Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Document and Entity Information - USD ($) $ in Millions	Dec. 31, 2018	Mar. 15, 2019	Jun. 30, 2018
Document and Entity Information
Entity Registrant Name	Aclaris Therapeutics, Inc.
Entity Central Index Key	0001557746
Document Type	10-K
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Shell Company	false
Entity Ex Transition Period	true
Entity Common Stock, Shares Outstanding		41,269,643
Entity Public Float			$ 528.2

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 57,019	$ 20,202
Marketable securities	110,953	173,655
Accounts receivable, net	4,861	481
Inventory	791
Prepaid expenses and other current assets	5,875	5,883
Total current assets	179,499	200,221
Marketable securities		14,997
Property and equipment, net	4,280	2,159
Intangible assets	72,951	7,349
Goodwill	18,504	18,504
Other assets	332	279
Total assets	275,566	243,509
Current liabilities:
Accounts payable	14,755	7,822
Accrued expenses	12,587	4,940
Total current liabilities	27,342	12,762
Other liabilities	1,703	558
Long-term debt	29,914
Contingent consideration	934	4,378
Deferred tax liability	549	549
Total liabilities	60,442	18,247
Stockholders' Equity:
Preferred stock, $0.00001 par value; 10,000,000 shares authorized and no shares issued or outstanding at December 31, 2018 and December 31, 2017
Common stock, $0.00001 par value; 100,000,000 shares authorized at December 31, 2018 and December 31, 2017; 41,210,725 and 30,856,505 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively
Additional paid-in capital	507,366	384,943
Accumulated other comprehensive loss	(69)	(246)
Accumulated deficit	(292,173)	(159,435)
Total stockholders’ equity	215,124	225,262
Total liabilities and stockholders’ equity	$ 275,566	$ 243,509

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2018	Dec. 31, 2017
Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	41,210,725	30,856,505
Common stock, shares outstanding	41,210,725	30,856,505

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Revenue, net	$ 10,091	$ 1,683
Cost of revenue	6,850	1,207
Gross profit	3,241	476
Operating expenses:
Research and development	63,009	39,790	$ 33,476
Sales and marketing	47,997	13,769	3,295
General and administrative	27,649	19,340	11,796
Total operating expenses	138,655	72,899	48,567
Loss from operations	(135,414)	(72,423)	(48,567)
Other income, net	2,676	2,070	488
Loss before income taxes	(132,738)	(70,353)	(48,079)
Provision for (benefit from) income taxes		(1,830)
Net loss	$ (132,738)	$ (68,523)	$ (48,079)
Net loss per share, basic and diluted	$ (4.03)	$ (2.44)	$ (2.25)
Weighted average common shares outstanding, basic and diluted (in shares)	32,909,762	28,102,386	21,415,733
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities, net of tax of $0	$ 145	$ (121)	$ 105
Foreign currency translation adjustments	32	144	(225)
Total other comprehensive income (loss)	177	23	(120)
Comprehensive loss	(132,561)	(68,500)	(48,199)
Product sales
Revenue, net	3,940
Contract research
Revenue, net	4,651	$ 1,683
Other revenue
Revenue, net	$ 1,500

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock Private Placement	Common Stock Follow On Public Offering	Common Stock At The Market Offering	Common Stock	Additional Paid-in Capital Private Placement	Additional Paid-in Capital Follow On Public Offering	Additional Paid-in Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Private Placement	Follow On Public Offering	At The Market Offering	Total
Balance at beginning of period at Dec. 31, 2015							$ 135,503	$ (149)	$ (42,833)				$ 92,521
Balance at beginning of period (in shares) at Dec. 31, 2015				20,157,503
Increase (Decrease) in Stockholders' Equity
Issuance of common stock in connection with acquisition							2,355						2,355
Issuance of common stock in connection with acquisition, shares				159,420
Issuance of common stock					$ 18,547	$ 98,158				$ 18,547	$ 98,158
Number of shares issued	1,081,082	4,600,000
Exercise of stock options and vesting of RSUs							4						4
Exercise of stock options and vesting of RSUs, shares				61,176
Unrealized gain on marketable securities								105					105
Foreign currency translation adjustment								(225)					(225)
Stock-based compensation expense							6,104						6,104
Net loss									(48,079)				(48,079)
Balance at end of period at Dec. 31, 2016							260,671	(269)	(90,912)				169,490
Balance at end of period (in shares) at Dec. 31, 2016				26,059,181
Increase (Decrease) in Stockholders' Equity
Issuance of common stock in connection with acquisition							9,675						9,675
Issuance of common stock in connection with acquisition, shares				349,527
Issuance of common stock						80,918	19,311				80,918		19,311
Number of shares issued		3,747,602	635,000
Exercise of stock options and vesting of RSUs							(62)						(62)
Exercise of stock options and vesting of RSUs, shares				65,195
Unrealized gain on marketable securities								(121)					(121)
Foreign currency translation adjustment								144					144
Stock-based compensation expense							14,430						14,430
Net loss									(68,523)				(68,523)
Balance at end of period at Dec. 31, 2017							384,943	(246)	(159,435)				$ 225,262
Balance at end of period (in shares) at Dec. 31, 2017				30,856,505									30,856,505
Increase (Decrease) in Stockholders' Equity
Issuance of common stock in connection with acquisition							2,215						$ 2,215
Issuance of common stock in connection with acquisition, shares				253,181
Issuance of common stock						$ 100,205					$ 100,205
Number of shares issued		9,941,750										635,000
Exercise of stock options and vesting of RSUs							(52)						(52)
Exercise of stock options and vesting of RSUs, shares				159,289
Unrealized gain on marketable securities								145					145
Foreign currency translation adjustment								32					32
Stock-based compensation expense							20,055						20,055
Net loss									(132,738)				(132,738)
Balance at end of period at Dec. 31, 2018							$ 507,366	$ (69)	$ (292,173)				$ 215,124
Balance at end of period (in shares) at Dec. 31, 2018				41,210,725									41,210,725

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Cash flows from operating activities:
Net loss	$ (132,738)	$ (68,523)	$ (48,079)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,879	402	120
Stock-based compensation expense	20,055	14,430	6,104
Change in fair value of contingent consideration	1,272
Payment of Confluence development milestone	(717)
Deferred taxes		(1,837)
Write-down of equipment held for sale			216
Non-cash charges related to Vixen acquisition			2,784
Changes in operating assets and liabilities:
Accounts receivable	(4,380)
Inventory	102
Prepaid expenses and other assets	(40)	(4,306)	(8)
Accounts payable	6,964	4,564	1,810
Accrued expenses	6,792	607	2,450
Net cash used in operating activities	(100,811)	(54,663)	(34,603)
Cash flows from investing activities:
Purchases of property and equipment	(1,356)	(1,235)	(232)
Acquisition of RHOFADE	(67,122)
Acquisition of Confluence, net of cash acquired		(9,647)
Purchases of marketable securities	(161,598)	(197,337)	(148,764)
Proceeds from sales and maturities of marketable securities	239,443	152,527	87,093
Net cash provided by (used in) investing activities	9,367	(55,692)	(61,903)
Cash flows from financing activities:
Proceeds from debt financing, net of issuance costs	29,910
Capital lease payments	(648)	(78)
Proceeds from the exercise of employee stock options	577	235	121
Payment of Confluence development milestone	(1,783)
Net cash provided by financing activities	128,261	100,386	116,826
Net increase (decrease) in cash and cash equivalents	36,817	(9,969)	20,320
Cash and cash equivalents at beginning of period	20,202	30,171	9,851
Cash and cash equivalents at end of period	57,019	20,202	30,171
Supplemental disclosures of non-cash investing and financing activities:
Additions to property and equipment included in accounts payable	161	274	11
Fair value of stock issued in connection with Confluence acquisition		9,675
Fair value of stock issued in settlement of Confluence development milestone	2,215
Property and equipment obtained pursuant to capital lease financing arrangements	2,131		2,355
Offering costs included in accounts payable	210	20	250
At The Market Offering
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		19,311
Follow On Public Offering
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs	$ 100,205	$ 80,918	98,158
Private Placement
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs			$ 18,547

Organization and Nature of Business	12 Months Ended
Organization and Nature of Business	Dec. 31, 2018
Organization and Nature of Business
Organization and Nature of Business	1. Organization and Nature of Business Overview Aclaris Therapeutics, Inc. was incorporated under the laws of the State of Delaware in 2012. In July 2015, Aclaris Therapeutics International Limited (“ATIL”) was established under the laws of the United Kingdom as a wholly-owned subsidiary of Aclaris Therapeutics, Inc. In March 2016, Vixen Pharmaceuticals, Inc. (“Vixen”) became a wholly-owned subsidiary of Aclaris Therapeutics, Inc., and in September 2018, Vixen was dissolved. In August 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 (see Note 3). Aclaris Therapeutics, Inc., ATIL, Vixen and Confluence are referred to collectively as the “Company”. The Company is a physician-led biopharmaceutical company focused on dermatological and immuno-inflammatory diseases. The Company has two commercial products and a diverse pipeline of drug candidates. The Company’s first commercial product, ESKATA (hydrogen peroxide) Topical Solution, 40% (w/w) (“ESKATA”), is a proprietary high‑concentration formulation of hydrogen peroxide that the Company is commercializing as an office-based prescription treatment for raised seborrheic keratosis (“SK”), a common non‑malignant skin tumor. The Company submitted a New Drug Application (“NDA”) for ESKATA to the U.S. Food and Drug Administration (“FDA”) in February 2017, and it was approved in December 2017. The Company launched ESKATA in the United States in May 2018. In November 2018, the Company acquired the worldwide rights to a second commercial product, RHOFADE (oxymetazoline hydrochloride) cream, 1% (“RHOFADE”) (see Note 3). Liquidity The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. At December 31, 2018, the Company had cash, cash equivalents and marketable securities of $167,972 and an accumulated deficit of $292,173. Since inception, the Company has incurred net losses and negative cash flows from its operations. Prior to the acquisition of Confluence in August 2017, the Company had never generated any revenue. There can be no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing of the Company’s drug candidates, and commercialization of ESKATA and RHOFADE will require significant additional financing. The future viability of the Company is dependent on its ability to generate cash from operating activities or to raise additional capital to finance its operations. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, research and development expenses, contingent consideration and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

Revenue Recognition

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

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

Product Sales, net

The Company sells ESKATA and RHOFADE to a limited number of wholesalers in the United States (collectively, its “Customers”). These Customers subsequently resell the Company’s products to pharmacies and health care providers. In addition to distribution agreements with Customers, the Company may enter into arrangements with health care providers, third-party payors, pharmacy benefit managers, and group purchasing organizations (“GPOs”) which provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts, with respect to the purchase of the Company’s products.

The Company recognizes revenue from product sales at the point the Customer obtains control of the product, which generally occurs upon delivery, and includes estimates of variable consideration in the same period revenue is recognized. Components of variable consideration include trade discounts and allowances, product returns, government rebates, discounts and rebates, other incentives such as patient co-pay assistance, and other fee for service amounts. Variable consideration is recorded on the consolidated balance sheet as either a reduction of accounts receivable, if payable to a customer, or as a current liability, if payable to a third-party other than a customer. The Company considers all relevant information when estimating variable consideration such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The amount of net revenue the Company can recognize is constrained by estimates of variable consideration which are included in the transaction price. Payment terms with Customers do not exceed one year and, therefore, the Company does not account for a financing component in its arrangements. The Company expenses incremental costs of obtaining a contract with a Customer, including sales commissions, when incurred as the period of benefit is less than one year. Shipping and handling costs for product shipments to Customers are recorded as sales and marketing expenses in the consolidated statement of operations.

Trade Discounts and Allowances - The Company may provide Customers with trade discounts, rebates, allowances or other incentives. The Company records an estimate for these items as a reduction of revenue in the same period the revenue is recognized.

Government and Payor Rebates - The Company may contract with certain third-party payors, primarily health insurance companies, pharmacy benefit managers and government programs, for the payment of rebates with respect to utilization of its products. The Company also has agreements with GPOs that provide for administrative fees and discounted pricing in the form of volume-based rebates. The Company is also subject to discount obligations under state Medicaid programs and Medicare. The Company records an estimate for these rebates as a reduction of revenue in the same period the revenue is recognized.

Other Incentives - Other incentives includes the Company’s co-pay assistance program which is intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors. The Company estimates and records an accrual for these incentives as a reduction of revenue in the period the revenue is recognized. The Company estimates amounts for co-pay assistance based upon the number of claims and the cost per claim that the Company expects to receive associated with product that has been sold to Customers but remains in the distribution channel at the end of each reporting period.

Product Returns - Consistent with industry practice, the Company has a product returns policy that provides Customers a right of return for product purchased within a specified period prior to and subsequent to the product’s expiration date. The right of return lapses upon shipment of the goods to a patient. The Company records an estimate for the amount of its products which may be returned as a reduction of revenue in the period the related revenue is recognized. The Company’s estimates for product returns are based upon available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. There is no returns liability associated with sales of ESKATA as the Company has a no returns policy for this product.

Product sales, net included the following for the years ended December 31, 2018, 2017 and 2016:


	Year Ended
	December 31,
	2018		2017		2016
ESKATA	$	2,804	$	—	$	—
RHOFADE		1,136		—		—
Total product revenue, net	$	3,940	$	—	$	—

Contract Research

The Company earns contract research revenue from the provision of laboratory services to clients through Confluence, its wholly-owned subsidiary. 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. The Company recognizes contract research revenue in the amount to which it has the right to invoice.

The Company has also received revenue from grants under the Small Business Innovation Research program of the National Institutes of Health (“NIH”). During the year ended December 31, 2018, the Company had two active grants from NIH which were related to early-stage research. As of December 31, 2018, there were no remaining funds available to the Company under the grants. The Company recognizes revenue related to grants as amounts become reimbursable under each grant, which is generally when research is performed, and the related costs are incurred.

Other Revenue

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 Payments - At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the amount allocated to the license of intellectual property. Milestone payments that are not within the control of the Company or the customer, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

Cash Equivalents

The Company considers all short term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents. Cash equivalents, which have consisted of money market accounts, commercial paper and corporate debt securities with original maturities of less than three months, are stated at fair value.

Marketable Securities

Marketable securities with original maturities of greater than three months and remaining maturities of less than one year from the balance sheet date are classified as short term. Marketable securities with remaining maturities of greater than one year from the balance sheet date are classified as long term.

The Company classifies all of its marketable securities as available-for-sale securities. The Company’s marketable securities are measured and reported at fair value using quoted prices in markets that are not active for identical or similar securities. Unrealized gains and losses are reported as a separate component of stockholders’ equity. The cost of securities sold is determined on a specific identification basis, and realized gains and losses, if any, are included in other income, net within the consolidated statement of operations and comprehensive loss. If any adjustment to fair value reflects a decline in the value of the investment, the Company considers available evidence to evaluate the extent to which the decline is “other than temporary” and reduces the investment to fair value through a charge to the statement of operations and comprehensive loss.

Other Assets

In February 2017, the Company paid a $2,000 PDUFA fee to the FDA in conjunction with the filing of its NDA for ESKATA. The Company requested a waiver and refund of this PDUFA fee, which was approved by the FDA in December 2017, and was refunded to the Company in January 2018.

Inventory

Inventory includes the third-party cost of manufacturing and assembly of finished product, quality control and other overhead costs. Inventory is stated at the lower of cost or net realizable value. Inventory is adjusted for short-dated, unmarketable inventory equal to the difference between the cost of inventory and the estimated value based upon assumptions about future demand and market conditions. The Company had $791 and $0 of inventory as of December 31, 2018 and 2017, respectively, which was comprised primarily of finished goods.

Deferred Offering Costs

The Company recorded legal, accounting and other third-party fees associated directly with the filing of its registration statement on Form S-3 in November 2016, in other assets on its consolidated balance sheet. These deferred offering costs are recorded in stockholders’ equity as a reduction of the proceeds generated from offerings consummated under the Form S-3 on a pro rata basis. The Company may also record legal, accounting and other third-party fees directly associated with in-process equity financings as deferred offering costs (non-current) until such financings are completed. The deferred costs related to an in-process equity financing are recorded in stockholders’ equity as a reduction of the proceeds generated from the related offering when it is completed. Deferred offering costs were $0 and $62 as of December 31, 2018 and 2017, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the useful life of the asset. Computer equipment is depreciated over three years. Manufacturing and laboratory equipment is depreciated over five years. Furniture and fixtures are depreciated over five years. Leasehold improvements are depreciated over the shorter of the lease term or their useful life. Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.

Assets Held for Sale

In order for an asset to be classified as held for sale, several criteria must be achieved. These criteria include, among others, an active program to market an asset and locate a buyer, as well as the probable disposition of the asset within one year. Upon being classified as held for sale, the recoverability of the carrying value of an asset must be assessed and evaluated. After the valuation process is completed, the held for sale asset is reported at the lower of its carrying value or fair value less cost to sell, and no additional depreciation expense is recognized related to the asset. Once an asset is classified as held for sale, all of its historical balance sheet information is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. The Company recorded an impairment charge of $216 in the year ended December 31, 2016 for equipment that was previously classified as held for sale. The impairment charge was included in research and development expense on the Company’s consolidated statement of operations. The Company had no assets classified as held for sale as of December 31, 2018 and 2017.

Impairment of Long Lived Assets

Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.

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. Finite-lived intangible assets consist of a research technology platform the Company acquired through the acquisition of Confluence and the intellectual property rights related to RHOFADE. Indefinite-lived intangible assets consist of an in-process research and development (“IPR&D”) drug candidate acquired through the acquisition of Confluence. IPR&D assets are considered indefinite-lived until the completion or abandonment of the associated research and development efforts. The cost of IPR&D assets is either amortized over their estimated useful life beginning when the underlying drug candidate is approved and launched commercially, or expensed immediately if development of the drug candidate is abandoned.

Finite-lived intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Indefinite-lived intangible assets are tested for impairment at least annually, which the Company performs during the fourth quarter, or when indicators of an impairment are present. The Company recognizes impairment losses when and to the extent that the estimated fair value of an indefinite-lived intangible asset is less than its carrying value.

Goodwill

Goodwill is not amortized, but rather is subject to testing for impairment at least annually, which the Company performs during the fourth quarter, or when indicators of an impairment are present. The Company considers each of its operating segments, dermatology therapeutics and contract research, to be a reporting unit since this is the lowest level for which discrete financial information is available. The Company has attributed the full amount of the goodwill acquired with Confluence, or $18,504, to the dermatology therapeutics segment. The annual impairment test performed by the Company is a qualitative assessment based upon current facts and circumstances related to operations of the dermatology therapeutics segment. If the qualitative assessment indicates an impairment may be present, the Company would perform the required quantitative analysis and an impairment charge would be recognized to the extent that the estimated fair value of the reporting unit is less than its carrying amount. However, any loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. The Company concluded goodwill was not impaired as of December 31, 2018 and 2017.

Contingent Consideration

The Company initially recorded the contingent consideration related to future potential payments based upon the achievement of certain development, regulatory and commercial milestones, resulting from the acquisition of Confluence, at its estimated fair value on the date of acquisition. Changes in fair value reflect new information about the likelihood of the payment of the contingent consideration and the passage of time. Future changes in the fair value of the contingent consideration, if any, will be recorded as income or expense in the Company’s consolidated statement of operations.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses include salaries, stock-based compensation and benefits of employees, fees paid under licensing agreements, fees paid under a third party assignment agreement and other operational costs related to the Company’s research and development activities, including depreciation expenses and the cost of research and development contracts which the Company has entered into with outside vendors to conduct both preclinical studies and clinical trials. Significant judgment and estimates are made in determining the amount of research and development costs recognized in each reporting period. The Company analyzes the progress of its preclinical studies and clinical trials, completion of milestone events, invoices received and contracted costs when estimating research and development costs. Actual results could differ from the Company’s estimates. The Company’s historical estimates for research and development costs have not been materially different from the actual costs.

Stock-Based Compensation

The Company measures the compensation expense of stock-based awards granted to employees and directors using the grant date fair value of the award. The Company has issued stock options and restricted stock unit (“RSU”) awards with service-based vesting conditions, as well as with performance-based vesting conditions. The Company has not issued awards that include market-based conditions. For service-based awards the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period. For performance-based awards the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period beginning in the period that it becomes probable the performance conditions will occur. At each balance sheet date, the Company evaluates whether any performance conditions related to a performance-based award have changed. The effect of any change in performance conditions would be recognized as a cumulative catch-up adjustment in the period such change occurs, and any remaining unrecognized compensation expense would be recognized on a straight-line basis over the remaining requisite service period. The impact of forfeitures is recognized in the period in which they occur.

The Company initially measures the compensation expense of stock-based awards granted to consultants using the grant date fair value of the award. Compensation expense is recognized over the period during which services are rendered by such consultants. At the end of each financial reporting period prior to completion of services being rendered, the compensation expense related to these awards is remeasured using the then current fair value of the Company’s common stock for RSUs, or based upon updated assumptions in the Black-Scholes option pricing model for stock option awards.

The Company classifies stock-based compensation expense in its statement of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company estimates its expected stock volatility based on the historical volatility of a set of peer companies, which are publicly traded, and expects to continue to do so until it has adequate historical data regarding the volatility of its own publicly-traded stock price. The expected term of the Company’s stock options has been determined using the “simplified” method for awards that qualify as “plain vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the future. Prior to the Company’s initial public offering in October 2015 (“IPO”), the Company valued its common stock using a hybrid method to estimate its enterprise value. The hybrid method used was a probability-weighted expected return method which was a scenario-based methodology that estimated the fair value of the Company’s common stock based upon an analysis of future values for the Company assuming various outcomes. The hybrid method used calculated equity values using an option pricing model in one or more of scenarios, and also considered the rights of each class of stock.

The fair value of each RSU is measured using the closing price of the Company’s common stock on the date of grant.

Patent Costs

All patent related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.

Foreign Currency Translation

The reporting currency of the Company is the U.S. Dollar. The functional currency of ATIL, the Company’s wholly-owned subsidiary, is the British Pound. Assets and liabilities of ATIL are translated into U.S. Dollars based on exchange rates at the end of each reporting period. Revenues and expenses are translated at average exchange rates during the reporting period. Gains and losses arising from the translation of assets and liabilities are included as a component of accumulated other comprehensive loss within the Company’s consolidated balance sheet. Gains and losses resulting from foreign currency transactions are reflected within the Company’s consolidated statement of operations. The Company has not utilized foreign currency hedging strategies to mitigate the effect of its foreign currency exposure.

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. Comprehensive loss is comprised of net loss, foreign currency translation adjustments and unrealized gains (losses) on marketable securities.

Net Loss per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period, plus the weighted average number of potential shares of common stock from the assumed exercise of stock options, and the assumed vesting of RSUs and restricted stock granted by the Company upon its formation, if dilutive. Since the Company was in a net loss position basic and diluted net loss per share was the same for each of the periods presented.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents, marketable securities and contingent consideration are carried at fair value, determined according to the fair value hierarchy described above. The carrying value of the Company’s accounts payable and accrued expenses approximate fair value due to the short-term nature of these liabilities. The carrying value of the Company’s debt approximates fair value because interest is a floating rate based on the 30-day U.S. LIBOR rate, and is therefore reflective of market rates.

Concentration of Credit Risk and of Significant Customers and 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 one accredited financial institution, in amounts that exceed 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’s top five customers represented 83% of aggregate gross revenue from product sales and contract research revenue for the year ended December 31, 2018. The Company’s top five customers represented 70% of total contract research revenue earned from August 3, 2017, the date of acquisition of Confluence, through December 31, 2017. The Company did not have product sales during the year ended December 31, 2017.

The Company is dependent on third party manufacturers to supply products for commercial distribution, as well as for 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 and other components.

Segment Reporting

Operating segments are components of a company for which separate financial information is available and evaluated regularly by the chief operating decision maker in assessing performance and deciding how to allocate resources. The Company reports two segments, dermatology therapeutics and contract research, which are primarily based on its operating segments and operating results used to assess performance. The dermatology therapeutics segment is focused on dermatological and immuno-inflammatory diseases. The contract research segment is focused on providing laboratory services to pharmaceutical and biotech companies looking to supplement their research and development efforts with difficult-to-execute specialty skills and programs. The Company does not allocate assets by segment.

Recently Issued and Adopted Accounting Pronouncements

In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact of ASU 2018-18 on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The standard will be effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years, with early adoption permitted. The Company is evaluating the impact of ASU 2018-15 on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The FASB developed the amendments to ASC 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. This update eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some of the existing disclosure requirements. The standard will be effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years, with early adoption permitted. The Company is evaluating the impact of ASU 2018-13 on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718). The amendments in this ASU expand the scope of Topic 718 to include stock-based compensation arrangements with nonemployees except for specific guidance on option pricing model inputs and cost attribution. ASU 2018-07 is effective for annual reporting periods beginning after December 31, 2018, including interim periods within that year, and early adoption is permitted. The Company adopted the provisions of this standard on January 1, 2019, the impact of which on its consolidated financial statements was not significant.

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

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). This ASU introduces a new model for recognizing credit losses on financial instruments based upon estimated expected credit losses. ASU 2016-13 will apply to loans, accounts receivable, financial assets measured at amortized cost and at fair value through other comprehensive income, loan commitments and certain off-balance sheet credit exposures. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those years, and early adoption is permitted. The Company is assessing the potential impact of ASU 2016-13 on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and 2018-11, Targeted Improvements, which included a number of technical corrections and improvements, including additional options for transition. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. The amendments in ASU 2016-02 must be applied to all leases existing at the date a company initially applies the standard. A company may choose to use either the effective date of ASU 2016-02, or the beginning of the earliest comparative period presented in the financial statements, as its date of initial application. The Company adopted the new standard on January 1, 2019 and used the effective date as its date of initial application. The Company’s financial statements will not be updated, and the disclosures under the new standard will not be provided, for periods before January 1, 2019.

ASU 2016-02 provides optional practical expedients companies can elect to use in transition. The Company expects to elect practical expedients which allow it not to reassess prior conclusions about lease identification, lease classification and initial direct costs made under previous accounting standards. The Company continues to evaluate the effect of adoption of ASU 2016-02, and estimates both assets and liabilities will increase by $2,000 to $2,500 upon adoption, before considering deferred taxes. The Company does not expect the adoption of ASU 2016-02 will have a material impact on its consolidated statement of operations or cash flows.

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 was effective for annual reporting periods beginning after December 15, 2017. The Company did not recognize any transition adjustments as a result of adopting ASU 2014-09 and, accordingly, comparative information has not been restated for the periods reported.

Acquisitions

12 Months Ended

Dec. 31, 2018

Acquisitions

Acquisitions

3. Acquisitions

RHOFADE

In November 2018, the Company completed the acquisition of RHOFADE from Allergan Sales, LLC (“Allergan”) pursuant to the Asset Purchase Agreement dated as of October 15, 2018 (the “APA”). Pursuant to the APA, the Company acquired the worldwide rights to RHOFADE, which includes an exclusive license to certain intellectual property for RHOFADE, as well as additional intellectual property.

The following table summarizes the aggregate amount paid for the assets acquired by the Company in connection with the acquisition of RHOFADE:


Cash paid to Allergan at closing	$	59,574
Cash deposited in escrow at closing		6,500
Transaction costs		1,048
Total purchase price of assets acquired	$	67,122

The Company has also agreed to pay Allergan a one-time payment of $5,000 upon the achievement of a specified development milestone related to the potential development of an additional dermatology product. In addition, the Company has agreed to pay Allergan specified royalties, ranging from a mid-single digit percentage to a mid-teen percentage of net sales, subject to specified reductions, limitations and other adjustments, on a country-by-country basis until the date that the patent rights related RHOFADE have expired or, if later, November 30, 2028. In addition, the Company has agreed to assume the obligation to pay specified royalties and milestone payments under agreements with Aspect Pharmaceuticals, LLC and Vicept Therapeutics, Inc. Members of the Company’s management team, including Neal Walker, Frank Ruffo, Christopher Powala and Stuart Shanler, as well as Stephen Tullman, the chairman of the Company’s board of directors, are former stockholders of Vicept Therapeutics, Inc., and Dr. Shanler is also a current member of Aspect Pharmaceuticals, LLC. In their capacities as current or former holders of equity interests in these entities, these individuals may be entitled to receive a portion of the potential future payments payable by the Company. The Company incurred an aggregate expense of $165 and $0 related to royalty payments under these agreements during the years ended December 31, 2018 and 2017, respectively.

The acquisition of RHOFADE has been accounted for as an asset acquisition in accordance with FASB ASC 805-50, rather than as a business combination. As an asset acquisition, the cost to acquire the group of assets is allocated to the individual assets acquired or liabilities assumed based on their relative fair values. The relative fair values of identifiable tangible and intangible assets assumed from the acquisition of RHOFADE are based on estimates of fair value using assumptions that the Company believes is reasonable. The Company accounted for the acquisition of RHOFADE as an asset acquisition because substantially all of the fair value of the assets acquired is concentrated in a single asset, the RHOFADE product rights. ASC 805-10-55-5A, which sets forth a screen test, provides that if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the assets acquired are not considered to be a business.

The following table summarizes the fair value of assets acquired in the acquisition of RHOFADE:


Inventory	$	893
Intangible assets, net		66,229
Total assets acquired	$	67,122

The fair value of finished goods inventory acquired was estimated using net selling price less the costs of disposal and a reasonable profit for the disposal efforts. Raw material was valued at current replacement cost, which approximated the seller’s carrying value. The intangible asset for the RHOFADE product rights will be amortized on a straight-line basis over a period of 10 years. The Company believes this pattern of amortization reflects the expected benefits to be realized from commercializing RHOFADE. In addition, the 10-year useful life is based upon expiration dates of key patents underlying the RHOFADE intellectual property.

Confluence

In August 2017, the Company acquired Confluence, at which time, Confluence became a wholly-owned subsidiary of the Company. The Company gave aggregate consideration with a fair value of $24,322 to the equity holders of Confluence. The following table summarizes the fair value of total consideration given to the Confluence equity holders in connection with the acquisition:


Cash consideration paid	$	10,269
Aclaris common stock issued		9,675
Contingent consideration		4,378
Total fair value of consideration to Confluence equity holders	$	24,322

The Company accounted for the acquisition of Confluence as a business combination using the acquisition method of accounting. Under the acquisition method of accounting, the assets acquired and liabilities assumed in this transaction were recorded at their respective fair values. The following table summarizes the fair value of assets acquired and liabilities assumed in the acquisition of Confluence:


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

The fair value of the IPR&D and the other intangible assets acquired was determined using a replacement cost method, which estimated the cost that would be required to rebuild the intangible assets identified in the acquisition of Confluence. The acquisition of Confluence resulted in the recognition of goodwill in the amount of $18,504 which represents the value of new products and technologies to be developed in the future as well as the value of the employee workforce acquired.

In November 2018, the Company achieved a development milestone specified in the merger agreement with Confluence equity holders. The milestone payment to the Confluence equity holders was comprised of $2,500 in cash and 253,208 shares of the Company’s common stock with a fair value of $2,216. The Company also agreed to pay the Confluence equity holders aggregate additional milestone payments of up to $75,000, based upon the achievement of specified regulatory and commercial milestones. In addition, the Company has agreed to pay the Confluence equity holders royalty payments calculated as a low single-digit percentage of annual net sales, subject to specified reductions, limitations and other adjustments, until the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first commercial sale of such product. In addition, if the Company sells, licenses or transfers any of the intellectual property acquired from Confluence, the Company will be obligated to pay the Confluence equity holders a portion of any incremental consideration (in excess of the development and milestone payments described above) that the Company receives from such sales, licenses or transfers in specified circumstances.

The following supplemental unaudited pro forma information presents the Company’s financial results, for the periods presented, as if the acquisition of Confluence had occurred on January 1, 2016. This supplemental unaudited pro forma financial information has been prepared for comparative purposes only, and is not necessarily indicative of what actual results would have been had the acquisition of Confluence occurred on January 1, 2016, nor is this information indicative of future results.


	Year Ended
	December 31,
	2018		2017		2016
Revenue	$	10,091	$	4,365	$	3,693
Gross profit		3,241		1,347		1,652
Total operating expenses		138,655		73,810		51,277
Net loss		(132,738)		(70,391)		(49,148)

The supplemental unaudited pro forma financial results for the year ended December 31, 2017 includes adjustments to exclude $1,351 of acquisition-related expenses, and $888 to exclude revenue billed to the Company by Confluence. The supplemental unaudited pro forma financial results for the year ended December 31, 2017 also includes an adjustment for amortization expense related to the other intangible asset acquired.

There were no acquisition-related expenses incurred, or revenue billed to the Company by Confluence for the year ended December 31, 2016, and accordingly, no adjustment is necessary for these items in the supplemental pro forma financial results for that year. The supplemental unaudited pro forma financial results for the year ended December 31, 2016 includes an adjustment for amortization expense related to the other intangible assets acquired.

Fair Value of Financial Assets and Liabilities

12 Months Ended

Dec. 31, 2018

Fair Value of Financial Assets and Liabilities

Fair Value of Financial Assets and Liabilities

4. 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 basis, and indicate the level of the fair value hierarchy utilized to determine such fair values:


	December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	49,766	$	4,992	$	—	$	54,758
Marketable securities		—		110,953		—		110,953
Total Assets	$	49,766	$	115,945	$	—	$	165,711


Liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	934	$	934
Total liabilities	$	—	$	—	$	934	$	934


	December 31, 2017
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	19,339	$	—	$	—	$	19,339
Marketable securities		—		188,652		—		188,652
Total Assets	$	19,339	$	188,652	$	—	$	207,991


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

As of December 31, 2018 and 2017, the Company’s cash equivalents consisted of investments with maturities of less than three months and included a money market fund and commercial paper which were valued based upon Level 1 inputs, and commercial paper, government obligations and corporate debt securities which were valued based upon Level 2 inputs. In determining the fair value of its Level 2 investments the Company relied on quoted prices for identical securities in markets that are not active. These quoted prices were obtained by the Company with the assistance of a third‑party pricing service based on available trade, bid and other observable market data for identical securities. Quarterly, the Company compares the quoted prices obtained from the third‑party pricing service to other available independent pricing information to validate the reasonableness of the quoted prices provided. The Company evaluates whether adjustments to third-party pricing is necessary and, historically, the Company has not made adjustments to quoted prices obtained from the third-party pricing service. During the years ended December 31, 2018 and 2017, there were no transfers between Level 1, Level 2 and Level 3. The reduction in acquisition-related contingent consideration of $3,444 during the year ended December 31, 2018 was primarily due to the achievement of a specified development milestone in November 2018 which resulted in the Company paying cash of $2,500 and issuing common stock with a fair value of $2,216 to the former Confluence equity holders. This reduction was partially offset by an adjustment of $1,272 to increase the value of the liability related to the achievement of the specified development milestone.

As of December 31, 2018 and 2017, the fair value of the Company’s available-for-sale marketable securities by type of security was as follows:


	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value
Marketable securities:
Corporate debt securities	$	5,030	$	—	$	(14)	$	5,016
Commercial paper		67,159		—		—		67,159
Asset-backed securities		21,745		—		(8)		21,737
U.S. government agency debt securities		17,044		—		(3)		17,041
Total marketable securities	$	110,978	$	—	$	(25)	$	110,953


	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value
Marketable securities:
Corporate debt securities	$	37,401	$	—	$	(68)	$	37,333
Commercial paper		85,202		—		—		85,202
Asset-backed securities		16,708		—		(13)		16,695
U.S. government agency debt securities		49,511		—		(89)		49,422
Total marketable securities	$	188,822	$	—	$	(170)	$	188,652

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Property and Equipment, Net

12 Months Ended

Dec. 31, 2018

Property and Equipment, Net

Property and Equipment, Net

5. Property and Equipment, Net

Property and equipment, net consisted of the following:


	December 31,
	2018		2017
Computer equipment	$	1,292	$	650
Fleet vehicles		2,131		—
Manufacturing equipment		604		511
Lab equipment		1,068		721
Furniture and fixtures		524		327
Leasehold improvements		332		430
Property and equipment, gross		5,951		2,639
Accumulated depreciation		(1,671)		(480)
Property and equipment, net	$	4,280	$	2,159

Depreciation expense was $1,248, $370 and $120 for the years ended December 31, 2018, 2017 and 2016, respectively.

Intangible Assets

12 Months Ended

Dec. 31, 2018

Intangible Assets

Intangible Assets

6. Intangible Assets

Intangible assets consisted of the following:


		Gross Cost				Accumulated Amortization
	Remaining	December 31,				December 31,
	Life	2018		2017		2018		2017
RHOFADE product rights	9.9	$	66,229	$	—	$	552	$	—
Other intangible assets	8.6		751		751		106		31
Total definite-lived intangible assets			66,980		751		658		31
IPR&D	na		6,629		6,629		—		—
Total intangible assets, net		$	73,609	$	7,380	$	658	$	31

Amortization expense was $627, $31 and $0 for the years ended December 31, 2018, 2017 and 2016, respectively

As of December 31, 2018, estimated future amortization expenses is as follows:


Year Ending December 31,
2019	$	6,698
2020		6,698
2021		6,698
2022		6,698
2023		6,698
Thereafter		32,832
Total	$	66,322

Accrued Expenses

12 Months Ended

Dec. 31, 2018

Accrued Expenses

Accrued Expenses

7. Accrued Expenses

Accrued expenses consisted of the following:


	December 31,
	2018		2017
Employee compensation expenses	$	5,293	$	3,010
Sales incentives and rebates		2,650		—
Marketing expenses		453		39

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Private Placement
Offering costs netted against proceeds			$ 1,453
Follow On Public Offering
Offering costs netted against proceeds	$ 6,669	$ 5,352	$ 6,492
At The Market Offering
Offering costs netted against proceeds		$ 691