7,014,294	$	16.17	7.3	$	6,426
Options exercisable as of June 30, 2023	3,052,418	$	16.85	4.8	$	5,554

The weighted average grant date fair value of stock options granted during the six months ended June 30, 2023 was $11.42 per share.

Restricted Stock Units

The following table summarizes RSU activity for the six months ended June 30, 2023:


		Weighted
		Average
		Grant Date	Aggregate
	Number	Fair Value	Intrinsic
(In thousands, except share and per share data)	of Shares	Per Share	Value