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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
Commission file number 001-37581
ACLARIS THERAPEUTICS, INC.
Incorporated under the Laws of the
State of Delaware
I.R.S. Employer Identification No.
46-0571712
701 Lee Road, Suite 103
Wayne, PA 19087
(484) 324-7933
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Common Stock, $0.00001 par value
Trading Symbol(s)
ACRS
Name of Each Exchange on which Registered
The Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ⌧
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 emerging growth
company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
As of June 30, 2023, the last business day of the registrant’s last completed second quarter, the aggregate market value of the registrant’s common stock held by non-
affiliates of the registrant was approximately $712.6 million based on the closing price of the registrant’s common stock, as reported by the Nasdaq Global Select Market, on
such date.
As of January 31, 2024, 70,925,042 shares of common stock, $0.00001 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, for its 2024 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form 10-K.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or this Annual Report, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, that involve substantial risks and uncertainties. The forward-
looking statements are contained principally in Part I, Item 1. “Business,” Part I, Item 1A. “Risk Factors,” and Part II,
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained
elsewhere in this Annual Report. In some cases, you can identify forward-looking statements by the words “may,” “might,”
“can,” “will,” “to be,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,”
“estimate,” “predict,” “project,” “potential,” “likely,” “continue” and “ongoing,” or the negative of these terms, or other
comparable terminology intended to identify statements about the future. These statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be
materially different from the information expressed or implied by these forward-looking statements. Although we believe
that we have a reasonable basis for each forward-looking statement contained in this Annual Report, we caution you that
these statements are based on a combination of facts and factors currently known by us and our expectations of the future,
about which we cannot be certain. Forward-looking statements include statements about:
● our plans to develop our drug candidates;
● the clinical utility of our drug candidates;
● our plans and expectations related to manufacturing capabilities and strategy;
● our expectations regarding coverage and reimbursement of our drug candidates, if approved;
● our intellectual property position;
● our plans to pursue strategic alternatives, including identifying and consummating transactions with third-party
partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates, and earn
revenue from such arrangements;
● our expectations regarding competition;
● our expectations regarding our continued reliance on third parties;
● the impacts of macroeconomic conditions on our business;
● our expectations regarding our use of capital; and
● our estimates regarding future revenue, expenses and needs for additional financing.
You should refer to Part I, Item 1A. “Risk Factors” in this Annual Report for a discussion of important factors that
may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a
result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be
accurate, and you should not place undue reliance on these forward-looking statements. Furthermore, if our forward-
looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these
forward-looking statements, you should not regard these statements as a representation or warranty by us or any other
person that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements
in this Annual Report represent our views as of the date of this Annual Report. We anticipate that subsequent events and
developments may cause our views to change. However, while we may elect to update these forward-looking statements at
some point in the future, we undertake no obligation to publicly update any forward-looking statements, whether as a result
of new information, future events or otherwise, except as required by law. You should, therefore, not rely on these forward-
looking statements as representing our views as of any date subsequent to the date of this Annual Report.
All brand names or trademarks appearing in this Annual Report, including KINect and RHOFADE, are the
property of their respective owners. Unless the context requires otherwise, references in this report to “Aclaris,” the
“Company,” “we,” “us,” and “our” refer to Aclaris Therapeutics, Inc. and its subsidiaries.
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PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
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Item 1. Business
Overview
PART I
We are a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-
inflammatory diseases. Our proprietary KINect drug discovery platform combined with our preclinical development
capabilities allows us to identify and advance potential drug candidates that we may develop independently or in
collaboration with third parties. In addition to identifying and developing our novel drug candidates, we are pursuing
strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop,
obtain marketing approval for and/or commercialize our novel drug candidates. We also provide contract research services
to third parties enabled by our early-stage research and development expertise. In January 2024, we announced that we are
undertaking a strategic review of our business.
Our Approach
We are dedicated to developing a pipeline of novel drug candidates to address the needs of patients with immuno-
inflammatory diseases who lack satisfactory treatment options. Our approach to achieve this goal includes the following
key elements:
● Create new medicines through kinome innovation. We are exploring the kinome, a subset of the human
genome that consists of a collection of 518 protein kinases, one of the largest of all human gene families,
responsible for signal transduction controlling cellular responses. Classified into eight major groups based on
their structural similarity to each other, kinases are key regulators of cell function in many cell processes. By
transferring phosphates to other molecules, kinases can induce a cellular response to environmental cues.
Dysregulation and/or activating/blocking mutations in kinases can disrupt normal cell signaling and lead to
diseases ranging from autoimmune diseases to diabetes and cancer, making them important targets for drug
development. There are over 70 kinase inhibitors approved by the U.S. Food and Drug Administration, or
FDA, on the market; however, these drugs only target a small fraction of the kinome, with many clinically
relevant kinase targets lacking validated inhibitors. In 2021, the kinase inhibitors market was valued at over
$57 billion. We’re focused on novel approaches toward the design and development of kinase inhibitors that
target key enzymes involved in chronic inflammation, autoimmune disease, and the regulation of cancer
growth, survival and metastasis.
● Identify drug candidates through our KINect drug discovery platform. Our proprietary KINect platform
enables us to identify potential drug candidates through a unique combination of our proprietary chemical
library of kinase inhibitors, our novel approach to inhibitor modalities, our expertise in structure-based drug
design, or SBDD, and our custom kinase assays.
● Scientific discovery led by world-class kinase expertise. We have assembled an accomplished team of
kinome experts skilled at developing novel kinase targeted medicines. Our talented and diverse team of
scientists and professionals have extensive experience in cell and molecular biology, biochemistry,
enzymology, biomarker development, immunology, in vivo efficacy models, SBDD and medicinal chemistry.
● Broaden our drug development pipeline internally and externally. A key element of our strategy is to
build and expand our pipeline of drug candidates. To build our pipeline, we may seek to in-license or acquire
additional drug candidates, in addition to developing assets in-house.
● Pursue strategic alternatives for our drug candidates. We intend to pursue strategic alternatives, including
identifying and consummating transactions with third-party partners, to further develop, obtain marketing
approval for and/or commercialize our drug candidates.
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Our Drug Candidates
Our pipeline of drug candidates is summarized in the table below. These investigational drugs were developed
internally utilizing our proprietary KINect drug discovery platform.
Drug Candidate
/ Program
Target
Route of
Administration
Indication
Development
Phase
Immuno-Inflammatory
ATI-1777
ATI-2138
“Soft” JAK 1/3
inhibitor
ITK/JAK3
inhibitor
Topical
Atopic dermatitis
Phase 2b Complete
Oral
T cell-mediated autoimmune
diseases
Phase 1 Complete
Oncology
Zunsemetinib
MK2 inhibitor
Oral
Metastatic breast cancer
Pancreatic cancer
Phase 1*
* We plan to support Washington University in St. Louis through investigator-initiated trials for these indications.
ATI-1777, an Investigational Topical “Soft” JAK 1/3 Inhibitor
ATI-1777 is an investigational topical “soft” Janus kinase, or JAK, 1/3 inhibitor for the potential treatment of
atopic dermatitis and potentially other dermatologic conditions. “Soft” JAK inhibitors are designed to be topically applied
and active in the skin, but rapidly metabolized and inactivated when they enter the bloodstream, which may result in low
systemic exposure.
In January 2024, we announced positive top-line results from our Phase 2b study of ATI-1777 in patients with
mild to severe atopic dermatitis (ATI-1777-AD-202). ATI-1777-AD-202 was a Phase 2b, multicenter, randomized, double-
blind, vehicle-controlled, parallel-group clinical trial to evaluate the efficacy, safety, tolerability and pharmacokinetics, or
PK, of multiple concentrations (0.5%, 1% and 2%) of twice daily, or BID, treatment with ATI-1777 and a single
concentration (2%) of once daily, or QD, treatment with ATI-1777. The trial randomized 250 patients with mild, moderate
or severe atopic dermatitis, including adults and children as young as 12 years old, across 30 clinical trial sites in the
United States. The study met the primary efficacy endpoint, the percent change from baseline in the Eczema Area and
Severity Index, or EASI, score at week 4, with statistical significance for patients treated with ATI-1777 2% BID compared
to patients treated with vehicle (69.7% versus 58.7% in the pooled vehicle group, p=0.035). While not statistically
powered, ATI-1777 2% BID and 2% QD also showed improvement in the proportion of patients who reached an IGA-TS
response (or the Investigator Global Assessment Treatment Success, the U.S. FDA regulatory endpoint) at week 4 (ATI-
1777 2% BID: 37.2% compared to 27.1% in vehicle, p=0.141; ATI-1777 2% QD: 36.6% compared to 26.3% in vehicle,
p=0.137). In addition, a PK analysis showed minimal levels of exposure to ATI-1777. The mean steady state trough drug
levels at week 4 were 0.319 ng/mL, representing 0.7% of IC50 for JAK 1/3 inhibition in whole blood. In total, 97% of ATI-
1777 plasma samples from dosed patients had concentrations below 1/10th of the IC50, and six samples (from five ATI-
1777-treated patients) of 570 samples analyzed had concentrations above 1/4 of the IC50. No meaningful safety findings
were observed and ATI-1777 was well tolerated.
We intend to seek a development and commercialization partner for this program.
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ATI-2138, an Investigational Oral Covalent ITK/JAK3 Inhibitor
ATI-2138 is an investigational oral covalent inhibitor of interleukin-2-inducible T cell kinase, or ITK, and JAK3
for the potential treatment of T cell-mediated autoimmune diseases. The ITK/JAK3 compound interrupts T cell signaling
through the combined inhibition of ITK/JAK3 pathways in lymphocytes.
In September 2023, we announced positive results from our Phase 1 multiple ascending dose, or MAD, trial of
ATI-2138 (ATI-2138-PKPD-102). ATI-2138-PKPD-201 was a two-week Phase 1 placebo-controlled, randomized, MAD
trial to investigate the safety, tolerability, PK, and pharmacodynamics of ATI-2138 in healthy volunteers. The study
enrolled 60 healthy subjects across 6 dosing cohorts ranging from 10 to 80 mg of total daily doses, with eight active and
two placebo controlled per arm. Data from the trial demonstrated that ATI-2138 was generally well tolerated at all doses
tested in the trial and had dose proportional PK. Additionally, ATI-2138 demonstrated a dose-dependent inhibition of both
ITK and JAK3 exploratory pharmacodynamic biomarkers, with near maximal inhibition achieved at the 30 mg total daily
dose. No serious adverse events were reported.
We are assessing the most effective development pathway, including the lead indication, for ATI-2138.
Zunsemetinib, an Investigational Oral MK2 Inhibitor
Zunsemetinib, or ATI-450, is an investigational oral, novel, small molecule selective inhibitor of the mitogen-
activated protein kinase-activated protein kinase 2, or MK2, signaling pathway for the potential treatment of metastatic
breast cancer, or MBC, and pancreatic ductal adenocarcinoma, or PDAC.
MBC: Phosphorylated MK2 is upregulated in primary tumors and metastatic bone lesions from MBC patients.
MK2 is responsible for the production of a subset of critical pro-tumorigenic factors secreted by the stromal
microenvironment to support tumor growth and metastasis. Additionally, MK2 drives both metastatic and chemotherapy
induced bone loss in MBC patients through, at least in part, its role in RANKL biology and osteoclast production and
activation. In preclinical studies, zunsemetinib has been demonstrated to impact murine models of MBC through
inhibition of tumor growth and metastasis along with bone preservation.
PDAC: Phosphorylated MK2 is highly expressed in PDAC tissue and expression levels are directly associated
with poor outcomes in patients with PDAC. The current first and second line standard of care for PDAC patients is
FOLFIRINOX combination chemotherapy. Irinotecan and its metabolite, SN-38, are the main drivers of cancer cell
apoptosis associated with FOLFIRINOX. The effectiveness of FOLFIRINOX is limited by pro-survival resistance
mechanisms that are driven through SN-38 activation of the MK2 pathway and phosphorylation of two direct MK2
substrates, HSP-27 and Beclin-1. In both patient derived xenografts and in the autochthonous genetic KPPC model of
PDAC in mice, zunsemetinib has demonstrated that it blocks phosphorylation and activation of HSP-27, induces tumor
cell killing and enhances the efficacy of FIRINOX (a version of FOLFIRINOX used in murine models).
We plan to support Washington University in St. Louis in its investigator-initiated Phase 1b/2 trials of
zunsemetinib in patients with MBC and PDAC.
Discovery Programs and KINect Drug Discovery Platform
We conduct small molecule drug discovery and preclinical development research through KINect, our proprietary
drug discovery platform, which we acquired as part of our acquisition of Confluence Life Sciences, Inc. (now known as
Aclaris Life Sciences, Inc.), or Confluence, in 2017. Our KINect platform enables us to identify potential drug candidates
through a unique combination of our proprietary chemical library of kinase inhibitors, our novel approaches to inhibitor
modalities, our expertise in SBDD, and our custom kinase assays.
Our focus has been on difficult to drug kinase targets that exhibit some level of clinical, genetic and/or
pharmacological disease validation. Our approach involves the following mechanisms: (1) reversible and irreversible
covalent inhibitors, (2) molecular glue/complex targeted inhibitors and (3) targeted protein degraders. These novel
approaches are currently being utilized to prosecute additional validated, difficult to drug kinase targets with the goal of
demonstrating potential platform utility.
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Reversible and Irreversible Covalent Inhibitors: Central to the KINect platform is our novel chemical library of
several hundred compounds specifically designed to target non-catalytic cysteine residues near the adenosine triphosphate,
or ATP, binding site of more than 300 kinases. Furthermore, using state-of-the-art drug modeling software, we are able to
elaborate the structure of viable drug-like compounds culled from our library and extensive in silico libraries to optimize
reversible binding to the target kinase and allow them to selectively form a covalent bond with the cysteine residue near the
ATP site on the specific kinase target. This approach delivers inhibitors exhibiting enhanced potency, selectivity and
biochemical efficiency thereby allowing pharmacological access to ‘hard to drug’ kinases. We then assess the function of
the newly created compounds with physiologically relevant custom assays that effectively translate to human diseases.
Molecular Glue/Complex Targeted Inhibitors: In cells, protein kinases function in the context of multicomponent
signalosome complexes. Targeting kinase complexes with small molecule drugs designed to either stabilize (molecular
glue) and/or generate inactive complexes provides several potential advantages over those designed against a single protein
target including: (1) utilizing a more physiological translatable complex as the target, (2) providing novel protein interfaces
devoid of competing endogenous ligands to target, and (3) identifying new chemical matter and modalities for difficult to
drug kinase targets. As such, we have identified target complexes of interest and have initiated discovery programs against
these targets.
Targeted Protein Degraders: We believe targeted protein degraders represent a powerful approach to develop
drugs against biologically important but difficult to drug proteins including kinases. This approach harnesses cellular
protein clearing machinery to selectively remove proteins from the cell in contrast to inhibiting their function. This
approach is particularly useful for kinases that have both catalytic and scaffolding functions for which inhibitors will only
partially impact biology. We are exploring selective degraders of kinase targets with multiple biological functions in
addition to the catalytic activity.
This integrated drug discovery engine allows us to rapidly progress potential drug candidates from idea to
Investigational New Drug, or IND. We believe this platform can generate inhibitors with fit-for purpose mechanisms
ranging from reversible, to reversible-covalent to irreversible-covalent kinase and kinase complex inhibitors along with
targeted protein degraders.
We are actively progressing several discovery programs focused on delivering the next wave of drug candidates
from our KINect platform. Our discovery efforts center on targeting kinases that play pivotal roles in various inflammatory,
autoimmune, and oncology pathways. We intend to evaluate both internal and external development options, including
strategic partnerships, for these assets.
Discontinued Programs
We were previously developing zunsemetinib as a potential treatment for various immuno-inflammatory diseases,
including hidradenitis suppurativa, psoriatic arthritis, and rheumatoid arthritis. In March 2023, we announced that our
Phase 2a study of zunsemetinib in patients with hidradenitis suppurativa did not meet its primary or second efficacy
endpoints, and in November 2023, we announced that our Phase 2b study of zunsemetinib in patients with rheumatoid
arthritis did not meet its primary or second efficacy endpoints. Following the results of these trials, in 2023 we
discontinued further development of our MK2 inhibitor programs in immuno-inflammatory diseases, including halting
enrollment in our Phase 2a study of zunsemetinib in patients with psoriatic arthritis.
Manufacturing and Supply
We do not have any manufacturing facilities. We rely on third parties for the manufacture of preclinical and
clinical supplies for our drug candidates.
Competition
The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong
emphasis on proprietary drugs. While we believe that our knowledge, experience and scientific resources provide us with
competitive advantages, we face potential competition from many different sources, including major pharmaceutical,
biotechnology and specialty pharmaceutical companies, academic institutions and governmental agencies and public and
private research institutions. Our drug candidates, if approved, will compete with existing treatments and new treatments
that may become available in the future.
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With respect to ATI-1777 as a potential treatment for atopic dermatitis, there are several different types of
therapies in the atopic dermatitis market, such as biologics, oral and topical corticosteroids, oral and topical calcineurin
inhibitors, oral mycophenolate products, other JAK inhibitors, other oral antibiotics and antihistamines and phototherapy.
There are also several prescription, non-prescription and over-the-counter, or OTC, topical products, including PDE4
inhibitors, utilized to treat atopic dermatitis. These types of drugs are produced and sold, or are approved for marketing, by
large pharmaceutical companies, including AbbVie, Incyte, LEO Pharma A/S, Pfizer, and Regeneron Pharmaceuticals and
Sanofi. In addition, we are aware of a number of companies including large pharmaceutical companies, such as Amgen,
Dermavant Sciences, Eli Lilly, LEO Pharma A/S and Pfizer, developing and conducting clinical trials for investigational
drug candidates that could compete with ATI-1777, in each case if approved, for the treatment of atopic dermatitis.
The commercial opportunity for our drug candidates, if approved, could be reduced or eliminated if our
competitors develop and commercialize drugs that are safer, more effective, have fewer or less severe side effects, are more
convenient or are less expensive than any drug we may develop. Our competitors also may obtain FDA or other regulatory
approval for their drug candidates more rapidly than our potential third-party partners may obtain approval for our drug
candidates, which could result in our competitors establishing a strong market position before our drug candidates are able
to enter the market.
Many of the companies against which we are competing, or against which we may compete in the future, have
significantly greater financial resources and expertise in research and development, manufacturing, and preclinical and
clinical development than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result
in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies. These competitors also compete with us in recruiting and retaining qualified scientific and management
personnel and establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies
complementary to, or that may be necessary for, our development programs.
Intellectual Property
Our success depends in large part upon our ability to obtain and maintain proprietary protection for our drug
candidates and to operate without infringing the proprietary rights of others. We seek to avoid the latter by monitoring
patents and publications that may affect our business, and to the extent we identify such developments, evaluating and
taking appropriate courses of action. Our policy is to protect our proprietary position by, among other methods, filing
patent applications on inventions that are important to the development and conduct of our business with the U.S. Patent
and Trademark Office, or USPTO, and its foreign counterparts.
With respect to our “soft” JAK inhibitor development program, we own numerous issued patents and pending
applications in the United States and foreign countries to novel “soft” JAK inhibitors and various methods of use that
expire, or would expire, between 2038 and 2042, subject to any applicable patent term adjustment or extension that may be
available in a particular country. For example, we own issued patents in the United States and other foreign countries, as
well as pending applications in the United States and foreign countries directed to various novel inhibitors of JAK1 and/or
JAK3, including ATI-1777, and methods of using the same, which, if issued, would expire in 2038, subject to any
applicable adjustment or extension. We also own pending applications in the United States and foreign countries directed to
crystal forms of ATI-1777 and directed to methods of using ATI-1777 and topical formulations, which, if issued, would
expire in 2041 and 2042, respectively, subject to any applicable adjustment or extension.
With respect to our ITK inhibitor development program, we own numerous issued U.S. patents and pending
applications in the United States and foreign countries directed to novel inhibitors of ITK and methods of use that expire,
or would expire, between 2035 and 2039, subject to any applicable patent term adjustment or extension that may be
available in a particular country. For example, we own one U.S. patent and pending U.S., European Union and other
foreign country applications directed to ATI-2138 and analogs thereof and methods of using the same, which, if issued,
would expire in 2039, subject to any applicable adjustment or extension. We also own a pending PCT application directed
to methods of using ATI-2138, which if issued, would expire in 2043, subject to any applicable adjustment or extension.
With respect to our MK2 signaling pathway inhibitor development program, we own numerous issued patents and
pending applications to novel MK2 pathway inhibitors, including zunsemetinib, and various methods of use that expire, or
would expire, between 2031 and 2041, subject to any applicable patent term adjustment or extension that may
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be available in a particular country. For example, we own two issued U.S. patents and issued patents and pending
applications in the European Union and other foreign countries directed to zunsemetinib and analogs thereof and certain
methods of using the same. The U.S. patents expire in 2034 and any claims that may issue from the pending applications
expire in 2034, subject to any applicable adjustment or extension. We own pending patent applications in the United States,
European Union and other foreign countries directed to methods of treating various cancers, such as breast cancer and
pancreatic cancer, by orally administering zunsemetinib, which, if issued, would each expire in 2041, subject to any
applicable adjustment or extension. Further, we own one U.S. patent and numerous pending patent applications in the
United States, European Union and other foreign countries directed to certain methods of manufacturing zunsemetinib and
crystal forms of zunsemetinib, which, if issued, would each expire in 2041, subject to any applicable adjustment or
extension. We also exclusively license from Washington University pending applications in the United States and the
European Union directed to methods of treating pancreatic cancer with MK2 inhibitors, including zunsemetinib, which, if
issued, would expire in 2041, subject to any applicable adjustment or extension.
Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in
various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from
country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the
country. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional
patent application. In the United States, a patent term may be shortened if a patent is terminally disclaimed over another
patent or as a result of delays in patent prosecution by the patentee, and a patent’s term may be lengthened by patent term
adjustment, which compensates a patentee for administrative delays by the USPTO in granting a patent or by patent term
extension, which compensates a patentee for delays at the FDA. The patent term of a European patent is 20 years from its
filing date; however, unlike in the United States, the European patent does not grant patent term adjustments. The European
Union does have a compensation program similar to patent term extension called supplementary patent certificate that
would effectively extend patent protection for up to five years.
We also use other forms of protection, such as trademark, copyright, and/or trade secret protection, to protect our
intellectual property, particularly where we do not believe patent protection is appropriate or obtainable. We aim to take
advantage of all of the intellectual property rights that are available to us and believe that this comprehensive approach will
provide us with proprietary positions for our drug candidates, where available.
We also protect our proprietary information by requiring our employees, consultants, contractors and other
advisors to execute nondisclosure and assignment of invention agreements upon commencement of their respective
employment or engagement. Agreements with our employees also prevent them from bringing the proprietary rights of
third parties to us. In addition, we also require confidentiality or service agreements from third parties that receive our
confidential information or materials.
Acquisition and License Agreements
Agreement and Plan of Merger with Confluence
In August 2017, we entered into an Agreement and Plan of Merger, or the Confluence Agreement, with
Confluence, Aclaris Life Sciences, Inc., our wholly-owned subsidiary, or Merger Sub, and Fortis Advisors LLC, as
representative of the former equity holders of Confluence. Pursuant to the terms of the Confluence Agreement, the Merger
Sub merged with and into Confluence, with Confluence surviving as our wholly-owned subsidiary, resulting in our
acquisition of 100% of the outstanding shares of Confluence. As part of the Confluence acquisition we acquired our
investigational drug candidates zunsemetinib, ATI-1777 and ATI-2138.
Under the Confluence Agreement, we agreed to pay the former Confluence equity holders aggregate remaining
contingent consideration of up to $75.0 million based upon the achievement of specified regulatory and commercial
milestones set forth in the Confluence Agreement. In addition, we have agreed to pay the former Confluence equity holders
future royalty payments calculated as a low single-digit percentage of annual net sales, subject to specified reductions,
limitations and other adjustments, until the date that all of the patent rights for that product have expired, as determined on
a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first commercial sale
of such product. In addition to the payments described above, if we sell, license or transfer any of the intellectual property
acquired from Confluence pursuant to the Confluence Agreement to a third party, we will be obligated to pay the former
Confluence equity holders a portion of any consideration received from such sale, license or transfer in specified
circumstances.
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Government Regulation and Product Approval
Governmental authorities in the United States, at the federal, state and local level, and analogous authorities in
other countries extensively regulate, among other things, the research, development, testing, manufacture, safety
surveillance, efficacy, quality control, labeling, packaging, distribution, record keeping, promotion, storage, advertising,
distribution, marketing, sale, export and import, and the reporting of safety and other post-market information of products
such as the ones we are developing. A drug candidate must be approved by the FDA before it may be legally promoted in
the United States and by comparable foreign regulatory authorities before marketing in other jurisdictions. The process of
obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and
regulations require the expenditure of substantial time and resources. Failure to comply with the applicable U.S.
requirements at any time during the product development process, approval process or after approval may subject an
applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by regulatory authorities to
approve applications, withdrawal of an approval, imposition of a clinical hold, import/export delays, issuance of warning
letters and untitled letters, product recalls, product seizures, total or partial suspension of production or distribution,
injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations
and penalties brought by FDA and the Department of Justice or other governmental entities.
United States Government Regulation
NDA Approval Processes
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its
implementing regulations. The FDA’s Center for Drug Evaluation and Research has primary jurisdiction over the
premarket development, review and approval of our drug candidates. Accordingly, we are investigating our drug candidates
pursuant to IND applications and would expect to seek approval through the New Drug Application, or NDA, pathway.
An applicant seeking approval to market and distribute a new drug product in the United States must typically
undertake the following:
● completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s
good laboratory practice regulations;
● submission to the FDA of an IND which must take effect before clinical trials may begin;
● approval by an independent institutional review board, or IRB, representing each clinical site before clinical
testing may be initiated at the clinical site;
● performance of adequate and well-controlled clinical trials in accordance with good clinical practice, or GCP,
regulations to establish the safety and efficacy of the proposed drug product for each indication;
● preparation and submission to the FDA of an NDA;
● review of the NDA by an FDA advisory committee, if applicable;
● satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the
product or its components are produced to assess compliance with current good manufacturing practices, or
cGMP, and regulations to assure that the facilities, methods and controls are adequate to preserve the product’s
identity, strength, quality and purity;
● payment of user fees and securing FDA approval of the NDA; and
● compliance with any post-approval requirements, including potential requirements for a risk evaluation and
mitigation strategy and post-approval studies required by the FDA.
Once a drug candidate is identified for development, it enters the preclinical or nonclinical testing stage.
Preclinical studies include laboratory evaluations of product chemistry, pharmacology, toxicity and formulation. An IND
sponsor must submit the results of the preclinical studies, together with manufacturing information and analytical data, to
the FDA as part of the IND. Some preclinical studies may continue even after the IND is submitted. In addition to
including the results of the preclinical studies, the IND will also include a protocol detailing, among other things, the
objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated
if the first phase lends itself to an efficacy determination. The IND automatically becomes effective 30 days after receipt by
the FDA, unless the FDA, within the 30-day time period, places the IND on clinical hold. In such a case, the IND sponsor
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FDA must resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during
the life of an IND, and may affect one or more specific clinical trials or all clinical trials conducted under the IND.
All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance
with current GCP regulations. They must be conducted under protocols detailing the objectives of the trial, dosing
procedures, research subject selection and exclusion criteria, and the safety and effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials
must be submitted to the FDA annually, as well as safety reporting. An IRB for each site participating in the clinical trial
must review and approve the protocol before the clinical trial commences at that institution and must also approve the
information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal
representative, monitor the study until completed and otherwise comply with IRB regulations.
Clinical trials are typically conducted in three sequential phases that may overlap or be combined:
● Phase 1. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance,
absorption, metabolism, distribution and elimination. In the case of some products for severe or life-threatening
diseases, such as cancer, and especially when the product may be inherently too toxic to ethically administer to
healthy volunteers, the initial human testing is often conducted in patients who already have the condition.
● Phase 2. Clinical trials are performed on a limited patient population intended to identify possible adverse effects
and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to
determine dosage tolerance and optimal dosage.
● Phase 3. If a drug candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2
clinical trials, the clinical trial program will be expanded to Phase 3 clinical trials to further evaluate dosage,
clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These
trials are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for
product approval and labeling claims.
Phase 4 clinical trials are conducted after approval to gain additional experience from the treatment of patients in
the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated
approval regulations, or when otherwise requested by the FDA in the form of post-market requirements or commitments.
Failure to promptly conduct any required Phase 4 clinical trials could result in withdrawal of approval.
Clinical trials are inherently uncertain, and Phase 1, Phase 2 and Phase 3 testing may not be successfully
completed. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding
that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s
requirements or if the drug has been associated with unexpected serious harm to patients. In some cases, clinical trials are
overseen by an independent group of qualified experts organized by the trial sponsor, which is called the clinical
monitoring board or data safety monitoring board. This group provides authorization for whether or not a trial may move
forward at designated check points. These decisions are based on the limited access to data from the ongoing trial.
During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points.
These points may be prior to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings at
other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the
data gathered to date and for the FDA to provide advice on the next phase of development. Sponsors typically use the
meeting at the end of Phase 2 to discuss their Phase 2 clinical trial results and present their plans for the pivotal Phase 3
clinical trial or trials that they believe will support the approval of the new drug.
Concurrent with clinical trials, sponsors usually complete additional animal safety studies and also develop
additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing
commercial quantities of the product in accordance with cGMP requirements. The manufacturing process must be capable
of consistently producing quality batches of the drug and the manufacturer must develop methods for testing the quality,
purity and potency of the drug. Additionally, appropriate packaging must be selected and tested, and stability studies must
be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its proposed shelf-
life.
The results of product development, preclinical studies and clinical trials, along with descriptions of the
manufacturing process, analytical tests and other control mechanisms, proposed labeling and other relevant information
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are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is
subject to the payment of user fees, but a waiver of such fees may be obtained under specified circumstances. The FDA
reviews all NDAs submitted for a period of 60 days to ensure that they are sufficiently complete for substantive review
before it accepts them for filing. It may request additional information rather than accept an NDA for filing. In this event,
the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before
the FDA accepts it for filing.
During the approval process, the FDA also will determine whether a risk evaluation and mitigation strategy, or
REMS, is necessary to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the NDA
must submit a proposed REMS, and the FDA will not approve the application without an approved REMS, if required. A
REMS can substantially increase the costs of obtaining approval. The FDA could also require a special warning, known as
a boxed warning, to be included in the product label in order to highlight a particular safety risk.
Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA reviews an NDA to
determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is
cGMP-compliant. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether
the application should be approved and under what conditions. The FDA is not bound by the recommendation of an
advisory committee, but it generally follows such recommendations. NDAs receive either standard or priority review. A
drug representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. A
priority review designation is intended to direct overall attention and resources to the evaluation of such applications, and
to shorten the FDA’s goal for taking action on the NDA from ten months to six months from filing of the NDA. After the
FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product and/or its active
pharmaceutical ingredient will be produced, it may issue an approval letter or a Complete Response Letter. An approval
letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A
Complete Response Letter indicates that the review cycle of the application is complete, and the application is not ready for
approval. A Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 clinical
trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, preclinical studies or
manufacturing. Even if such data and information are submitted, the FDA may ultimately decide that the NDA does not
satisfy the criteria for approval.
Post-approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation
by the FDA and other governmental agencies, including, among other things, requirements relating to recordkeeping,
periodic reporting, product sampling and distribution, advertising and promotion, and reporting of adverse experiences
with the product. Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory
requirements is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product
from the market. After approval, some types of changes to the approved product, such as adding new indications,
manufacturing changes and additional labeling claims, are subject to further FDA review and approval. There are also
continuing annual user fee requirements for products, as well as new application fees for certain supplemental applications.
In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have
been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of
these post-marketing programs.
Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required
to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced
inspections by the FDA and some state agencies for compliance with GMP regulations and other laws. The FDA has
promulgated specific requirements for drug cGMPs. Changes to the manufacturing process are strictly regulated and often
require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any
deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any
third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time,
money, and effort in the area of production and quality control to maintain cGMP compliance.
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Failure to comply with the applicable U.S. requirements at any time during the product development process or
approval process, or after approval, may subject us to administrative or judicial sanctions, any of which could have a
material adverse effect on us. These sanctions could include:
● refusal to approve pending applications;
● withdrawal of an approval;
● imposition of a clinical hold;
● warning letters;
● product seizures or detention, or refusal to permit the import or export of products;
● restrictions on the marketing or manufacturing of the product;
● total or partial suspension of production or distribution or product recalls; or
● injunctions, fines, disgorgement, or civil or criminal penalties.
The FDA strictly regulates the marketing, labeling, advertising and promotion of drug products that are placed on
the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the
approved label. However, companies may share truthful and not misleading information that is otherwise consistent with
the product’s FDA approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting
the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to
significant liability. However, physicians may, in their independent medical judgment, prescribe legally available products
for off-label uses. The FDA does not regulate the behavior of physicians in their choice of treatments, but the FDA does
restrict sponsor communications on the subject of off-label use.
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the
statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. In addition,
FDA regulations and guidance are often issued revised or reinterpreted by the agency in ways that may significantly affect
our business and our drug candidates. It is impossible to predict whether legislative changes will be enacted, or whether
FDA regulations, guidance or interpretations will be issued or changed or what the impact of such changes, if any, may be.
Non-patent Exclusivity
The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first
applicant to obtain approval of an NDA for a new chemical entity, or NCE. A drug is an NCE if the FDA has not
previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for
the action of the drug substance. If market exclusivity is granted for an NCE, during the exclusivity period, the FDA may
not accept for review or approve an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by
another company for another version of such drug where the applicant does not own or have a legal right of reference to all
the data required for approval. However, an application may be submitted after four years if it contains a certification of
patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder.
The FDCA also provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if
new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are
deemed by the FDA to be essential to the approval of the application, for example new indications, dosages, dosage forms
or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical
investigations and prohibits the FDA from approving an ANDA or a 505(b)(2) NDA submitted by another company with
overlapping conditions associated with the new clinical investigations for the three-year period. Clinical investigation
exclusivity does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and
three-year exclusivity will not delay the submission or approval of an NDA for the same drug. However, an applicant
submitting an NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate
and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Regulation Outside of the United States
Even if we obtain FDA approval for a drug candidate, we must obtain approval by the comparable regulatory
authorities of countries outside of the United States before we can commence clinical trials in such countries, and our
potential third-party partners must obtain approval of the regulators of such countries or economic areas, such as the
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European Union, before they may market any of our drug candidates in those countries or areas. The approval process and
requirements governing the conduct of clinical trials, product licensing and promotion, pricing and reimbursement vary
greatly by geographic region, and the time may be longer or shorter than that required for FDA approval.
In the European Economic Area, or EEA, which is composed of the Member States of the European Union plus
Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing
Authorization, or MA.
There are two types of MAs:
● The Community MA, which is issued by the European Commission through the Centralized Procedure, based on
the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines
Agency, or EMA, and which is valid throughout the entire territory of the EEA. The Centralized Procedure is
mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products,
and medicinal products indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-
immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance
not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical
innovation or which are in the interest of public health in the European Union. Under the Centralized Procedure,
the maximum timeframe for the evaluation of a marketing authorization application is 210 days (excluding clock
stops, when additional written or oral information is to be provided by the applicant in response to questions
asked by the CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when the
authorization of a medicinal product is of major interest from the point of view of public health and, in particular,
from the viewpoint of therapeutic innovation. Under the accelerated procedure, the standard 210 days review
period is reduced to 150 days.
● National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover
their respective territory, are available for products not falling within the mandatory scope of the Centralized
Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this
National MA can be recognized in another Member State through the Mutual Recognition Procedure. If the
product has not received a National MA in any Member State at the time of application, it can be approved
simultaneously in various Member States through the Decentralized Procedure.
In the EEA, upon receiving marketing authorization, NCEs generally receive eight years of data exclusivity and
an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the EEA from
referencing the innovator’s data to assess a generic application. During the additional two-year period of market
exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic
product can be marketed until the expiration of the market exclusivity. However, there is no guarantee that a product will
be considered by the EEA’s regulatory authorities to be an NCE, and products may not qualify for data exclusivity.
Other Health Care Laws
Health care providers, physicians and third-party payors in the United States and elsewhere will play a primary
role in the recommendation and prescription of any of our drug candidates for which marketing approval is obtained. Our
potential third-party partners’ arrangements with third-party payors, health care professionals and customers may expose
them to broadly applicable fraud and abuse and other health care laws and regulations, including, without limitation, the
federal Anti-Kickback Statute and the federal civil False Claims Act, that may constrain the business or financial
arrangements and relationships through which they sell, market and distribute any drug candidates for which marketing
approval is obtained. In addition, we and our potential third-party partners may be subject to transparency laws and patient
privacy regulation by the federal government and by the U.S. states and foreign jurisdictions in which we or they conduct
business.
The federal Anti-Kickback Statute makes it illegal for any person or entity, including a prescription drug
manufacturer (or a party acting on its behalf) to knowingly and willfully, directly or indirectly, solicit, receive, offer, or pay
any remuneration that is intended to induce the referral of business, including the purchase, order, or lease of any good,
facility, item or service for which payment may be made under a federal health care program, such as Medicare or
Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback Statute
has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers,
purchasers, formulary managers, and beneficiaries on the other. Although there are a number of statutory exceptions and
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regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn
narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or
recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the
requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se
illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis
based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent
requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal
health care covered business, the Anti-Kickback Statute has been violated. Violations of this law are punishable by up to
ten years in prison, and can also result in criminal fines, civil monetary penalties, administrative penalties and exclusion
from participation in federal health care programs.
Additionally, the intent standard under the Anti-Kickback Statute was amended by the Patient Protection and
Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the
Affordable Care Act, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the
statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified
case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes
a false or fraudulent claim for purposes of the federal civil False Claims Act.
Federal false claims and false statement laws, including the federal civil False Claims Act, prohibits, among other
things, any person or entity from knowingly presenting, or causing to be presented, for payment to, or approval by, federal
programs, including Medicare and Medicaid, claims for items or services, including drugs, that are false or fraudulent or
not provided as claimed. Entities can be held liable under these laws if they are deemed to “cause” the submission of false
or fraudulent claims by, for example, providing inaccurate billing or coding information to customers, promoting a product
off-label, or for providing medically unnecessary services or items. In addition, activities relating to the sale and marketing
of products are subject to scrutiny under this law. Penalties for federal civil False Claims Act violations may include up to
three times the actual damages sustained by the government, plus mandatory civil penalties for each separate false claim,
the potential for exclusion from participation in federal health care programs, and, although the federal civil False Claims
Act is a civil statute, False Claims Act violations may also implicate various federal criminal statutes.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits among other
actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program,
including private third-party payors, knowingly and willfully embezzling or stealing from a health care benefit program,
willfully obstructing a criminal investigation of a health care offense, and knowingly and willfully falsifying, concealing or
covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery
of or payment for health care benefits, items or services. Like the Anti-Kickback Statute, the Affordable Care Act amended
the intent standard for the health care fraud statute under HIPAA such that a person or entity no longer needs to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation.
The civil monetary penalties statute imposes penalties against any person or entity that, among other things, is
determined to have presented or caused to be presented a claim to a federal health program that the person knows or should
know is for an item or service that was not provided as claimed or is false or fraudulent.
Also, many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply
regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs. Additionally, to
the extent that a product is sold in a foreign country, the seller may be subject to similar foreign laws.
In addition, legislation imposing marketing restrictions and transparency requirements on pharmaceutical
manufacturers has been enacted at the state and federal levels. For example, the Affordable Care Act imposed, among other
things, annual reporting requirements to the Centers for Medicare & Medicaid Services, or CMS, for covered
manufacturers for certain payments and other transfers of value provided to physicians (defined to include doctors, dentists,
optometrists, podiatrists and chiropractors), other health care professionals (such as physician assistants and nurse
practitioners) and teaching hospitals, as well as information regarding ownership and investment interests held by
physicians and their immediate family members. Failure to submit timely, accurately and completely the required
information for all payments, transfers of value and ownership or investment interests may result in civil monetary
penalties for “knowing failures.” Certain states also mandate implementation of compliance programs, impose restrictions
on drug manufacturer marketing practices, require registration of certain employees engaged in marketing activities in the
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location, and/or require the tracking and reporting of gifts, compensation and other remuneration to health care
professionals, including physicians.
We have developed a comprehensive compliance program that establishes internal controls to facilitate adherence
to the rules and program requirements to which we are subject. Although the development and implementation of
compliance programs designed to establish internal controls and facilitate compliance can mitigate the risk of investigation,
prosecution, and penalties assessed for violations of these laws, or any other laws that may apply to us, the risks cannot be
entirely eliminated. If our operations are found to be in violation of any such laws or any other governmental regulations,
we may be subject to significant penalties, including, without limitation, administrative, civil, and criminal penalties,
damages, fines, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and future
earnings, the curtailment or restructuring of our operations, exclusion from participation in federal and state health care
programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or
similar agreement to resolve allegations of non-compliance with these laws and individual imprisonment, any of which
could adversely affect our ability to operate our business and our financial results.
We may also be subject to data privacy and security regulation by both the federal government and the states in
which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical
Health Act, or HITECH, and their implementing regulations, including the final omnibus rule published on January 25,
2013, mandates, among other things, the adoption of uniform standards for the electronic exchange of information in
common health care transactions, as well as standards relating to the privacy and security of individually identifiable health
information, which require the adoption of administrative, physical and technical safeguards to protect such information.
Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates”, namely
independent contractors or agents of HIPAA covered entities that create, receive or obtain protected health information in
connection with providing a service for or on behalf of a covered entity and their subcontractors that use, disclose, access,
or otherwise process protected health information. HITECH also increased the civil and criminal penalties that may be
imposed against covered entities and business associates and gave state attorneys general new authority to file civil actions
for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs
associated with pursuing federal civil actions. In addition, certain state laws govern the privacy and security of health
information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each
other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with
these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties.
Health Care Reform
In the United States, there have been and continue to be a number of significant legislative initiatives to contain
health care costs. For example, in March 2010, the Affordable Care Act was passed, which has had, and is expected to
continue to have, a significant impact on the health care industry. The Affordable Care Act was designed to expand
coverage for the uninsured and at the same time contain overall health care costs. With regard to pharmaceutical products,
among other things, the Affordable Care Act expanded and increased industry rebates for drugs covered under Medicaid
programs; addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate
Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; extended the rebate program to
individuals enrolled in Medicaid managed care organizations; established annual fees and taxes on manufacturers of certain
branded prescription drugs; made changes to the coverage requirements under the Medicare prescription drug benefit; and
established a new Medicare Part D coverage gap discount program, in which manufacturers, as a condition for their
outpatient drugs to be covered under Medicare Part D, must agree to offer 70% point-of-sale discounts off negotiated prices
of applicable brand drugs to eligible beneficiaries during their coverage gap period. Moreover, the Affordable Care Act
provided incentives to programs that increase the federal government’s comparative effectiveness research and
implemented payment system reforms including a national pilot program on payment bundling meant to encourage
hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain health care services.
There have been executive branch, judicial and Congressional challenges to certain aspects of the Affordable Care
Act. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain
taxes under the Affordable Care Act have been signed into law. On June 17, 2021, the U.S. Supreme Court dismissed a
challenge on procedural grounds that argued the Affordable Care Act is unconstitutional in its entirety because the
“individual mandate” was repealed by Congress. Prior to the U.S. Supreme Court ruling, on January 28, 2021, President
Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance
coverage through the Affordable Care Act marketplace. The executive order also instructed certain governmental agencies
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to review and reconsider their existing policies and rules that limit access to healthcare, including among others,
reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that
create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act.
Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among
other things, extends enhanced subsidies for individuals purchasing health insurance coverage in Affordable Care Act
marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program
beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and through a newly established
manufacturer discount program. It is possible that the Affordable Care Act will be subject to judicial or Congressional
challenges in the future. It is unclear how such challenges and any additional health care reform measures of the Biden
administration will impact the Affordable Care Act and our business.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
For example, in August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other
things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending
reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2
trillion for fiscal years 2012 through 2021, triggering the legislation’s automatic reduction to several government programs.
This includes aggregate reductions in Medicare payments to providers of 2% per fiscal year, which went into effect
beginning on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the Bipartisan Budget
Act of 2018, or the BBA, and the Infrastructure Investment and Jobs Act, will stay in effect through 2032 unless additional
Congressional action is taken. Additionally, in January 2013, the American Taxpayer Relief Act of 2012 was signed into
law, which, among other things, reduced Medicare payments to several providers, including hospitals, cancer treatment
centers and imaging centers. Moreover, the Drug Supply Chain Security Act imposes new obligations on manufacturers of
pharmaceutical products related to product tracking and tracing. Legislative and regulatory proposals have been made to
expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.
There has been heightened governmental scrutiny over the manner in which manufacturers set prices for their
marketed products. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal
and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship
between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for
products. In July 2021, the Biden administration released an executive order, “Promoting Competition in the American
Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9,
2021, the Department of Health and Human Services, or HHS, released a Comprehensive Plan for Addressing High Drug
Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress
could pursue as well as potential administrative actions HHS can take to advance these principles. In addition, the IRA,
among other things, (1) directs HHS to negotiate the price of certain single-source drugs and biologics covered under
Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace
inflation. These provisions take effect progressively starting in fiscal year 2023, although they may be subject to legal
challenges. It is unclear how the IRA will be implemented in the future, but it is likely to have a significant impact on the
pharmaceutical industry. Further, the Biden administration released an additional executive order on October 14, 2022,
directing HHS to submit a report on how the Center for Medicare and Medicaid Innovation can be further leveraged to test
new models for lowering drug costs for Medicare and Medicaid beneficiaries. It is unclear whether this executive order or
similar policy initiatives will be implemented in the future. On December 7, 2023, the Biden administration announced an
initiative to control the price of prescription drugs through the use of march-in rights under the Bayh-Dole Act. On
December 8, 2023, the National Institute of Standards and Technology published for comment a Draft Interagency
Guidance Framework for Considering the Exercise of March-In Rights which for the first time includes the price of a
product as one factor an agency can use when deciding to exercise march-in rights. While march-in rights have not
previously been exercised, it is uncertain if that will continue under the new framework. The effect of reducing prices and
reimbursement for certain of our drug candidates, if approved, could significantly impact our business and consolidated
results of operations. In addition, the IRA may meaningfully influence our pharmaceutical industry business strategies. In
particular, it may reduce the attractiveness of investment in small molecule and biologic innovation.
At the state level, legislatures have become increasingly active in passing legislation and implementing
regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and,
in some cases, designed to encourage importation from other countries and bulk purchasing. For example, on January 5,
2024, the FDA approved Florida’s proposal to import certain drugs from Canada for specific state healthcare programs. It
is unclear if and how this program will be implemented and whether it will be subject challenges in the United States or
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Canada. Other states have also submitted proposals that are pending review by the FDA. Any such approved importation
plans, if implemented, may result in lower drug prices for products covered by those programs.
The Affordable Care Act, the IRA, as well as other federal and state health care reform measures that have been
and may be adopted in the future, could harm our future revenue. Additional legislative actions may be taken in the future
which may change current regulations, guidance and interpretations. The impact of such actions on our business, if any,
cannot presently be determined.
The Hatch Waxman Amendments to the FDCA
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose
claims cover the applicant’s product or a method of using the product. Upon approval of a drug, each of the patents listed in
the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence
Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential
competitors in support of approval of an ANDA or an application covered by Section 505(b)(2) of the FDCA. An ANDA
provides for marketing of a drug product that has the same active ingredients, generally in the same strengths and dosage
form, as the listed drug and has been shown through pharmacokinetic, or PK, testing to be bioequivalent to the listed drug.
Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be
substituted by pharmacists under prescriptions written for the original listed drug. Other than the requirement for
bioequivalence testing, ANDA applicants are generally not required to conduct, or submit results of, preclinical studies or
clinical tests to prove the safety or effectiveness of their drug product. Section 505(b)(2) applications provide for marketing
of a drug product that may have the same active ingredients as the listed drug and contains full safety and effectiveness
data as an NDA, but at least some of this information comes from studies not conducted by or for the applicant. This
alternate regulatory pathway enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy for an
existing product, or published literature, in support of its application. The FDA may then approve the new drug candidate
for all or some of the labeled indications for which the referenced product has been approved, as well as for any new
indication sought by the 505(b)(2) applicant.
The ANDA or Section 505(b)(2) applicant is required to certify to the FDA concerning any patents listed for the
approved product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent
information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a
particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by
the new product. The ANDA or Section 505(b)(2) applicant may also elect to submit a statement certifying that its
proposed ANDA label does not contain, or carves out, any language regarding a patented method of use rather than certify
to such listed method of use patent. If the applicant does not challenge the listed patents by filing a certification that the
listed patent is invalid or will not be infringed by the new product, the ANDA or Section 505(b)(2) application will not be
approved until all the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product’s listed patents, or that such
patents are invalid, is called a Paragraph IV certification. If the ANDA or Section 505(b)(2) applicant has provided a
Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA
and patent holders once the ANDA or Section 505(b)(2) application has been accepted for filing by the FDA. The NDA
and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV
certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification
automatically prevents the FDA from approving the ANDA or Section 505(b)(2) application until the earliest of 30 months,
expiration of the patent, settlement of the lawsuit, and a decision in the infringement case that is favorable to the ANDA or
Section 505(b)(2) applicant. This prohibition is generally referred to as the 30-month stay. Thus, approval of an ANDA or
505(b)(2) NDA could be delayed for a significant period of time depending on the patent certification the applicant makes
and the reference drug sponsor’s decision to initiate patent litigation.
The ANDA or Section 505(b)(2) application also will not be approved until any applicable non-patent exclusivity
listed in the Orange Book for the referenced product has expired.
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Patent Term Extension
In the United States, after NDA approval, owners of relevant drug patents may apply for up to a five-year patent
extension, which provides patent term restoration as compensation for the patent term lost during the FDA regulatory
review process for the first permitted commercial marketing of a drug product. The Drug Price Competition and Patent
Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the
expiration of the patent. The allowable patent term extension is calculated as half of the drug’s testing phase, which is the
time between the IND submission becoming effective and the NDA submission, and all of the review phase, which is the
time between NDA submission and approval, up to a maximum extension of five years. The time can be shortened if the
FDA determines that the applicant did not pursue approval with due diligence. Patent extension cannot extend the
remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to
an approved drug may be extended.
Similar provisions are available in the European Union and other foreign jurisdictions to extend the term of a
patent that covers an approved drug. For example, in Japan, it may be possible to extend the patent term for up to five years
and in the European Union, it may be possible to obtain a supplementary patent certificate that would effectively extend
patent protection for up to five years.
Coverage and Reimbursement
We believe the success of our drug candidates, if approved, will depend on obtaining and maintaining coverage
and adequate reimbursement as a prescription treatment or in the absence of coverage and adequate reimbursement, on the
extent to which patients will be willing to pay out of pocket for our prescription drug products.
Third-party payors determine which prescription drug products they will cover and establish reimbursement
levels. Reimbursement by a third-party payor may depend upon a number of factors, including: the third-party payor’s
determination that a product is safe, effective, and medically necessary; appropriate for the specific patient; cost-effective;
supported by peer-reviewed medical journals or current clinical practice guidelines; and whether there are competitive
products, either branded or generic, and the pricing of those products. Many private third-party payors, such as managed
care plans, manage access to drug products’ coverage partly to control costs for their plans, and may use drug formularies
and medical policies to limit their exposure. Obtaining and maintaining favorable reimbursement can be a time-consuming
and expensive process, and our potential third-party partners may not be able to negotiate or continue to negotiate
reimbursement or pricing terms for our drug candidates, if approved, with third-party payors at levels that are profitable to
us, or at all. Further coverage policies and third-party reimbursement rates may change at any time. Even if favorable
coverage and reimbursement status is attained for one or more products which receive regulatory approval, less favorable
coverage policies and reimbursement rates may be implemented in the future.
In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement. Third-
party payors regularly update reimbursement amounts and also from time to time revise the methodologies used to
determine reimbursement amounts. Accordingly, these updates could impact the demand for our drug candidates, if
approved. Our drug candidates, if approved, may not be considered cost effective, and government and third-party private
health insurance coverage and reimbursement may not be available to patients or sufficient to allow our potential third-
party partners to sell our drug candidates, if approved, on a competitive and profitable basis. Our results of operations
could be adversely affected by the Affordable Care Act, the IRA and by other health care reforms that may be enacted or
adopted in the future. In addition, increasing emphasis on managed care in the United States will continue to put pressure
on the pricing of pharmaceutical products. Cost control initiatives could decrease the price that our potential third-party
partners could receive for any of our drug candidates, if approved, and could adversely affect our profitability. We cannot
predict how pending and future health care legislation will impact our business, and any changes in coverage and
reimbursement that further restricts coverage of our drug candidates could harm our business.
Foreign governments also have their own health care reimbursement systems, which vary significantly by country
and region, and we cannot be sure that coverage and adequate reimbursement will be made available with respect to our
drug candidates, if approved, under any foreign reimbursement system. In some foreign countries, including major markets
in the European Union and Japan, the pricing of prescription pharmaceuticals is subject to governmental control. In these
countries, pricing negotiations with governmental authorities can take up to 12 months or longer after the receipt of
regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be
required to conduct a pharmacoeconomic study that compares the cost-effectiveness of our drug candidate to other
available therapies. Such pharmacoeconomic studies can be costly and the results uncertain. Our business could be harmed
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if reimbursement of our drug candidates, if approved, is unavailable or limited in scope or amount or if pricing is set at
unsatisfactory levels.
Employees and Human Capital Resources
As of December 31, 2023, we had 91 total employees, of which 86 were full-time employees. On
December 19, 2023, we announced a plan to reduce our workforce, which we anticipate to be substantially complete
by June 2024. All of our employees are located in the United States. None of our employees are represented by a labor
union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and
integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plans
are to attract, retain and reward personnel through the granting of stock-based compensation awards in order to increase
stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities
and achieve our objectives.
Corporate Information
We were incorporated under the laws of the State of Delaware in July 2012. Our principal executive offices are
located at 701 Lee Road, Suite 103, Wayne, PA 19087. Our telephone number is (484) 324-7933. Our common stock is
listed on the Nasdaq Global Select Market under the symbol “ACRS.”
Available Information
Our internet website address is www.aclaristx.com. In addition to the information contained in this Annual Report,
information about us can be found on our website. Our website and information included in or linked to our website are not
part of this Annual Report.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge
through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities
and Exchange Commission, or SEC. The SEC also maintains a website that contains our reports, proxy and information
statements and other information. The address of the SEC’s website is www.sec.gov.
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Item 1A. Risk Factors
Our business is subject to numerous risks. You should carefully consider the following risks and all other
information contained in this Annual Report, as well as general economic and business risks, together with any other
documents we file with the SEC. If any of the following events actually occur or risks actually materialize, it could have a
material adverse effect on our business, operating results and financial condition and cause the trading price of our
common stock to decline.
Summary of Risk Factors
● We have incurred significant losses since our inception. We expect to incur losses over the next several years
and may never achieve or maintain profitability.
● We will need substantial additional funding to meet our financial obligations and to pursue our business
objectives. If we are unable to raise capital when needed, we could be forced to curtail our planned
operations.
● We have a limited history as a clinical-stage biopharmaceutical company developing and partnering our drug
candidates, which may make it difficult to evaluate the success of our business to date and to assess our
future viability.
● If we are unable to successfully develop our drug candidates and to pursue strategic alternatives, including
identifying and consummating transactions with third-party partners, to further develop, obtain marketing
approval for and/or commercialize our drug candidates, or experience significant delays in doing so, our
business will be harmed.
● Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified
personnel.
● We intend to pursue strategic alternatives, including identifying and consummating transactions with third-
party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates.
If those arrangements are not successful, we may not be able to capitalize on the market potential of these
drug candidates.
● If we are unable to obtain and maintain patent protection for our drug candidates, or if the scope of the patent
protection obtained is not sufficiently broad, our competitors could develop and commercialize technology
and drugs similar or identical to ours, and our ability to successfully pursue strategic alternatives, including
identifying and consummating transactions with potential third-party partners, to commercialize our
technology and drug candidates may be impaired.
● We face substantial competition, which may result in others discovering, developing or commercializing
drugs before or more successfully than we do.
Risks Related to Our Business, Our Financial Position and Capital Needs
We have incurred significant losses since our inception. We expect to incur losses over the next several years
and may never achieve or maintain profitability.
Since inception, we have incurred significant net losses. We incurred net losses of $88.5 million and $86.9 million
for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of
$770.8 million. We have financed our operations over the last several years primarily from sales of equity securities and
incurring indebtedness in the form of loans from commercial lenders.
We have devoted substantially all of our financial resources and efforts to the development of our drug candidates,
including preclinical studies and clinical trials. Our net losses may fluctuate significantly from quarter to quarter and year
to year. We expect to continue to incur significant expenses and operating losses in the near term as we:
● pursue strategic alternatives, including identifying and seeking to consummate transactions with third-party
partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates;
● continue to develop our drug candidates;
● continue to discover and develop additional drug candidates;
● maintain, expand and protect our intellectual property portfolio; and
● incur legal, accounting, investor relations and other administrative expenses in operating as a public
company.
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To become and remain profitable, we must succeed in a range of challenging activities, including completing
preclinical testing and clinical trials of our drug candidates and pursuing strategic alternatives, including identifying and
consummating transactions with third-party partners, for the further development and/or commercialization of our drug
candidates, as well as discovering and developing additional drug candidates. We are in the early stages of most of these
activities. We may never succeed in these activities and, even if we do, may never earn revenue from our drug candidates
that is significant enough to achieve profitability.
For any of our drug candidates, our revenue will be dependent, in part, upon our ability to identify and
consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize
those drug candidates. Further, we will be dependent on our potential third-party partners’ ability to obtain marketing
approval and successfully commercialize the product, upon the size of the markets in the territories where marketing
approval is obtained, the accepted price for the product, and the ability to obtain coverage and reimbursement, if any. If we
fail to identify and enter into partnerships with third parties to further develop, obtain marketing approval for and/or
commercialize our drug candidates, any partnerships we enter into do not result in the successful development, marketing
approval for and commercialization of our drug candidates, the number of addressable patients is not as significant as
estimated by our potential third-party partners, the indication approved by regulatory authorities is narrower than expected,
or the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not earn
significant revenue from agreements with potential third-party partners for such drug candidates, even if the drug
candidates are approved for marketing.
Because of the numerous risks and uncertainties associated with drug development, we are unable to accurately
predict the timing or amount of expenses or when, or if, we will be able to achieve profitability. If we are required by
regulatory authorities to perform studies in addition to those expected, or if there are any delays in the initiation and
completion of our clinical trials, the development of any of our drug candidates or the identification and consummation of
transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our drug
candidates, our expenses could increase.
Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual
basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to
raise capital, expand our business, maintain our development efforts, diversify our offerings or continue our operations. A
decline in the value of our company could also cause you to lose all or part of your investment.
We will need substantial additional funding to meet our financial obligations and to pursue our business
objectives. If we are unable to raise capital when needed, we could be forced to curtail our planned operations.
Identifying potential drug candidates and conducting preclinical testing and clinical trials is a time-consuming,
expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results
required to identify and consummate transactions with third-party partners to further develop, obtain marketing approval
for and/or commercialize our drug candidates. We expect to incur significant expenses and operating losses for the
foreseeable future as we advance our drug candidates from discovery through preclinical and clinical development. In
addition, we may not be able to identify and consummate transactions with third-party partners to further develop, obtain
marketing approval for and/or commercialize our drug candidates, and our drug candidates, if approved, may not achieve
commercial success. Furthermore, we incur and expect to continue to incur significant costs associated with operating as a
public company, including legal, accounting, investor relations and other expenses.
As of December 31, 2023, we had cash, cash equivalents and marketable securities of $181.9 million. We believe
that our existing cash, cash equivalents and marketable securities as of the date of this Annual Report will enable us to fund
our operating expenses and capital expenditure requirements for a period greater than 12 months from the date of this
report based on our current operating assumptions. These assumptions may prove to be wrong, and we could use our
available capital resources sooner than we expect. Changes may occur beyond our control that would cause us to consume
our available capital before that time, including changes in and progress of our development activities, acquisitions of
additional products or drug candidates, and changes in regulation. Our future capital requirements will depend on many
factors, including:
● the number and development requirements of the drug candidates that we may pursue;
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● the scope, progress, results and costs of preclinical development, laboratory testing and conducting
preclinical and clinical trials for our drug candidates;
● the costs, timing and outcome of regulatory review of our drug candidates;
● the extent to which we in-license or acquire drug candidates and technologies;
● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our
intellectual property rights and defending any intellectual property-related claims;
● our ability to identify and consummate transactions with third-party partners to further develop, obtain
marketing approval for and/or commercialize our drug candidates; and
● our ability to earn revenue from licenses to, or partnerships or other arrangements with, third parties.
We will require additional capital to develop our drug candidates and to support our discovery efforts. Additional
funds may not be available on a timely basis, on commercially acceptable terms, or at all, and such funds, if raised, may
not be sufficient to enable us to continue to implement our long-term business strategy. Our ability to raise additional
capital may be adversely impacted by potential worsening global economic conditions caused by a variety of factors
including geopolitical tensions, rising interest rates and inflationary pressures. If we are unable to raise sufficient additional
capital or generate revenue from transactions with potential third-party partners for the development and/or
commercialization of our drug candidates, we could be forced to curtail our planned operations.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to
relinquish rights to our technologies, intellectual property, potential future revenue streams or drug candidates.
Until such time, if ever, as we can earn substantial revenue, we expect to finance our cash needs through a
combination of equity offerings, debt financings and license and partnership agreements. To the extent that we raise
additional capital through the sale of equity securities or convertible debt securities, our stockholders’ ownership interest
will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights
of holders of our common stock. Debt financing and preferred equity financing, if available, may involve agreements that
include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends.
If we raise additional funds through partnerships, strategic alliances or marketing, distribution or licensing
arrangements with potential third-party partners, we may be required to relinquish valuable rights to our technologies,
intellectual property, potential future revenue streams, or drug candidates or grant licenses on terms that may not be
favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements with
third parties when needed, we may be required to delay, limit, reduce or terminate our drug development efforts or grant
rights to third parties to develop technologies, intellectual property, or drug candidates that we would otherwise prefer to
develop ourselves.
We have a limited history as a clinical-stage biopharmaceutical company developing and partnering our drug
candidates, which may make it difficult to evaluate the success of our business to date and to assess our future viability.
Our operations over the last several years have been largely focused on undertaking preclinical studies and
conducting clinical trials, drug discovery, acquiring new drug candidates and related intellectual property, and raising
capital. We have had limited time to demonstrate our ability to successfully develop, manufacture and identify and
consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize
our drug candidates. Consequently, any predictions you make about our future success or viability may not be as accurate
as they could be if we had a longer history of being a clinical-stage biopharmaceutical company focused on developing and
partnering drugs. We may also encounter unforeseen expenses, difficulties, complications, delays and other known or
unknown factors in achieving our business objectives.
Risks Related to the Development and Potential Commercialization of Our Drug Candidates
We may not be successful in our efforts to identify and develop additional drug candidates leveraging our KINect
drug discovery platform.
A key element of our approach is to leverage our KINect drug discovery engine to identify and develop additional
novel drug candidates. Our platform is powered by a unique combination of our proprietary chemical library of kinase
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inhibitors, our novel approaches to inhibitor modalities, our expertise in SBDD, and our custom kinase assays. Our ability
to identify and develop additional drug candidates is subject to numerous risks, including that:
● our drug discovery methods and our KINect platform may not be successful in identifying additional drug
candidates;
● our discovery programs may initially show promise in identifying potential drug candidates, yet fail to yield drug
candidates for clinical development; and
● potential drug candidates may, on further study, be shown to have harmful side effects or other characteristics that
indicate that they are unlikely to be drug candidates that will receive marketing approval and achieve market
acceptance.
In addition, discovery programs require substantial technical, financial and human resources. We may not be able
to maintain sufficient resources and expertise to discover additional drug candidates. It could take years to identify a viable
drug candidate, and there is a risk that we may never do so. If we are unable to identify successful drug candidates for
preclinical and clinical development and regulatory approval in a timely matter or at all, we could experience significant
delays or an inability to successfully pursue strategic alternatives, including identifying and consummating transactions
with third-party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates,
which could harm our business.
If we are unable to successfully develop our drug candidates and to pursue strategic alternatives, including
identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for
and/or commercialize our drug candidates, or experience significant delays in doing so, our business will be harmed.
We have invested significant efforts and financial resources in the development of our drug candidates and the
identification of potential drug candidates. Our ability to earn substantial revenue from our drug candidates will depend
heavily on our ability to successfully develop and pursue strategic alternatives, including identifying and consummating
transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize these drug
candidates. The success of any drug candidates that we develop will depend on several factors, including:
● successful completion of preclinical studies and our clinical trials;
● successful development of manufacturing processes;
● receipt of timely approvals from applicable regulatory authorities;
● the identification and consummation of transactions with third-party partners to further develop, obtain
marketing approval for and/or commercialize our drug candidates;
● the commercial launch of our drug candidates, if approved, by a potential third-party partner;
● our potential third-party partners’ ability to achieve acceptance of our drug candidates, if approved, by
patients, the medical community and third-party payors, and willingness of patients to pay out of pocket for
our drug candidates when third-party payor coverage and reimbursement is limited or unavailable;
● our potential third-party partners’ ability to achieve success in educating physicians and patients about the
benefits, administration and use of our drug candidates, if approved;
● the prevalence and severity of adverse events experienced with our drug candidates;
● the availability, perceived advantages, cost, safety and efficacy of alternative treatments for the proposed
indications of our drug candidates;
● obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity for our
drug candidates and otherwise protecting the intellectual property portfolio;
● maintaining compliance with regulatory requirements, including current good manufacturing practices, or
cGMPs;
● our potential third-party partners’ ability to compete effectively with other treatment procedures; and
● our potential third-party partners’ ability to maintain a continued acceptable safety, tolerability and efficacy
profile of our drug candidates following marketing approval.
Whether marketing approval will be granted is unpredictable and depends upon numerous factors, including the
substantial discretion of the regulatory authorities. Our drug candidates’ success in clinical trials will not guarantee
marketing approval. Following submission, the NDA for any drug candidate may not be accepted for substantive review, or
even if it is accepted for substantive review the FDA or other comparable foreign regulatory authorities may require
additional studies or clinical trials, additional data, or additional manufacturing steps, or require other conditions before
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they will reconsider or approve the application, which could increase costs and cause delays in the marketing approval
process and which may require the expenditure of additional resources. These delays would also impact our ability to
identify and consummate transactions with third-party partners to further develop, obtain marketing approval for and/or
commercialize our drug candidates. In addition, the FDA or other comparable foreign regulatory authorities may not
consider sufficient any additional required studies, clinical trials, data or information that we perform and complete or
generate, or we may decide to abandon the program.
It is possible that our drug candidates currently in development will never obtain marketing approval. If we do not
achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to
successfully pursue strategic alternatives, including identifying and consummating transactions with third-party partners, to
further develop, obtain marketing approval for and/or commercialize our drug candidates, which would harm our business.
Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur
additional costs or experience delays in completing, or ultimately be unable to complete, the development of and pursue
strategic alternatives, including identifying and consummating transactions with third-party partners, to further
develop, obtain marketing approval for and/or commercialize our drug candidates.
The risk of failure for our drug candidates is high. It is impossible to predict when or if any of our drug candidates
will prove effective or safe in humans or will receive marketing approval. Before obtaining regulatory approval for the sale
of any drug candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate
the safety and efficacy of our drug candidates in humans for use in the target indication. Clinical testing is expensive,
difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome.
A failure of one or more clinical trials can occur at any stage of testing. For example, in March 2023 we
announced that our Phase 2a study of zunsemetinib in patients with hidradenitis suppurativa did not meet its primary or
second efficacy endpoints, and in November 2023, we announced that our Phase 2b study of zunsemetinib in patients with
rheumatoid arthritis did not meet its primary or second efficacy endpoints, following which we discontinued further
development of our MK2 inhibitor programs in immuno-inflammatory diseases, including halting enrollment in our Phase
2a study of zunsemetinib in patients with psoriatic arthritis. The outcome of preclinical testing and early clinical trials may
not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final
results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many
companies that have believed their drug candidates performed satisfactorily in preclinical studies and clinical trials have
nonetheless failed to obtain marketing approval of their drugs.
We may experience numerous unforeseen events during or as a result of clinical trials that could delay or prevent
our ability to pursue strategic alternatives, including identifying and consummating transactions with third-party partners,
to further develop, obtain marketing approval for and/or commercialize our drug candidates, including:
● regulators or IRBs may not authorize us or our investigators to commence a clinical trial or conduct a clinical
trial at a prospective trial site;
● we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or
clinical trial protocols with prospective trial sites or prospective contract research organizations, or CROs,
the terms of which can be subject to extensive negotiation and may vary significantly among different CROs
and trial sites;
● clinical trials of our drug candidates may produce negative or inconclusive results, including failure to
demonstrate statistical significance, and we may decide, or regulators may require us, to conduct additional
clinical trials or abandon drug development programs;
● the number of patients required for clinical trials of our drug candidates may be larger than we anticipate,
enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these
clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate;
● our drug candidates may have undesirable side effects or other unexpected characteristics, causing us or our
investigators, regulators or IRBs to suspend or terminate the trials;
● our third-party contractors may fail to comply with regulatory requirements or meet their contractual
obligations to us in a timely manner, or at all;
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● regulators or IRBs may require that we or our investigators suspend or terminate clinical development for
various reasons, including noncompliance with regulatory requirements or a finding that the participants are
being exposed to unacceptable health risks;
● the cost of clinical trials of our drug candidates may be greater than we anticipate; and
● the supply or quality of our drug candidates or other materials necessary to conduct clinical trials of our drug
candidates may be insufficient or inadequate.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions
in which such trials are being conducted, by a data safety monitoring board for such trial or by the FDA or other regulatory
authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to
conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial
operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen
safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental
regulations or administrative actions or lack of adequate funding to continue the clinical trial.
If we experience delays in the completion of, or termination of, any clinical trial of our drug candidates, our costs
will increase, our drug candidate development process will be slowed, the commercial prospects of our drug candidates
will be harmed, and our ability to pursue strategic alternatives, including identifying and consummating transactions with
third-party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates will be
delayed. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition,
many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately
lead to the denial of marketing approval of our drug candidates. If we are required to conduct additional clinical trials or
other testing of our drug candidates beyond those that we currently contemplate, if we are unable to successfully complete
clinical trials of our drug candidates or other testing, if the results of these trials or tests are not favorable or if there are
safety concerns, we may not be able to pursue strategic alternatives, including identifying and consummating transactions
with third-party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates, and
our potential third-party partners may:
● be delayed in obtaining marketing approval for our drug candidates;
● not obtain marketing approval at all;
● obtain marketing approval for indications or patient populations that are not as broad as intended or desired;
● obtain marketing approval with labeling that includes significant use or distribution restrictions or safety
warnings;
● be subject to additional post-marketing testing requirements; or
● have the drug removed from the market after obtaining marketing approval.
Our drug development costs will also increase if we experience delays in testing. We do not know whether any of
our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule,
or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which our potential
third-party partners may have the exclusive right to commercialize our drug candidates or allow competitors to bring drugs
to market before such third-party partners do, which would impact our ability to successfully identify and consummate
transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our drug
candidates.
If we experience delays or difficulties in the enrollment of subjects in clinical trials, our ability to pursue
strategic alternatives, including identifying and consummating transactions with third-party partners, to further
develop, obtain marketing approval for and/or commercialize our drug candidates could be delayed or prevented.
Successful and timely completion of clinical trials will require that we enroll a sufficient number of subjects.
Subject enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and
nature of the patient population. Trials may be subject to delays as a result of subject enrollment taking longer than
anticipated or subject withdrawal, including as a result of factors beyond our control. We may not be able to initiate or
continue clinical trials for our drug candidates if we are unable to locate and enroll a sufficient number of eligible patients
to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. We cannot
predict how successful we will be at enrolling subjects in future clinical trials. Subject enrollment is affected by other
factors including:
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● the eligibility criteria for the trial in question;
● the perceived risks and benefits of the drug candidate in the trial;
● the availability of drugs approved to treat the disease in the trial;
● the efforts to facilitate timely enrollment in clinical trials;
● the patient referral practices of physicians;
● the ability to monitor patients adequately during and after treatment; and
● the proximity and availability of clinical trial sites for prospective patients.
Our inability to enroll a sufficient number of subjects for clinical trials would result in significant delays and could
require us or them to abandon one or more clinical trials altogether. Enrollment delays in these clinical trials may result in
increased development costs for our drug candidates, which would cause the value of our company to decline and limit our
ability to obtain additional financing. Furthermore, we rely on and expect to continue to rely on CROs and clinical trial
sites to ensure the proper and timely conduct of our clinical trials and we will have limited influence over their
performance. Any delays in completing clinical trials would delay or prevent our ability to pursue strategic alternatives,
including identifying and consummating transactions with third-party partners, to further develop, obtain marketing
approval for and/or commercialize our drug candidates.
Our clinical trials may fail to demonstrate the safety and efficacy of our drug candidates, or serious adverse or
unacceptable side effects may be identified during the development of our drug candidates, which could increase our
costs or necessitate the abandonment or limitation of the development of our drug candidates or prevent or delay our
ability to pursue strategic alternatives, including identifying and consummating transactions with third-party partners,
to further develop, obtain marketing approval for and/or commercialize our drug candidates.
If our drug candidates are associated with side effects in clinical trials or have characteristics that are unexpected,
our costs could increase or we may need to abandon their development or limit development to more narrow uses in which
the side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.
The FDA or an IRB may also require that we suspend, discontinue, or limit our clinical trials based on safety information.
Such findings could further result in regulatory authorities failing to provide marketing authorization for our drug
candidates. Many drug candidates that initially showed promise in early stage testing have later been found to cause side
effects that prevented further development of the drug candidate.
Before any potential third-party partners can obtain marketing approvals for the commercial sale of our drug
candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our
drug candidates are both safe and effective for use in each target indication, and failures can occur at any stage of testing.
Clinical trials often fail to demonstrate safety and efficacy of the drug candidate studied for the target indication.
Additionally, if we or others identify undesirable side effects caused by our drugs, a number of potentially
significant negative consequences could result, including:
● we may need to abandon the development or limit the further development of our drug candidates, including
in various populations and for certain indications;
● regulatory authorities may withdraw approval to market such product;
● regulatory authorities may require additional warnings on the labels;
● a medication guide outlining the risks of such side effects for distribution to patients may be required;
● we could be sued and held liable for harm caused to patients;
● our reputation and physician or patient acceptance of our drug candidates, if approved, may suffer; and
● our ability to pursue strategic alternatives, including identifying and consummating transactions with third-
party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates
would be harmed.
Any of these events could prevent us from pursuing strategic alternatives, including identifying and
consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or
commercialize the particular drug candidate and could significantly harm our business, results of operations and prospects.
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Interim, topline and preliminary data from our clinical trials that we announce or publish from time to time
may change as more subject data become available and are subject to audit and verification procedures that could result
in material changes in the final data.
From time to time, we may publicly disclose interim, topline or preliminary data from our clinical trials, which are
based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to
change following a full analysis of all data related to the particular trial. We also make assumptions, estimations,
calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully
and carefully evaluate all data. In addition, we may report preliminary analyses of only certain endpoints rather than all
endpoints. As a result, the interim, topline or preliminary results that we report may differ from future results of the same
trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully
evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being
materially different from the preliminary data we previously published. As a result, interim, topline and preliminary data
should be viewed with caution until the final data are available. We may also disclose interim data from our clinical trials.
Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may
materially change as subject enrollment continues and more subject data become available. Adverse differences between
interim, topline or preliminary data and final data could significantly harm our reputation and business prospects. Further,
disclosure of interim, topline or preliminary data by us or by our competitors could result in volatility in the price of our
common stock.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates,
calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the
potential of the particular program, the likelihood of marketing approval or commercialization of the particular drug
candidate, any approved product, and our company in general. In addition, the information we choose to publicly disclose
regarding a particular study or clinical trial is derived from information that is typically extensive, and you or others may
not agree with what we determine is material or otherwise appropriate information to include in our disclosure, and any
information we determine not to disclose may ultimately be deemed significant with respect to future decisions,
conclusions, views, activities or otherwise regarding a particular program, drug candidate or our business.
If the interim, topline or preliminary data that we report differ from actual results, or if others, including
regulatory authorities, disagree with the conclusions reached, our ability to pursue strategic alternatives, including
identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for
and/or commercialize our drug candidates may be harmed, which could harm our business, operating results, prospects or
financial condition.
Changes in methods of drug candidate manufacturing or formulation may result in additional costs or delay.
As drug candidates are developed through preclinical studies to late-stage clinical trials towards approval and
commercialization, it is common that various aspects of the development program, such as manufacturing methods and
formulation, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they
will not achieve these intended objectives, and may also require additional testing, FDA notification or FDA approval. Any
of these changes could cause our drug candidates to perform differently and affect the results of planned clinical trials or
other future clinical trials conducted with the altered materials. This could delay completion of clinical trials, require the
conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval
of our drug candidates and jeopardize our ability to pursue strategic alternatives, including identifying and consummating
transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize our drug
candidates.
We have conducted and may in the future conduct clinical trials for our drug candidates outside the United
States. The FDA, EMA or comparable foreign regulatory authorities may not accept data from such trials.
We have conducted and may in the future conduct clinical trials for our drug candidates outside the United States.
The acceptance of trial data from clinical trials conducted outside the United States or another jurisdiction by the FDA or
comparable foreign regulatory authorities may be subject to certain conditions or may not be accepted at all. Such foreign
trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be
no assurance that the FDA, EMA or any comparable foreign regulatory authority will accept data from trials conducted
outside of the United States or the applicable jurisdiction. If the FDA, EMA or any comparable regulatory authority does
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not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay
aspects of our business plan, and which may result in our drug candidates not receiving approval or clearance for
commercialization in the applicable jurisdiction.
In addition, any escalation of political tensions, economic instability, military activity or civil hostilities outside
the United States could disrupt our ability to conduct trials outside of the United States, or delay or adversely affect the
timeliness of such trials. This could result in the need for alternative trial sites, which could be costly and time-consuming
and delay the clinical development of our drug candidates.
We may not be successful in our efforts to increase our pipeline of drug candidates, including by in-licensing
or acquiring additional drug candidates.
A key element of our strategy is to build and expand our pipeline of drug candidates. To build our pipeline, we
may seek to in-license or acquire additional drug candidates, in addition to our in-house capabilities. We may not be able to
identify or develop drug candidates that are safe, tolerable and effective. Even if we are successful in continuing to build
our pipeline, the potential drug candidates that we develop, in-license or acquire may not be suitable for clinical
development, including as a result of being shown to have harmful side effects or other characteristics that indicate that
they are unlikely to be drugs that will receive marketing approval and achieve market acceptance.
We may expend our limited resources to pursue a particular drug candidate or indication and fail to capitalize
on drug candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and management resources, we focus on development programs and drug
candidates that we identify for specific indications or therapeutic areas. As a result, we may forego or delay pursuit of
opportunities with other drug candidates or for other indications or therapeutic areas that later prove to have greater
commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or
profitable market opportunities. Our spending on current and future development programs and drug candidates for specific
indications or therapeutics areas may not yield any commercially viable drugs. If we do not accurately evaluate the
commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug
candidate through partnerships, licensing or other arrangements in cases in which it would have been more advantageous
for us to retain sole development and commercialization rights to such drug candidate.
For any of our drug candidates that receive marketing approval, our potential third-party partners may fail to
achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical
community necessary for commercial success.
For any of our drug candidates that receive marketing approval, our potential third-party partners may fail to gain
sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If such third-
party partners fail to obtain an adequate level of acceptance for our drug candidates, we may not earn significant revenue
and we may not become profitable. The degree of market acceptance of any drug candidate, if approved, will depend on a
number of factors, including:
● the efficacy, safety and potential advantages compared to alternative treatments;
● our potential third-party partners’ ability to offer the products for sale at competitive prices;
● the convenience and ease of administration compared to alternative treatments;
● the willingness of the target patient population to try new treatments and of physicians to prescribe these
treatments;
● the ability of our potential third-party partners to retain a sales force;
● the strength of our potential third-party partners’ marketing and distribution support;
● the availability of third-party payor coverage and adequate reimbursement or the willingness of patients to
pay for these products;
● the prevalence and severity of any side effects; and
● any restrictions on the use of our products together with other medications.
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We face substantial competition, which may result in others discovering, developing or commercializing drugs
before or more successfully than we do.
The development and commercialization of new drugs is highly competitive. We will face competition with
respect to any drug candidates that we may seek to develop or through our potential third-party partners, commercialize, in
the future, from many different sources, including major pharmaceutical, biotechnology and specialty pharmaceutical
companies, academic institutions and governmental agencies and public and private research institutions.
With respect to ATI-1777 as a potential treatment for atopic dermatitis, there are several different types of
therapies in the atopic dermatitis market, such as biologics, oral and topical corticosteroids, oral and topical calcineurin
inhibitors, oral mycophenolate products, other JAK inhibitors, other oral antibiotics and antihistamines and phototherapy.
There are also several prescription, non-prescription and OTC topical products, including PDE4 inhibitors, utilized to treat
atopic dermatitis. These types of drugs are produced and sold, or are approved for marketing, by large pharmaceutical
companies, including AbbVie, Incyte, LEO Pharma A/S, Pfizer, and Regeneron Pharmaceuticals and Sanofi. In addition,
we are aware of a number of companies including large pharmaceutical companies, such as Amgen, Dermavant Sciences,
Eli Lilly, LEO Pharma A/S and Pfizer, developing and conducting clinical trials for investigational drug candidates that
could compete with ATI-1777, in each case if approved, for the treatment of atopic dermatitis.
The commercial opportunity for our drug candidates, if approved, could be reduced or eliminated if our
competitors develop and commercialize drugs that are safer, more effective, have fewer or less severe side effects, are more
convenient or are less expensive than a drug that we may develop. Our competitors also may obtain FDA or other
regulatory approval for their drugs more rapidly than our potential third-party partners’ may obtain approval for our drug
candidates, which could result in our competitors establishing a strong market position before our drug candidates are able
to enter the market.
Many of the companies against which we are competing, or against which we may compete in the future, have
significantly greater financial resources and expertise in research and development, manufacturing, and preclinical and
clinical development than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result
in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies. These competitors also compete with us in recruiting and retaining qualified scientific and management
personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies
complementary to, or that may be necessary for, our development programs.
The success of our drug candidates, if approved, will depend significantly on coverage and adequate
reimbursement or the willingness of patients to pay for these products.
We believe the success of our drug candidates, if approved, will depend on obtaining and maintaining coverage
and adequate reimbursement as a prescription treatment or in the absence of coverage and adequate reimbursement, on the
extent to which patients will be willing to pay out of pocket for these prescription drug products.
Third-party payors determine which prescription drug products they will cover and establish reimbursement
levels. Reimbursement by a third-party payor may depend upon a number of factors, including: the third-party payor’s
determination that a product is safe, effective, and medically necessary; appropriate for the specific patient; cost-effective;
supported by peer-reviewed medical journals or current clinical practice guidelines; and whether there are competitive
products, either branded or generic, and the pricing of those products. Many private third-party payors, such as managed
care plans, manage access to drug products’ coverage partly to control costs for their plans, and may use drug formularies
and medical policies to limit their exposure. Obtaining and maintaining favorable reimbursement can be a time-consuming
and expensive process, and our potential third-party partners may not be able to negotiate or continue to negotiate
reimbursement or pricing terms for our products with third-party payors at levels that are profitable to us, or at all. Further,
coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and
reimbursement status is attained for one or more products which receive regulatory approval, less favorable coverage
policies and reimbursement rates may be implemented in the future.
In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement. Third-
party payors regularly update reimbursement amounts and also from time to time revise the methodologies used to
determine reimbursement amounts. Accordingly, these updates could impact the demand for our drug candidates, if
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approved. Our drug candidates, if approved, may not be considered cost effective, and government and third-party private
health insurance coverage and reimbursement may not be available to patients or sufficient to allow our potential third-
party partners to sell our drug candidates, if approved, on a competitive and profitable basis. Our results of operations
could be adversely affected by the Affordable Care Act and by other health care legislative reforms that may be enacted or
adopted in the future. In addition, increasing emphasis on managed care in the United States will continue to put pressure
on the pricing of pharmaceutical products. Cost control initiatives could decrease the price that our potential third-party
partners could receive for any of our drug candidates, if approved, and could adversely affect our profitability. We cannot
predict how pending and future health care legislation will impact our business, and any changes in coverage and
reimbursement that further restricts coverage of our drug candidates could harm our business.
Foreign governments also have their own healthcare reimbursement systems, which vary significantly by country
and region, and we cannot be sure that coverage and adequate reimbursement will be made available with respect to our
drug candidates, if approved, under any foreign reimbursement system. In some foreign countries, including major markets
in the European Union and Japan, the pricing of prescription pharmaceuticals is subject to governmental control. In these
countries, pricing negotiations with governmental authorities can take up to 12 months or longer after the receipt of
regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be
required to conduct a pharmacoeconomic study that compares the cost-effectiveness of our drug candidate to other
available therapies. Such pharmacoeconomic studies can be costly and the results uncertain. Our business could be harmed
if reimbursement of our drug candidates, if approved, is unavailable or limited in scope or amount or if pricing is set at
unsatisfactory levels.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit
commercialization of any of our drug candidates that we may develop and are commercialized by our potential third-
party partners or impact any commercial products that we have previously sold or are being sold by third-party partners.
We face an inherent risk of product liability exposure related to the testing of our drug candidates in human
clinical trials and an even greater risk relating to any of our commercial products that we have previously sold or are being
sold by third-party partners. If we cannot successfully defend ourselves against claims that our commercial products that
we have previously sold or are being sold by third-party partners, or drug candidates, caused injuries, we will incur
substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:
● decreased demand for any drug candidates that we may develop and, if approved, are commercialized by our
potential third-party partners;
● injury to our reputation and significant negative media attention;
● withdrawal of clinical trial participants;
● significant costs to defend the related litigation;
● substantial monetary awards paid to trial participants or patients;
● loss of revenue;
● reduced resources of our management to pursue our business strategy; and
● our inability to pursue strategic alternatives, including identifying and consummating transactions with third-
party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates.
We currently hold $10 million in product liability insurance coverage in the aggregate, with a per incident limit of
$10 million, which may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly
expensive. We may need to increase our insurance coverage and we may not be able to maintain insurance coverage at a
reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks Related to Our Dependence on Third Parties
We rely on third parties to conduct clinical trials for our drug candidates, and those third parties may not
perform satisfactorily, including failing to meet deadlines for the completion of such trials.
We engage CROs to conduct clinical trials of our drug candidates. We expect to continue to rely on third parties,
such as clinical data management organizations, medical institutions and clinical investigators, to conduct those clinical
trials. If any of our relationships with these third parties terminate, we may not be able to timely enter into arrangements
with alternative third parties or to do so on commercially reasonable terms, if at all. In addition, any third parties
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our clinical trials will not be our employees, and except for remedies available to us under our agreements with such third
parties, we cannot control whether or not they devote sufficient time and resources to our clinical programs. If these third
parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be
replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our
clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated
and we may not be able to identify and consummate transactions with third-party partners to further develop, obtain
marketing approval for and/or commercialize our drug candidates. Consequently, our results of operations and the
commercial prospects for our drug candidates would be harmed, our costs could increase substantially and our ability to
earn revenue from those partnerships could be delayed significantly.
Switching or adding CROs involves substantial cost and requires management time and focus. In addition, there is
a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our
ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with
our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or
challenges will not have a material adverse impact on our business, financial condition and prospects.
We rely on these parties for execution of our preclinical studies and clinical trials, and generally do not control
their activities. Our reliance on these third parties for research and development activities will reduce our control over these
activities but will not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of
our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the
FDA requires us to comply with standards, commonly referred to as good clinical practices, or GCPs, for conducting,
recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and
that the rights, integrity and confidentiality of trial participants are protected. We also are required to register ongoing
clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov,
within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions. If we or
any of our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed
unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials
before approving marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such
regulatory authority will determine that any of our clinical trials complies with GCP regulations. In addition, our clinical
trials must be conducted with drug product produced under cGMP regulations. Our failure to comply with these regulations
may require us to repeat clinical trials, which would delay the marketing approval process for our potential third-party
partners.
We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance
failure on the part of our distributors could delay clinical development or marketing approval of our drug candidates or
commercialization of our drug candidates, if approved, producing additional losses and depriving us of potential revenue.
We contract with third parties for the manufacture and supply of our drug candidates for preclinical and
clinical testing. This reliance on third parties increases the risk that we will not have sufficient quantities of our drug
candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development efforts.
We do not have any manufacturing facilities. We currently rely, and expect to continue to rely, on third parties for
the manufacture and supply of our drug candidates for preclinical and clinical testing. This reliance on third parties
increases the risk that we will not have sufficient quantities of our drug candidates at an acceptable cost and/or quality,
which could delay, prevent or impair our ability to timely conduct our clinical trials or our other development efforts.
The facilities used by our contract manufacturers to manufacture our drug candidates must be approved by the
FDA or comparable foreign regulatory authorities pursuant to inspections that will be conducted after the NDA or
comparable marketing application is submitted to the FDA or other regulatory authority. We do not have control over a
supplier’s or manufacturer’s compliance with laws, regulations and applicable cGMP standards and other laws and
regulations, such as those related to environmental health and safety matters. If our contract manufacturers cannot
successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or
others, they will not be able to secure and maintain regulatory approval for their manufacturing facilities. In addition, we
have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and
qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the
manufacture of our drug candidates or if it withdraws any such approval in the future, we may need to find alternative
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manufacturing facilities, which could significantly impact our ability to develop, and identify and consummate transactions
with third-party partners to further develop, obtain marketing approval for and/or commercialize, our drug candidates.
We may be unable to establish any agreements with future third-party manufacturers or do so on acceptable terms.
Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails
additional risks, including:
● reliance on the third party for regulatory compliance and quality assurance;
● the possible breach of the manufacturing agreement by the third party;
● the possible misappropriation of our proprietary information, including our trade secrets and know-how;
● the possible increase in costs by our third-party suppliers for the active pharmaceutical ingredients for our
drug candidates; and
● the possible termination or nonrenewal of the agreement by the third party at a time that is costly or
inconvenient for us.
Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements
outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations
could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension
or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal
prosecutions, any of which could significantly and adversely affect supplies of our drug candidates.
Our drug candidates may compete with other products and drug candidates for access to manufacturing facilities.
There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of
manufacturing for us. Any performance failure on the part of our existing or future manufacturers could delay clinical
development or marketing approval of our drug candidates.
If our current contract manufacturers cannot perform as agreed, we may be required to replace such
manufacturers. We may incur added costs and delays in identifying and qualifying any such replacement. We do not
currently have arrangements in place for redundant supply or a second source for the active pharmaceutical ingredients
and/or drug product for our drug candidates.
We expect to continue to depend on third-party contract manufacturers for the foreseeable future. Our current and
anticipated future dependence upon others for the manufacture of our drug candidates may adversely affect our future
profit margins and our ability to pursue strategic alternatives, including identifying and consummating transactions with
third-party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates on a
timely and competitive basis.
We intend to pursue strategic alternatives, including identifying and consummating transactions with third-
party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates. If those
arrangements are not successful, we may not be able to capitalize on the market potential of these drug candidates.
We intend to pursue strategic alternatives, including identifying and consummating transactions with third-party
partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates. Our likely partners
for any such arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical
companies and biotechnology companies. If we do enter into any such arrangements with any third parties, we will likely
have limited control over the amount and timing of resources that our partners dedicate to the development or
commercialization of our drug candidates. Our ability to earn revenue from these arrangements will depend on our
partners’ abilities to successfully perform the functions assigned to them in these arrangements.
Partnerships involving our drug candidates would pose the following risks to us:
● partners have significant discretion in determining the efforts and resources that they will apply to these
arrangements;
● partners may not perform their obligations as expected;
● partners may not pursue development, marketing approval or commercialization of any drug candidates that
achieve marketing approval or may elect not to continue or renew development or commercialization
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programs based on clinical trial results, changes in the partners’ strategic focus or available funding, or
external factors, such as an acquisition, that divert resources or create competing priorities;
● partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial
or abandon a drug candidate, repeat or conduct new clinical trials or require a new formulation of a drug
candidate for clinical testing;
● partners could independently develop, or develop with third parties, products that compete directly or
indirectly with our drug candidates if the partners believe that competitive products are more likely to be
successfully developed or can be commercialized under terms that are more economically attractive than
ours;
● drug candidates discovered in collaboration with us may be viewed by our collaborators as competitive with
their own products or drug candidates, which may cause our partners to cease to devote resources to the
development and/or commercialization of our drug candidates, if approved;
● a partner with marketing and distribution rights to one or more of our drug candidates that achieve marketing
approval may not commit sufficient resources to the marketing and distribution of such drug candidates;
● disagreements with partners, including disagreements over proprietary rights, contract interpretation or the
preferred course of development or commercialization, might cause delays or termination of the research,
development or commercialization of drug candidates, might lead to additional responsibilities for us with
respect to drug candidates, or might result in litigation or arbitration, any of which would be time-consuming
and expensive;
● partners may not properly maintain or defend our or their intellectual property rights or may use our or their
proprietary information in such a way as to invite litigation that could jeopardize or invalidate such
intellectual property or proprietary information or expose us to potential litigation;
● partners may infringe the intellectual property rights of third parties, which may expose us to litigation and
potential liability; and
● partnerships may be terminated for the convenience of the partner and, if terminated, we could be required to
raise additional capital to pursue further development and/or commercialization of the applicable drug
candidates.
Partnership agreements may not lead to development, marketing approval or commercialization of drug
candidates in the most efficient manner or at all. If a present or future partner of ours were to be involved in a business
combination, the continued pursuit and emphasis on our drug development or commercialization program could be
delayed, diminished or terminated.
If we are not able to establish partnerships, we may have to alter our development and commercialization
plans.
Our drug development programs for our drug candidates will require substantial additional capital. We intend to
partner with pharmaceutical and biotechnology companies for the further development and/or commercialization of our
drug candidates.
We face significant competition in seeking appropriate partners. Whether we reach a definitive agreement for a
partnership will depend, among other things, upon our assessment of the partner’s resources and expertise, the terms and
conditions of the proposed arrangement and the proposed partner’s evaluation of a number of factors. Those factors may
include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities
outside the United States, the potential market for the subject drug candidate, the costs and complexities of manufacturing
and delivering such drug candidate to patients, the potential of competing products, the existence of uncertainty with
respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the
merits of the challenge, and industry and market conditions generally. The partner may also consider alternative drug
candidates or technologies for similar indications that may be available to partner on and whether such a partnership could
be more attractive than the one with us for our drug candidate. Partnerships are complex and time-consuming to negotiate
and document. In addition, there have been a significant number of recent business combinations among large
pharmaceutical companies that have resulted in a reduced number of potential future partners.
We may not be able to negotiate partnerships on a timely basis, on acceptable terms, or at all. If we are unable to
do so, we may have to curtail the development of such drug candidate, reduce or delay its development program or one or
more of our other development programs or increase our expenditures and undertake development or commercialization
activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities
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on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we
do not have sufficient funds, we may not be able to further develop our drug candidates or bring them to market and
generate revenue.
We may not have access to all information regarding our drug candidates that are subject to partnership
agreements. Consequently, our ability to inform our stockholders about the status of our drug candidates that are
subject to these agreements, and our ability to make business and operational decisions, may be limited.
We may not have access to all information regarding our drug candidates that may become subject to agreements
with partners, including potentially material information about clinical trial design, execution and timing, safety and
efficacy, clinical trial results, regulatory affairs, manufacturing, marketing, sales and other areas known by our potential
partners. In addition, we may have confidentiality obligations under our agreements with such partners. Therefore, our
ability to keep our stockholders informed about the status of our drug candidates will be limited by the degree to which our
partners keep us informed and by the degree to which our partners allow us to disclose information to the public or provide
such information to the public themselves. If our partners do not timely inform us about the status of our drug candidates
that are the subject of the partnership, we may make operational and investment decisions that we would not have made
had we been fully informed, which may have an adverse impact on our business, prospects, financial condition and results
of operations.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our drug candidates, or if the scope of the patent
protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and drugs
similar or identical to ours, and ability to successfully identify a potential third-party partner to commercialize our
technology and drug candidates may be impaired.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and
other countries with respect to our drug candidates. We seek to protect our proprietary position by filing patent applications
in the United States and abroad related to our drug candidates.
The patent prosecution process is expensive and time-consuming, however, and we may not be able to file and
prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we
will fail to identify patentable aspects of our development output before it is too late to obtain patent protection. We may
not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the rights to
patents licensed to third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner
consistent with the best interests of our business.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves
complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of
foreign countries may not protect our rights to the same extent as the laws of the United States or vice versa. For example,
European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does.
Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the
United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all.
Therefore, we cannot know with certainty whether we or our licensors were the first to make the inventions claimed in our
patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such
inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly
uncertain. Our pending and future patent applications may not result in patents being issued that protect our technology or
drug candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies
and drug candidates. Changes in either the patent laws or interpretation of the patent laws in the United States and other
countries may diminish the value of our patents or narrow the scope of our patent protection.
Moreover, we may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark
Office, or USPTO, or other foreign patent office, or become involved in opposition, central revocation, derivation,
reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent
rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or
invalidate, our patent rights, allow third parties to commercialize our technology or drug candidates and compete directly
with us, without payment to us, or result in the inability of our potential third-party partners to manufacture or
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commercialize our drug candidates without infringing third-party patent rights. In addition, if the breadth or strength of
protection provided by our patents and patent applications that we own or license is threatened, it could dissuade
companies from partnering with us to license, develop and/or commercialize our drug candidates.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any
meaningful protection, prevent competitors from competing with us or our potential third-party partners or otherwise
provide us or our potential third-party partners with any competitive advantage. Competitors may be able to circumvent our
patents by developing similar or alternative technologies or drugs in a non-infringing manner.
In addition, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and
our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in
loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or
in part, which could limit the ability to stop others from using or commercializing similar or identical technology and drug
candidates, or limit the duration of the patent protection of our technology and drug candidates. Our issued U.S. patents
covering zunsemetinib expire in 2034. Our issued U.S. patent covering ATI-1777 expires in 2038. Our issued U.S. patent
directed to ATI-2138 expires in 2039. We are pursuing patent protection for methods of use, polymorphs and methods of
manufacture for our drug candidates that may extend the term of patent protection. Given the amount of time required for
the development, testing and regulatory review of new drug candidates, patents protecting such candidates might expire
before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us or our
potential third-party partners with sufficient rights to exclude others from commercializing drugs similar or identical to
ours.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which
could be expensive, time-consuming and unsuccessful. Further, our issued patents could be found invalid or
unenforceable if challenged in court.
Competitors may infringe our issued patents or other intellectual property. Our pending applications cannot be
enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from
such applications. To counter infringement or unauthorized use, we may be required to file infringement claims, which can
be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert
counterclaims against us alleging that we infringe their patents or that our patents are invalid or unenforceable. Grounds for
a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty,
obviousness, non-enablement or insufficient written description, or similar requirements outside of the United States.
Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent
withheld relevant information from the USPTO or made a misleading statement during prosecution. Third parties may also
raise similar claims before the USPTO, in post-grant proceedings such as ex parte reexaminations, inter partes review, or
post-grant review, or oppositions or similar administrative proceedings outside the United States, in parallel with litigation
or, even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is
unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art
of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion
of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our drug
candidates. Such a loss of patent protection would harm our business.
In such a proceeding, a court or administrative board may decide that a patent of ours is invalid or unenforceable,
in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at
issue on the grounds that our patents do not cover the technology. An adverse result in any such proceeding could put one
or more of our patents at risk of being invalidated or interpreted narrowly. We may find it impractical or undesirable to
enforce our intellectual property against some third parties.
Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may
be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable
outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party.
Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property
litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of
litigation.
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We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our drug candidates in all countries throughout the world would be
prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less
extensive than those in the United States. For example, zunsemetinib is currently covered by patents and applications in the
United States, European Union and other foreign markets. While we have issued U.S. patents directed to ATI-1777 and
ATI-2138, we do not currently have any patents for such drug candidates in the European Union or other foreign markets;
rather, we have pending applications in the European Union and other foreign markets directed to each of ATI-1777 and
ATI-2138.
Many companies have encountered significant problems in protecting and defending intellectual property rights in
foreign jurisdictions. The legal systems of some countries do not favor the enforcement of patents and other intellectual
property protection, which could make it difficult for us to stop the infringement of our patents generally. Proceedings to
enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from
other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent
applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any
lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful.
Many countries, including European Union countries, India, Japan and China, have compulsory licensing laws
under which a patent owner may be compelled under specified circumstances to grant licenses to third parties. In those
countries, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party,
which could materially diminish the value of those patents. This could limit our ability to pursue strategic alternatives,
including identifying and consummating transactions with potential third-party partners, to further develop, obtain
marketing approval for and/or commercialize our drug candidates, and consequently our potential revenue opportunities.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a
significant commercial advantage from the intellectual property that we develop or license.
We may need to license intellectual property from third parties, and such licenses may not be available or may
not be available on commercially reasonable terms.
A third party may hold intellectual property, including patent rights, that are important or necessary to the
development and/or commercialization of our drug candidates. It may be necessary for us or our potential third-party
partners to use the patented or proprietary technology of third parties to further develop and/or commercialize our drug
candidates. If we or our potential third-party partners are not able to obtain a license from these third parties on
commercially reasonable terms, our business could be harmed, possibly materially, and even if we or they are able to, it
may result in the reduction of revenue we earn from such partner as a result of payment obligations to the licensor.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights,
the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our success depends upon our ability to pursue strategic alternatives, including identifying and consummating
transactions with potential third-party partners, to develop, obtain marketing approval for and/or commercialize our drug
candidates and earn revenue from those partnerships, and for our proprietary technologies to be used without infringing the
proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and
pharmaceutical industries. We may become party to, or threatened with, future adversarial proceedings or litigation
regarding intellectual property rights with respect to our drug candidates and technologies, including interference or
derivation proceedings before the USPTO. Numerous U.S. and foreign issued patents and pending patent applications
owned by third parties exist in the fields in which we are developing our drug candidates. Third parties may assert
infringement claims against us based on existing patents or patents that may be granted in the future.
If we or our potential third-party partners are found to infringe a third party’s intellectual property rights, we or
such partners could be required to obtain a license from such third party to continue developing or commercializing our
drug candidates and technology. However, we or our potential third-party partners may not be able to obtain any required
license on commercially reasonable terms or at all. Even if we or our potential third-party partner were able to obtain a
license, it could be non-exclusive, thereby giving competitors access to the same technologies licensed to us or our partner.
Consequently, we or our potential third-party partner could be forced, including by court order, to cease developing or
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commercializing the infringing technology or drug candidate. In addition, we or our potential third-party partner could be
found liable for monetary damages, including treble damages and attorneys’ fees if we or such partner are found to have
willfully infringed a patent. A finding of infringement could prevent our potential third-party partners from
commercializing our drug candidates, if approved, or force such partners to cease some of their business operations. In the
event of a successful claim of infringement against us or our potential third-party partners, we or our potential third-party
partners may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay
royalties, redesign our infringing drug candidate or obtain one or more licenses from third parties, which may be
impossible or require substantial time and monetary expenditure. Claims that we have misappropriated the confidential
information or trade secrets of third parties could have a similar negative impact on our business.
We may be subject to claims by third parties asserting that we, our employees or our licensors have
misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our employees and our licensors’ employees were previously employed at other biotechnology or
pharmaceutical companies. Although we and our licensors try to ensure that our employees and our licensors’ employees
do not use the proprietary information or know-how of others in their work for us, we or our licensors may be subject to
claims that these employees, our licensors or we have used or disclosed intellectual property, including trade secrets or
other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against
these claims.
In addition, while it is our policy to require our employees and contractors who may be involved in the
development of intellectual property to execute agreements assigning such intellectual property to us, we may be
unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as
our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to
bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we
regard as our intellectual property.
If we or our licensors fail in prosecuting or defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights or personnel. Even if we and our licensors are successful in prosecuting or
defending against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from
their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may
cause us to incur significant expenses and could distract our technical and management personnel from their normal
responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a
substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our
operating losses and reduce the resources available for development activities. We may not have sufficient financial or
other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the
costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Some of
our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to
sustain the costs of complex patent litigation longer than we could. Accordingly, despite our efforts, we may not be able to
prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in
substantial costs and diversion of management resources, which could harm our business. In addition, the uncertainties
associated with litigation could compromise our ability to compete in the marketplace, including compromising our ability
to raise the funds necessary to continue our clinical trials, continue our internal research programs, or pursue strategic
alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain
marketing approval for and/or commercialize our drug candidates.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would
be harmed.
In addition to seeking and maintaining patents for our drug candidates, we also rely on trade secrets, including
unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to
protect our trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have
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access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers,
consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment
agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and
disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for
such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and
time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less
willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently
developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using
that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently
developed by a competitor, our competitive position would be harmed.
The validity, scope and enforceability of any of our patents that cover any of our drug candidates can be
challenged by competitors.
If any of our drug candidates advance through development or are approved by the FDA or foreign regulatory
authority, one or more third parties may challenge the current patents, or patents that may issue in the future, within our
portfolio covering these drug candidates. The challenge may come in the form of a patent office proceeding, such as
an inter partes review challenging the validity of the patents, or a district court proceeding such as a paragraph IV litigation
arising out of the filing of an ANDA. Litigation or other proceedings to enforce or defend intellectual property rights are
often very complex in nature, may be expensive and time-consuming, may divert our management's attention from our core
business, and may result in unfavorable results that could limit our ability to prevent third parties from competing with our
drug candidates, if approved. Any such challenge could result in the invalidation of, or render unenforceable, some or all of
the relevant patent claims or a finding of non-infringement, which would harm our ability to pursue strategic alternatives,
including identifying and consummating transactions with third-party partners, to further develop, obtain marketing
approval for and/or commercialize our drug candidates, and earn revenue from such arrangements. In addition, any such
challenge on any divested product could harm our ability to earn revenue from the arrangements for such product.
If we do not obtain protection under the Hatch-Waxman Act by extending the patent term and obtaining data
exclusivity for our drug candidates, our business may be materially harmed.
Our success will largely depend on our ability to obtain and maintain patent and other intellectual property in the
United States and other countries with respect to our proprietary technology, drug candidates and our target
indications. Our issued U.S. patents covering zunsemetinib expire in 2034. Our issued U.S. patent covering ATI-1777
expires in 2038. Our issued U.S. patent directed to ATI-2138 expires in 2039. Given the amount of time required for the
development, testing and regulatory review of new drug candidates, patents protecting our drug candidates might expire
before or shortly after such candidates begin to be commercialized. We expect to seek extensions of patent terms in the
United States and, if available, in other countries where we are prosecuting patents.
Depending upon the timing, duration and specifics of FDA marketing approval of our drug candidates, one or
more of our U.S. patents may be eligible for limited patent term extension under The Drug Price Competition and Patent
Term Restoration Act of 1984, or the Hatch-Waxman Act, for a drug candidate. The Hatch-Waxman Act permits a patent
extension term of up to five years beyond the normal expiration of the patent as compensation for patent term lost during
development and the FDA regulatory review process, which is limited to the approved indication (or any additional
indications approved during the period of extension). However, the total patent term including the period of extension
cannot exceed 14 years from the product’s approval date. Furthermore, this extension is limited to only one patent per
regulatory review period that covers the approved product. However, the applicable authorities, including the FDA and the
USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment
of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited
extensions than we request. We may not be granted an extension because of, for example, failing to apply within applicable
deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements.
Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. Similar
provisions are available in certain foreign countries, such as the European Union and Japan.
If we are unable to extend the expiration date of our existing patents or obtain new patents with longer expiry
dates, our competitors may be able to take advantage of our investment in development and clinical trials by referencing
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our clinical and preclinical data to obtain approval of competing products following our patent expiration and launch their
product earlier than might otherwise be the case.
Any trademarks we have obtained or may obtain may be infringed or successfully challenged, resulting in
harm to our business.
We expect to rely on trademarks as one means to distinguish our products, services or technologies from those of
our competitors. Once we select new trademarks and apply to register them, our trademark applications may not be
approved. Third parties may oppose or attempt to cancel our trademark applications or trademarks, or otherwise challenge
our use of the trademarks. In such an event, we may need to negotiate a settlement agreement with such third party over the
use of our trademarks, which we may not be able to do on commercially reasonable terms, if at all. In the event that our
trademarks are successfully challenged, our products, services or technologies may need to be rebranded, which could
result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands. Our
competitors may infringe our trademarks and we may not have adequate resources to enforce our trademarks.
Outside of the United States we cannot be certain that any country’s patent or trademark office will not
implement new rules that could seriously affect how we draft, file, prosecute and maintain patents, trademarks and
patent and trademark applications.
We cannot be certain that the patent or trademark offices of countries outside the United States will not implement
new rules that increase costs for drafting, filing, prosecuting and maintaining patents, trademarks and patent and trademark
applications or that any such new rules will not restrict our ability to file for patent or trademark protection. For example,
we may elect not to seek patent protection in some jurisdictions or for some drug candidates in order to save costs. We may
be forced to abandon or return the rights to specific patents due to a lack of financial resources.
For example, following the result of a referendum in 2016, the United Kingdom left the European Union on
January 31, 2020, commonly referred to as Brexit. The impact of the withdrawal of the United Kingdom from the
European Union will not be known for some time, which could lead to a period of uncertainty relating to our ability to
obtain and maintain patents and trademarks in the United Kingdom. In 2012, the European Patent Package, or EU Patent
Package, regulations were passed with the goal of providing for a single pan-European Unitary Patent, and a new European
Unified Patent Court, or UPC, for litigation of European patents, which was implemented in 2023. All European patents,
including those issued prior to ratification, would by default automatically fall under the jurisdiction of the UPC and allow
for the possibility of obtaining pan-European injunctions, unless the patent holder “opts out” of the UPC on a patent-by-
patent basis during an initial seven-year period. Owners of traditional European patent applications who receive notice of
grant after the EU Patent Package ratification can either accept a Unitary Patent or validate the patent nationally and file an
opt-out demand. The EU Patent Package may increase the uncertainties and costs surrounding the enforcement or defense
of our issued European patents and pending applications. The full impact on future European patent filing strategy and the
enforcement or defense of our issued European patents in member states and/or the UPC is not known.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual
property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive
advantage. The following examples are illustrative:
● we, our licensors or any potential third-party partners might not have been the first to make the inventions
covered by the issued patents or pending patent applications that we own;
● we, our licensors or any potential third-party partners might not have been the first to file patent applications
covering certain of our inventions;
● others may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectual property rights;
● it is possible that our pending patent applications will not lead to issued patents;
● issued patents that we own or exclusively license may not provide us with any competitive advantages, or
may be held invalid or unenforceable as a result of legal challenges;
● our competitors might conduct research and development activities in the United States and other countries
that provide a safe harbor from patent infringement claims for certain research and development activities,
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as well as in countries where we do not have patent rights, and then use the information learned from such
activities to develop competitive products for sale in major commercial markets; and
● we may develop additional proprietary technologies that are not patentable.
Risks Related to Regulatory Approval of Our Drug Candidates and Other Legal Compliance Matters
If our potential third-party partners are not able to obtain, or if there are delays in obtaining, required
regulatory approvals, our drug candidates will not be able to be commercialized, and our ability to earn revenue from
arrangements with such third-party partners will be materially impaired.
Our drug candidates and the activities associated with their development and commercialization, including their
design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and
distribution, are subject to comprehensive regulation by the FDA, other regulatory agencies in the United States and similar
regulatory authorities outside the United States. Failure to obtain marketing approval for a drug candidate will prevent our
potential third-party partners from commercializing the drug candidate. We have only limited experience in filing and
supporting the applications necessary to gain marketing approvals. Securing marketing approval requires the submission of
extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication
to establish the drug candidate’s safety and efficacy. Securing marketing approval also requires the submission of
information about the drug manufacturing process to, and inspection of manufacturing facilities by, the regulatory
authorities. Our drug candidates may not be effective, may be only moderately effective or may prove to have undesirable
or unintended side effects, toxicities or other characteristics that may preclude our potential third-party partners from
obtaining marketing approval or prevent or limit commercial use. If any of our drug candidates receive marketing approval,
the accompanying label may limit the approved use of our product in this way, which could limit sales of the product.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take
many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a
variety of factors, including the type, complexity and novelty of the drug candidates involved. Changes in marketing
approval policies during the development period, changes in or the enactment of additional statutes or regulations, or
changes in regulatory review for each submitted drug application, may cause delays in the approval or rejection of an
application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any
application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other
studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or
prevent marketing approval of a drug candidate. Any marketing approval our potential third-party partners ultimately
obtain may be limited or subject to restrictions or post-approval commitments that render the approved drug not
commercially viable.
If our potential third-party partners experience delays in obtaining approval or if they fail to obtain approval of our
drug candidates, the commercial prospects for our drug candidates may be harmed and our ability to earn revenue from
arrangements with such third-party partners will be materially impaired.
Failure to obtain marketing approval in international jurisdictions would prevent our drug candidates from
being marketed abroad.
In order to market and sell our drugs in the European Union and any other jurisdictions outside the United States,
our potential third-party partners must obtain separate marketing approvals and comply with numerous and varying
regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time
required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval
process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in
many countries outside the United States, it is required that the drug be approved for reimbursement before the drug can be
approved for sale in that country. Our potential third-party partners may not obtain approvals from regulatory authorities
outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory
authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not
ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. However, failure to obtain
approval in one jurisdiction may impact our potential third-party partners’ ability to obtain approval elsewhere. Our
potential third-party partners may not be able to file for marketing approvals and may not receive necessary approvals to
commercialize our drug candidates in any market.
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A variety of risks associated with marketing our drug candidates by our potential third-party partners
internationally could harm our business.
If our drug candidates, if approved, are marketed internationally by our potential third-party partners, our potential
third-party partners would be subject to additional risks related to operating in foreign countries, including:
● differing regulatory requirements in foreign countries;
● the potential for so-called parallel importing, which is what happens when a local seller, faced with high or
higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying
them locally;
● unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;
● economic weakness, including inflation, or political instability in particular foreign economies and markets;
● foreign reimbursement, pricing and insurance regimes;
● compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
● foreign taxes, including withholding of payroll taxes;
● foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and
other obligations incident to doing business in another country;
● difficulties staffing and managing foreign operations;
● workforce uncertainty in countries where labor unrest is more common than in the United States;
● potential liability under the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, or
comparable foreign regulations;
● challenges enforcing contractual and intellectual property rights, especially in those foreign countries that do
not respect and protect intellectual property rights to the same extent as the United States;
● production shortages resulting from any events affecting raw material supply or manufacturing capabilities
abroad;
● logistical challenges resulting from distributing our drug candidates to foreign countries; and
● business interruptions resulting from geo-political actions, including war and terrorism.
These and other risks associated with international operations may compromise our ability to earn revenue from
arrangements with potential third-party partners for our drug candidates.
Any drug candidate for which our potential third-party partners obtain marketing approval could be subject to
post-marketing restrictions or recall or withdrawal from the market, and our potential third-party partners may be
subject to penalties if they fail to comply with regulatory requirements or if they experience unanticipated problems with
our drug candidates, when and if any of them are approved.
Any drug candidate for which our potential third-party partners obtain marketing approval, along with the
manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such drug
candidate, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These
requirements include submissions of safety and other post-marketing information and reports, registration and listing
requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding
maintenance of records and documents, requirements regarding the distribution of samples to physicians and
recordkeeping. Even if marketing approval of a drug candidate is granted, the approval may be subject to limitations on the
indicated uses for which the drug candidate may be marketed or to the conditions of approval, including the requirement to
implement a risk evaluation and mitigation strategy. If any of our drug candidates receives marketing approval, the
accompanying label may limit the approved use of our drug, which could limit sales of the drug by our potential third-party
partners.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to
monitor the safety or efficacy of the drug. The FDA closely regulates the post-approval marketing and promotion of drugs
to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved
labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if our
potential third-party partners do not market our drugs for their approved indications, they may be subject to enforcement
action for off-label marketing. Physicians, on the other hand, may prescribe products for off-label uses. Although the FDA
and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent
medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-
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label uses of products for which marketing clearance has not been issued. However, companies may share truthful and not
misleading information that is otherwise consistent with the product’s FDA approved labeling. Violations of the FDCA
relating to the promotion of prescription drugs may lead to investigations alleging violations of federal and state health care
fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with our drugs,
manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may have negative
consequences, including:
● restrictions on such drugs, manufacturers or manufacturing processes;
● restrictions on the labeling or marketing of a drug;
● restrictions on drug distribution or use;
● requirements to conduct post-marketing studies or clinical trials;
● warning letters;
● recall or withdrawal of the drugs from the market;
● refusal to approve pending applications or supplements to approved applications;
● clinical holds;
● fines, restitution or disgorgement of profits or revenue;
● suspension or withdrawal of marketing approvals;
● refusal to permit the import or export of our drugs;
● drug seizure; or
● injunctions or the imposition of civil or criminal penalties.
Non-compliance with the European Union’s requirements regarding safety monitoring or pharmacovigilance, and
with requirements related to the development of drugs for the pediatric population, can also result in significant financial
penalties. Similarly, failure to comply with the European Union’s requirements regarding the protection of personal
information can also lead to significant penalties and sanctions. These and other risks associated with the failure by our
potential third-party partners to comply with regulatory requirements may compromise our ability to earn revenue from
arrangements with such third-party partners for our drug candidates.
Our potential third-party partners’ relationships with third-party payors, health care professionals and
customers in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud
and abuse, false claims, physician payment transparency, health information privacy and security and other health care
laws and regulations, and any failure to comply with such laws and regulations could have a material adverse effect on
our ability to earn revenue from arrangements with such third-party partners for our drug candidates.
Health care providers, physicians and third-party payors in the United States and elsewhere will play a primary
role in the recommendation and prescription of any of our drug candidates for which marketing approval is obtained. Our
potential third-party partners’ arrangements with third-party payors, health care professionals and customers may expose
them to broadly applicable fraud and abuse and other health care laws and regulations, including, without limitation, the
federal Anti-Kickback Statute and the federal civil False Claims Act, that may constrain the business or financial
arrangements and relationships through which they sell, market and distribute any drug candidates for which marketing
approval is obtained. In addition, we and our potential third-party partners may be subject to transparency laws and patient
privacy regulation by the federal government and by the U.S. states and foreign jurisdictions in which we or they conduct
business. The applicable federal, state and foreign health care laws and regulations that may affect our or our potential
third-party partners’ ability to operate include the following:
● the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly
and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in
kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or
recommendation of, any good or service, for which payment may be made under federal and state health care
programs such as Medicare and Medicaid. Further, several courts have interpreted the statute’s intent
requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals
of federal health care covered business, the Anti-Kickback Statute has been violated. The intent standard was
further amended by the Affordable Care Act, to a stricter standard such that a person or entity no longer
needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a
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violation. Moreover, the government may assert that a claim including items or services resulting from a
violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False
Claims Act;
● federal civil and criminal false claims laws, including, without limitation, the federal civil False Claims Act
(that can be enforced through civil whistleblower or qui tam actions), and the civil monetary penalties law,
which impose criminal and civil penalties, against individuals or entities for knowingly presenting, or
causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims
for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an
obligation to pay money to the federal government;
● federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and
civil liability for, among other things, executing a scheme to defraud any health care benefit program or
making false statements relating to health care matters. Similar to the federal Anti-Kickback Statute, a person
or entity does not need to have actual knowledge of the statute or specific intent to violate it to have
committed a violation;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or
HITECH, and their respective implementing regulations, which impose obligations on covered health care
providers, health plans, and health care clearinghouses, as well as their business associates that create,
receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity
and their subcontractors that use, disclose, access, or otherwise process protected health information, with
respect to safeguarding the privacy, security and transmission of individually identifiable health information;
● the federal Open Payments program, created under Section 6002 of the Affordable Care Act (commonly
known as the Physician Payments Sunshine Act) and its implementing regulations, which requires specified
manufacturers of drugs, devices, biologics or medical supplies for which payment is available under
Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually
to the Centers for Medicare & Medicaid Services, or CMS, information related to “payments or other
transfers of value” made to physicians, which is defined to include doctors, dentists, optometrists, podiatrists
and chiropractors, other health care professionals (such as physician assistants and nurse practitioners), and
teaching hospitals, and for applicable manufacturers to report annually to CMS information regarding
ownership and investment interests held by physicians and their immediate family members; and
● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which
may apply to sales or marketing arrangements and claims involving health care items or services reimbursed
by non-governmental third-party payors, including private insurers; state and foreign laws that require
pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments
that may be made to health care providers; state, local and foreign laws that require drug manufacturers to
report information related to payments and other transfers of value to physicians and other health care
providers or marketing expenditures; state laws that require drug manufacturers to report pricing information
regarding certain drugs; and/or that require registration of certain employees engaged in marketing activities
in the location; and state and foreign laws governing the privacy and security of health information in certain
circumstances, many of which differ from each other in significant ways and often are not preempted by
HIPAA, thus complicating compliance efforts.
Efforts to ensure that our or our potential third-party partners’ business arrangements with third parties will
comply with applicable health care laws and regulations may involve substantial costs. It is possible that governmental
authorities will conclude that our or our potential third-party partners’ business practices, including relationships with
physicians and other health care providers, some of whom may recommend, purchase and/or prescribe our drug candidates,
if approved, may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or
other health care laws and regulations. By way of example, some of our consulting arrangements with physicians may not
meet all of the criteria of the personal services safe harbor under the federal Anti-Kickback Statute. Accordingly, they may
not qualify for safe harbor protection from government prosecution. A business arrangement that does not substantially
comply with a safe harbor, however, is not necessarily illegal under the Anti-Kickback Statute, but may be subject to
additional scrutiny by the government.
If our or our potential third-party partners’ operations are found to be in violation of any of these laws or any other
governmental regulations that may apply to us or them, we or our potential third-party partners may be subject to
significant civil, criminal and administrative penalties, including, without limitation, damages, fines, disgorgement,
imprisonment, exclusion from participation in government health care programs, such as Medicare and Medicaid,
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additional reporting requirements and oversight if we or they become subject to a corporate integrity agreement or similar
agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our or their
operations, which could have a material adverse effect on our ability to earn revenue from arrangements with such third-
party partners for our drug candidates. If any physician or other health care provider or entity with whom we or our
potential third-party partners expect to do business is found not to be in compliance with applicable laws, it may be subject
to significant criminal, civil or administrative sanctions, including exclusions from participation in government health care
programs, which could also materially affect our ability to earn revenue from arrangements with such third-party partners
for our drug candidates.
Recently enacted and future legislation may increase the difficulty and cost for our potential third-party
partners to obtain marketing approval of our drug candidates and commercialize our drug candidates, if approved, and
affect the prices our potential third-party partners may obtain.
In the United States, and some foreign jurisdictions, there have been a number of legislative and regulatory
changes and proposed changes regarding the health care system that could prevent or delay marketing approval of our drug
candidates, restrict or regulate post-approval activities and affect our potential third-party partners’ ability to profitably sell
any of our drug candidates for which our potential third-party partners obtain marketing approval, and consequently affect
our ability to earn revenue from arrangements with such third-party partners for our drug candidates.
Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting
changes in health care systems with the stated goals of containing health care costs, improving quality and/or expanding
access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been
significantly affected by major legislative initiatives. The Affordable Care Act, which was signed into law in 2010, is a
sweeping law intended to broaden access to health insurance, reduce or constrain the growth of health care spending,
enhance remedies against fraud and abuse, add new transparency requirements for the health care and health insurance
industries, impose new taxes and fees on the health industry and impose additional health policy reforms.
Among the provisions of the Affordable Care Act of importance to commercial products are the following:
expanded and increased industry rebates for drugs covered under Medicaid programs; addressed a new methodology by
which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled,
infused, instilled, implanted or injected; extended the rebate program to individuals enrolled in Medicaid managed care
organizations; established annual fees and taxes on manufacturers of certain branded prescription drugs; made changes to
the coverage requirements under the Medicare prescription drug benefit; and established a new Medicare Part D coverage
gap discount program, in which manufacturers, as a condition for their outpatient drugs to be covered under Medicare Part
D, must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries
during their coverage gap period. Moreover, the Affordable Care Act provided incentives to programs that increase the
federal government’s comparative effectiveness research and implemented payment system reforms including a national
pilot program on payment bundling meant to encourage hospitals, physicians and other providers to improve the
coordination, quality and efficiency of certain health care services.
There have been executive branch, judicial and Congressional challenges to certain aspects of the Affordable Care
Act. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain
taxes under the Affordable Care Act have been signed into law. On June 17, 2021 the U.S. Supreme Court dismissed a
challenge on procedural grounds that argued the Affordable Care Act is unconstitutional in its entirety because the
“individual mandate” was repealed by Congress. Prior to the U.S. Supreme Court ruling, on January 28, 2021, President
Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance
coverage through the Affordable Care Act marketplace. The executive order also instructed certain governmental agencies
to review and reconsider their existing policies and rules that limit access to healthcare, including among others,
reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that
create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act.
Further, on August 16, 2022, President Biden signed the IRA into law, which among other things, extends enhanced
subsidies for individuals purchasing health insurance coverage in Affordable Care Act marketplaces through plan year
2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly
lowering the beneficiary maximum out-of-pocket cost and through a newly established manufacturer discount program. It
is possible that the Affordable Care Act will be subject to judicial or Congressional challenges in the future. It is unclear
how such challenges and any additional health care reform measures of the Biden administration will impact the
Affordable Care Act and our business.
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In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
These changes included aggregate reductions to Medicare payments to providers of 2% per fiscal year that became
effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the BBA and the
Infrastructure Investment and Jobs Act, will stay in effect through 2032 unless additional Congressional action is taken.
The American Taxpayer Relief Act of 2012, which was signed into law in January 2013, among other things, further
reduced Medicare payments to several providers, and increased the statute of limitations period for the government to
recover overpayments to providers from three to five years. Any similar new laws may result in additional reductions in
Medicare and other health care funding, which could have a material adverse effect on our ability to earn revenue from
arrangements with our potential third-party partners for our drug candidates.
We expect that the Affordable Care Act, as well as other health care reform measures that may be adopted in the
future, may result in more rigorous coverage criteria and in additional downward pressure on the price that our potential
third-party partners receive for any approved drug candidate. Any reduction in reimbursement from Medicare or other
government programs may result in a similar reduction in payments from private payors. The implementation of cost
containment measures or other health care reforms may prevent our potential third-party partners from being able to
generate revenue, attain profitability, or commercialize our drug candidates, if approved, which in turn may impact our
ability to earn revenue from arrangements with such third-party partners for our drug candidates.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and
promotional activities for drugs. In addition, there has been heightened governmental scrutiny in the United States of
pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in
several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other
things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for drugs. In July 2021, the Biden
administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions
aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, U.S. Department of Health and
Human Services, or HHS, released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for
drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential
administrative actions HHS can take to advance these principles. In addition, the IRA, among other things, (1) directs HHS
to negotiate the price of certain single-source drugs and biologics covered under Medicare and (2) imposes rebates under
Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions take effect
progressively starting in fiscal year 2023, although they may be subject to legal challenges. It is currently unclear how the
IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry. Further, the Biden
administration released an additional executive order on October 14, 2022, directing HHS to submit a report on how the
Center for Medicare and Medicaid Innovation can be further leveraged to test new models for lowering drug costs for
Medicare and Medicaid beneficiaries. It is unclear whether this executive order or similar policy initiatives will be
implemented in the future. On December 7, 2023, the Biden administration announced an initiative to control the price of
prescription drugs through the use of march-in rights under the Bayh-Dole Act. On December 8, 2023, the National
Institute of Standards and Technology published for comment a Draft Interagency Guidance Framework for Considering
the Exercise of March-In Rights which for the first time includes the price of a product as one factor an agency can use
when deciding to exercise march-in rights. While march-in rights have not previously been exercised, it is uncertain if that
will continue under the new framework. It is unclear whether these or similar policy initiatives will be implemented in the
future. The effect of reducing prices and reimbursement for certain of our drug candidates, if approved, could significantly
impact our business and consolidated results of operations. In addition, the IRA may meaningfully influence our and
pharmaceutical industry business strategies. In particular, it may reduce the attractiveness of investment in small molecule
and biologic innovation.
At the state level, legislatures have become increasingly active in passing legislation and implementing
regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain drug access and marketing cost disclosure and transparency measures, and, in
some cases, designed to encourage importation from other countries and bulk purchasing. For example, on January 5, 2024,
the FDA approved Florida’s proposal to import certain drugs from Canada for specific state healthcare programs. It is
unclear if and how this program will be implemented and whether it will be subject challenges in the United States or
Canada. Other states have also submitted proposals that are pending review by the FDA. Any such approved importation
plans, if implemented, may result in lower drug prices for products covered by those programs. We cannot be sure whether
additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed,
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or what the impact of such changes on obtaining marketing approvals for our drug candidates, if any, may be. In addition,
increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing
approval, as well as subject our potential third-party partners to more stringent drug labeling and post-marketing testing
and other requirements. These risks may compromise our ability to earn revenue from arrangements with such third-party
partners for our drug candidates.
Governments outside the United States tend to impose strict price controls, which may adversely affect our
revenue.
In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is
subject to governmental control. In these countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a drug. To obtain coverage and reimbursement or pricing
approval in some countries, our potential third-party partners may be required to conduct a clinical trial that compares the
cost-effectiveness of our drug candidate to other available procedures. If reimbursement of our drug candidates is
unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our potential third-party partners may
not able to generate revenue, which in turn may adversely affect our ability to earn revenue from arrangements with such
third-party partners for our drug candidates.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to
fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing
laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our
operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our
operations also produce hazardous waste products. We generally contract with third parties for the disposal of these
materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of
contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages,
and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines
and penalties for failure to comply with such laws and regulations.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to
injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage
against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be
asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and
safety laws and regulations. These current or future laws and regulations may impair our development or manufacturing
efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other
sanctions.
We are subject to stringent and evolving U.S. and foreign laws, regulations, and rules, contractual obligations,
industry standards, policies and other obligations related to data privacy and security. Our actual or perceived failure to
comply with such obligations could lead to regulatory investigations or actions; litigation (including class claims) and
mass arbitration demands; fines and penalties; disruptions of our business operations; reputational harm; loss of
revenue or profits; and other adverse business consequences.
In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make
accessible, protect, secure, dispose of, transmit, and share (collectively, process) personal data and other sensitive
information, including proprietary and confidential business data, trade secrets, intellectual property, personnel data, data
from participants in our clinical trials, and other sensitive third-party data (collectively, sensitive data). Our data processing
activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance,
industry standards, external and internal privacy and security policies, contractual requirements, and other obligations
relating to data privacy and security.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws,
including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the
Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws). In the past few years, numerous U.S.
states—
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including California, Virginia, Colorado, Connecticut, and Utah—have enacted comprehensive privacy laws that impose
certain obligations on covered businesses, including providing specific disclosures in privacy notices and affording
residents with certain rights concerning their personal data. As applicable, such rights may include the right to access,
correct, or delete certain personal data, and to opt-out of certain data processing activities, such as targeted advertising,
profiling, and automated decision-making. The exercise of these rights may impact our business operations. Certain states
also impose stricter requirements for processing certain personal data, including sensitive information, such as conducting
data privacy impact assessments. These state laws allow for statutory fines for noncompliance. For example, the California
Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act of 2020 (“CPRA”) (collectively,
“CCPA”), applies to personal data of consumers, business representatives, and employees who are California residents, and
requires businesses to provide specific disclosures in privacy notices and honor requests of such individuals to exercise
certain privacy rights. The CCPA provides for fines of up to $7,500 per intentional violation and allows private litigants
affected by certain data breaches to recover significant statutory damages. Although the CCPA exempts some data
processed in the context of clinical trials, the CCPA increases compliance costs and potential liability with respect to other
personal data we maintain about California residents. Similar laws are being considered in several other states, as well as at
the federal and local levels, and we expect more states to pass similar laws in the future. While these states, like the CCPA,
also exempt some data processed in the context of clinical trials, these developments may further complicate compliance
efforts, and increase legal risk and compliance costs for us and the third parties upon whom we rely.
In addition to “comprehensive” state privacy laws like CCPA, we are or may become subject to new state laws
governing the privacy of consumer health data. For example, Washington’s My Health My Data Act broadly defines
consumer health data, places restrictions on processing consumer health data (including imposing stringent requirements
for consents), provides consumers certain rights with respect to their health data, and creates a private right of action to
allow individuals to sue for violations of the law. Other states are considering and may adopt similar laws.
Outside the United States, an increasing number of laws, regulations, and industry standards may govern data
privacy and security. For example, the European Union’s General Data Protection Regulation (“EU GDPR”) and the
United Kingdom’s GDPR (“UK GDPR”) impose strict requirements for processing personal data. For example, under
GDPR, companies may face temporary or definitive bans on data processing and other corrective actions; fines of up to 20
million Euros under the EU GDPR, 17.5 million pounds sterling under the UK GDPR or, in each case, 4% of annual global
revenue, whichever is greater; or private litigation related to processing of personal data brought by classes of data subjects
or consumer protection organizations authorized at law to represent their interests.
In addition, we may be unable to transfer personal data from Europe and other jurisdictions to the United States or
other countries due to data localization requirements or limitations on cross-border data flows. Europe and other
jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In
particular, the European Economic Area (EEA) and the United Kingdom (UK) have significantly restricted the transfer of
personal data to the United States and other countries whose privacy laws it generally believes are inadequate. Other
jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws.
Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the
United States in compliance with law, such as the EEA’s standard contractual clauses, the UK’s International Data Transfer
Agreement / Addendum, and the EU-U.S. Data Privacy Framework and the UK extension thereto (which allows for
transfers to relevant U.S.-based organizations who self-certify compliance and participate in the Framework), these
mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to
lawfully transfer personal data to the United States. If there is no lawful manner for us to transfer personal data from the
EEA, the UK, or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too
onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the
need to relocate part of or all of our data processing activities to other jurisdictions (such as Europe) at significant expense,
increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with
partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary
to operate our business. Additionally, companies that transfer personal data out of the EEA and UK to other jurisdictions,
particularly to the United States, are subject to increased scrutiny from regulators, individual litigants, and activities
groups. Some European regulators have ordered certain companies to suspend or permanently cease certain transfers of
personal data out of Europe for allegedly violating the GDPR’s cross-border data transfer limitations.
In addition to data privacy and security laws, we are contractually subject to industry standards adopted by
industry groups and may become subject to such obligations in the future. We are also bound by other contractual
obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful.
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We publish privacy policies and make other statements regarding data privacy and security. If these policies or
statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we
may be subject to investigation, enforcement actions by regulators, or other adverse consequences.
Obligations related to data privacy and security (and consumers’ data privacy expectations) are quickly changing,
becoming increasingly stringent, and creating uncertainty. Additionally, these obligations may be subject to differing
applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying
with these obligations requires us to devote significant resources and may necessitate changes to our services, information
technologies, systems, and practices and to those of any third parties that process personal data on our behalf.
We may at times fail (or be perceived to have failed) in our efforts to comply with our data privacy and security
obligations. Moreover, despite our efforts, our personnel or third parties on whom we rely may fail to comply with such
obligations, which could negatively impact our business operations. If we or the third parties on which we rely fail, or are
perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face
significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines,
penalties, audits, inspections, and similar); litigation (including class-action claims) and mass arbitration demands;
additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use
personal data. In particular, plaintiffs have become increasingly more active in bringing privacy-related claims against
companies, including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory
damages on a per violation basis, and, if viable, carry the potential for significant statutory damages, depending on the
volume of data and the number of violations. Any of these events could have a material adverse effect on our reputation,
business, or financial condition, including but not limited to: loss of customers; or stoppages in our business operations
(including clinical trials); inability to process personal data or to operate in certain jurisdictions; limited ability to develop
our drug candidates; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial
changes to our business model or operations.
We are subject to governmental economic sanctions and export and import controls that could impair our
potential third-party partners’ ability to compete in international markets or subject us or our potential third-party
partners to liability if we or they are not in compliance with applicable laws.
As a U.S. company, we are subject to U.S. import and export controls and economic sanctions laws and
regulations, and we are required to import and export our drug candidates, technology and services in compliance with
those laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, the
International Traffic in Arms Regulations, and economic embargo and trade sanction programs administered by the U.S.
Treasury Department’s Office of Foreign Assets Control.
U.S. economic sanctions and export control laws and regulations prohibit the shipment of certain products and
services to countries, governments and persons targeted by U.S. sanctions. While we are currently taking precautions to
prevent doing any business, directly or indirectly, with countries, governments and persons targeted by U.S. sanctions and
to ensure that our drug candidates are not exported or used by countries, governments and persons targeted by U.S.
sanctions, such measures may be circumvented.
Furthermore, if we or our potential third-party partners export our drug candidates, the exports may require
authorizations, including a license, a license exception or other appropriate government authorization. Complying with
export control and sanctions regulations may be time-consuming and may result in the delay or loss of sales opportunities.
Failure to comply with export control and sanctions regulations may expose us or our potential third-party partners to
government investigations and penalties.
If we are found to be in violation of U.S. sanctions or import or export control laws, it could result in civil and
criminal, monetary and non-monetary penalties, including possible incarceration for those individuals responsible for the
violations, the loss of export or import privileges and reputational harm.
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We and our potential third-party partners are subject to anti-corruption and anti-money laundering laws with
respect to our and their operations and non-compliance with such laws can subject us to criminal and/or civil liability
and harm our business.
We and our potential third-party partners are subject to the FCPA, the U.S. domestic bribery statute contained in
18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act and possibly other anti-bribery and anti-money laundering
laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and
their employees and third-party intermediaries from authorizing, offering or providing, directly or indirectly, improper
payments or benefits to recipients in the public or private sector. We or our potential third-party partners may engage third-
party intermediaries in connection with the development or commercialization of our drug candidates, if approved, and to
obtain necessary permits, licenses and other regulatory approvals. We, our potential third-party partners or the third-party
intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned
or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our
employees, representatives, contractors, partners and agents, even if we do not explicitly authorize such activities.
Noncompliance with anti-corruption and anti-money laundering laws could subject us to whistleblower
complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits,
significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting
with certain persons, the loss of export privileges, reputational harm, adverse media coverage and other collateral
consequences. Responding to any action will likely result in a materially significant diversion of management’s attention
and resources and significant defense costs and other professional fees.
Risks Related to Employee Matters and Managing Our Growth
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified
personnel.
We are highly dependent on the management, development, clinical, financial, and business development
expertise of Dr. Neal Walker, our Interim Chief Executive Officer and President, Kevin Balthaser, our Chief Financial
Officer, Dr. Joseph Monahan, our Chief Scientific Officer, and James Loerop, our Chief Business Officer, as well as the
other members of our scientific and clinical teams. Although we have entered into employment agreements with our
executive officers, each of them may currently terminate their employment with us or resign at any time. We do not
maintain “key person” insurance for any of our key executives.
Recruiting and retaining qualified scientific, manufacturing and clinical personnel will also be critical to our
success. The loss of the services of our executive officers or other key employees could impede the achievement of our
development objectives and seriously harm our ability to successfully implement our business strategy. Furthermore,
replacing executive officers and key employees may be difficult and may take an extended period of time because of the
limited number of individuals in our industry with the breadth of skills and experience required to successfully develop and
partner drug candidates. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or
motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and
biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical
personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific
and clinical advisors, to assist us in formulating our development strategy. Our consultants and advisors may have
commitments under employment, consulting or advisory contracts with other entities that may limit their availability to us.
If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be
limited.
Our employees, independent contractors, consultants, third-party partners, principal investigators, CROs and
vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards
and requirements.
We are exposed to the risk that our employees, independent contractors, consultants, third-party partners, principal
investigators, CROs and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties
could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates FDA
regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA,
manufacturing standards, federal and state health care laws and regulations, and laws that require the true, complete
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and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements by our
potential third-party partners in the health care industry are subject to extensive laws and regulations intended to prevent
fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range
of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Misconduct by these parties could also involve the improper use of individually identifiable information,
including, without limitation, information obtained in the course of clinical trials, which could result in regulatory
sanctions and serious harm to our reputation. We have adopted a code of business conduct and ethics, but it is not always
possible to identify and deter misconduct, and the precautions we take to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or
other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are
instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a
significant impact on our business, including the imposition of significant civil, criminal and administrative penalties,
including, without limitation, damages, fines, disgorgement, imprisonment, exclusion from participation in government
health care programs, such as Medicare and Medicaid, additional reporting obligations and oversight if we are subject to a
corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the
curtailment or restructuring of our operations.
In addition, we have a hybrid work model of remote and in-person operations for our employees that enables us to
continue to develop our drug candidates and provide contract research services to our clients. The effects of our hybrid
work model may negatively impact productivity, disrupt our business and delay our preclinical drug development and
clinical trials and timelines. These and similar, and perhaps more severe, disruptions in our operations could negatively
impact our business, operating results and financial condition.
Risks Related to Ownership of Our Common Stock
The trading price of the shares of our common stock has been and is likely to continue to be volatile.
Our stock price has been and is likely to continue to be volatile. The stock market in general and the market for
biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating
performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at
or above the price paid for the shares. The market price for our common stock may be influenced by many factors,
including:
● the commencement, enrollment and/or results of any preclinical studies and clinical trials we may conduct, or
changes in the development status of our drug candidates;
● any delay in our regulatory filings for any of our drug candidates and any adverse development or perceived
adverse development with respect to the applicable regulatory authority’s review of such filings, including
without limitation the FDA’s issuance of a “refusal to file” letter or a request for additional information;
● adverse results from, delays in or termination of clinical trials;
● adverse regulatory decisions, including failure of any of our drug candidates to receive marketing approval;
● unanticipated serious safety concerns related to the use of any drug candidate or previously sold commercial
product;
● changes in financial estimates by us or by any securities analysts who might cover our stock;
● conditions or trends in our industry;
● changes in the structure of health care payment systems;
● changes in the market valuations of similar companies;
● stock market price and volume fluctuations of comparable companies and, in particular, those that operate in
the biotechnology industry;
● publication of research reports about us or our industry or positive or negative recommendations or
withdrawal of research coverage by securities analysts;
● announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures;
● announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;
● investors’ general perception of our company and our business;
● recruitment or departure of key personnel;
● overall performance of the equity markets;
● trading volume of our common stock;
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● disputes or other developments relating to proprietary rights, including patents, litigation matters and our
ability to obtain patent protection for our technologies;
● significant lawsuits, including patent or stockholder litigation;
● general political and economic conditions; and
● other events or factors, many of which are beyond our control.
In the past, stockholders have initiated class action lawsuits against us and other pharmaceutical companies
following periods of volatility in the market prices of these companies’ stock. We have entered into indemnification
agreements with our executive officers and directors which provide, among other things, that we will indemnify such
officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines
and settlements he or she may be required to pay in actions or proceedings which he or she is or may be made a party by
reason of his or her position as our director, officer or other agent, and otherwise to the fullest extent permitted under
Delaware law and our bylaws. Such additional litigation, if instituted against us, could cause us to incur substantial costs
and divert management’s attention and resources from our business.
If we fail to maintain compliance with the listing requirements of the Nasdaq Global Select Market, we may
be delisted and the price of our common stock and our ability to access the capital markets could be negatively
impacted.
Our common stock is currently listed on the Nasdaq Global Select Market. To maintain the listing of our
common stock on the Nasdaq Global Select Market, we are required to meet certain listing requirements, including,
among others, either: (i) a minimum closing bid price of $1.00 per share, a market value of publicly held shares
(excluding shares held by our executive officers, directors and 10% or more stockholders) of at least $5 million and
stockholders’ equity of at least $10 million; or (ii) a minimum closing bid price of $1.00 per share, a market value of
publicly held shares (excluding shares held by our executive officers, directors, affiliates and 10% or more stockholders)
of at least $15 million and a total market value of listed securities of at least $50.0 million.
We may fail to satisfy one or more the Nasdaq Global Select Market requirements for continued listing of our
common stock in the future. There can be no assurance that we will be successful in maintaining the listing of our common
stock on the Nasdaq Global Select Market, or, if transferred, on the Nasdaq Capital Market. This could impair the liquidity
and market price of our common stock. In addition, the delisting of our common stock from a national exchange could
have a material adverse effect on our access to capital markets, and any limitation on market liquidity or reduction in the
price of our common stock as a result of that delisting could adversely affect our ability to raise capital on terms acceptable
to us, or at all.
Sales of a substantial number of shares of our common stock into the market could cause the market price of
our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our
stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in
the public market, the market price of our common stock could decline significantly.
In addition, we have filed registration statements on Form S-8 under the Securities Act registering the issuance of
shares of common stock subject to options or other equity awards issued or reserved for future issuance under our equity
incentive plans. Shares registered under these registration statements are available for sale in the public market subject to
vesting arrangements and exercise of options, and the restrictions of Rule 144 under the Securities Act in the case of our
affiliates.
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by
our stockholders to change our management and hinder efforts to acquire a controlling interest in us, and the market
price of our common stock may be lower as a result.
There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third party to
acquire, or attempt to acquire, control of our company, even if a change of control was considered favorable by some or all
of our stockholders. For example, our board of directors has the authority to issue up to 10,000,000 shares of preferred
stock. The board of directors can fix the price, rights, preferences, privileges, and restrictions of the preferred stock without
any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change of
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control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders
may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to other
stockholders.
Our charter documents also contain other provisions that could have an anti-takeover effect, including:
● only one of our three classes of directors is elected each year;
● stockholders are not entitled to remove directors other than by a 66 2/3% vote and only for cause;
● stockholders are not permitted to take actions by written consent;
● stockholders cannot call a special meeting of stockholders; and
● stockholders must give advance notice to nominate directors or submit proposals for consideration at
stockholder meetings.
In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which regulates corporate acquisitions by prohibiting Delaware corporations from engaging in specified business
combinations with particular stockholders of those companies. These provisions could discourage potential acquisition
proposals and could delay or prevent a change of control transaction. They could also have the effect of discouraging
others from making tender offers for our common stock, including transactions that may be in your best interests. These
provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial
statements on a timely basis could be impaired.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and
regulations of the stock market on which our common stock is listed. The Sarbanes-Oxley Act requires, among other
things, that we maintain effective disclosure controls and procedures and internal control over financial reporting and
perform system and process evaluation and testing of our internal control over financial reporting to allow management to
report on the effectiveness of our internal control over financial reporting. This requires that we incur substantial additional
professional fees and internal costs to expand our accounting and finance functions and that we expend significant
management efforts.
We may identify weaknesses in our system of internal financial and accounting controls and procedures that could
result in a material misstatement of our consolidated financial statements. Our internal control over financial reporting will
not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will
not occur or that all control issues and instances of fraud will be detected.
If we are unable to maintain proper and effective internal controls, we may not be able to produce timely and
accurate financial statements, and we may conclude that our internal control over financial reporting is not effective. If that
were to happen, the market price of our stock could decline, and we could be subject to sanctions or investigations by the
stock exchange on which our common stock is listed, the SEC, or other regulatory authorities.
We might not be able to utilize a significant portion of our net operating loss carryforwards and research and
development tax credit carryforwards.
As of December 31, 2023, we had federal and state net operating loss carryforwards, or NOLs, of $464.8 million
and $395.3 million, respectively, which will begin to expire in 2032. Under federal law, federal NOL carryforwards
generated in tax years beginning after December 31, 2017 may be carried forward indefinitely but may only be used to
offset 80% of our taxable income annually. It is uncertain if and to what extent various states will conform to the federal
tax law. As of December 31, 2023, we also had federal research and development tax credit carryforwards of $20.4 million
which will begin to expire in 2032, and state research and development tax credit carryforwards of $0.1 million which will
begin to expire in 2022. These NOL and tax credit carryforwards could expire unused or due to limitation on use be
unavailable to offset future income tax liabilities. In addition, under Section 382 of the Internal Revenue Code of 1986, as
amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally
defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to
use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income
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may be limited. Although we have experienced Section 382 ownership changes between 2012 and 2023, we have
concluded that we should have sufficient ability to utilize NOLs accumulated during the periods tested. In addition, we
may have experienced ownership changes since 2023 and may experience ownership changes in the future as a result of
subsequent shifts in our stock ownership, some of which may be outside of our control. If we determine that an ownership
change has occurred and our ability to use our historical NOL and tax credit carryforwards is materially limited, it might
harm our future operating results by effectively increasing our future tax obligations.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future and our stock
may not appreciate in value.
We have not declared or paid cash dividends on our common stock to date. We currently intend to retain our
future earnings, if any, to fund the development and growth of our business. There is no guarantee that shares of our
common stock will appreciate in value or that the price at which our stockholders have purchased their shares will be able
to be maintained.
Exclusive forum provisions in our amended and restated certificate of incorporation and amended and restated
bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers or other employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of
Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common
law: (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim for breach of a fiduciary
duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim
arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of
incorporation or our amended and restated bylaws or (iv) any action asserting a claim governed by the internal affairs
doctrine. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act.
Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such
Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent
having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts,
among other considerations, our amended and restated bylaws provide the federal district courts of the United States of
America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities
Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may
nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such
instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our
amended and restated certificate of incorporation and our amended and restated bylaws. This may require significant
additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the
provisions will be enforced by a court in those other jurisdictions.
Our amended and restated certificate of incorporation and amended and restated bylaws further provide any
person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of
and consented to the foregoing provisions. These exclusive forum provisions may limit a stockholder’s ability to bring a
claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which
may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive-
forum provision to be inapplicable or unenforceable in an action, we may incur further significant additional costs
associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.
General Risk Factors
If our information technology systems, those of third parties upon which we rely, or our data are or were
compromised, we could experience adverse consequences resulting from such compromise, including but not limited to
regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational
harm; loss of revenue or profits; and other adverse consequences.
In the ordinary course of our business, we and the third parties upon which we rely process sensitive data, and, as
a result, we and the third parties upon which we rely face a variety of evolving threats that could cause security incidents.
Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the
confidentiality, integrity, and availability of our sensitive data and information technology systems, and those of the third
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parties upon which we rely. Such threats are prevalent and continue to rise, are increasingly difficult to detect, and come
from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized criminal threat
actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors.
Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation
nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times
of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of
these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain,
and ability to develop our drug candidates and provide our services.
We and the third parties upon which we rely are subject to a variety of evolving threats, including but not limited
to social-engineering attacks (including through deep fakes, which may be increasingly more difficult to identify as fake,
and phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent
threat intrusions), denial-of-service attacks, credential stuffing, credential harvesting, personnel misconduct or error,
ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or
other information technology assets, adware, attacks enhanced or facilitated by AI, telecommunications failures,
earthquakes, fires, floods, and other similar threats.
In particular, severe ransomware attacks are becoming increasingly prevalent and can lead to significant
interruptions in our operations, ability to develop our drug candidates or provide our services, loss of sensitive data and
income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware
attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations
prohibiting such payments.
Remote work has become more common and has increased risks to our information technology systems and data,
as more of our employees utilize network connections, computers, and devices outside our premises or network, including
working at home, while in transit and in public locations. Additionally, future or past business transactions (such as
acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be
negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Furthermore, we
may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be
difficult to integrate companies into our information technology environment and security program.
In addition, our reliance on third-party service providers could introduce new cybersecurity risks and
vulnerabilities, including supply-chain attacks and other threats to our business operations. We rely on third-party service
providers and technologies to operate critical business systems to process sensitive data in a variety of contexts, including,
without limitation, cloud-based infrastructure, data center facilities, SaaS platforms, encryption and authentication
technology, employee email and other functions. We also rely on third-party service providers to provide other products
and services, or otherwise to operate our business. Our ability to monitor these third parties’ information security practices
is limited, and these third parties may not have adequate information security measures in place. If our third-party service
providers experience a security incident or other interruption, we could experience adverse consequences. While we may
be entitled to damages if our third-party service providers fail to satisfy their privacy or security-related obligations to us,
any award may be insufficient to cover our damages, or we may be unable to recover such award. In addition, supply-
chain attacks have increased in frequency and severity, and we cannot guarantee that third parties’ infrastructure in our
supply chain or our third-party partners’ supply chains have not been compromised.
While we have implemented security measures designed to protect against security incidents, there can be no
assurance that these measures will be effective. We take steps designed to detect, mitigate, and remediate vulnerabilities in
our information systems (such as our hardware and/or software). We may not, however, detect and remediate all such
vulnerabilities including on a timely basis. Further, we may experience delays in developing and deploying remedial
measures and patches designed to address identified vulnerabilities. Vulnerabilities could be exploited and result in a
security incident.
Any of the previously identified or similar threats could cause a security incident or other interruption that could
result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure
of, or access to our sensitive data or our information technology systems, or those of the third parties upon whom we rely.
A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to operate
our business.
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We may expend significant resources or modify our business activities to try to protect against security incidents.
Additionally, certain data privacy and security obligations may require us to implement and maintain specific security
measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive
data.
Applicable data privacy and security obligations may require us to notify relevant stakeholders, including affected
individuals, customers, regulators, and investors, of security incidents. Such disclosures are costly, and the disclosure or
the failure to comply with such requirements could lead to adverse consequences.
If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a
security incident, we may experience adverse consequences, such as government enforcement actions (for example,
investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on
processing sensitive data (including personal data); litigation (including class claims); indemnification obligations;
negative publicity; reputational harm; monetary fund diversions; diversion of management attention; interruptions in our
operations (including availability of data); financial loss; and other similar harms. Security incidents and attendant
consequences may prevent or cause customers to stop using our services, deter new customers from using our services, and
negatively impact our ability to grow and operate our business.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that
limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data
privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us
from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be
available on commercially reasonable terms or at all, or that such coverage will pay future claims.
In addition to experiencing a security incident, third parties may gather, collect, or infer sensitive data about us
from public sources, data brokers, or other means that reveals competitively sensitive details about our organization and
could be used to undermine our competitive advantage or market position.
An active trading market for our common stock may not be sustained.
Although our common stock is listed on The Nasdaq Global Select Market, we cannot assure you that an active
trading market for our shares will be sustained. If an active market for our common stock is not sustained, it may be
difficult for investors in our common stock to sell shares without depressing the market price for the shares or to sell the
shares at all.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports,
about us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that equity research analysts
publish about us or our business, our market and our competitors. Equity research analysts may elect not to initiate or
continue to provide research coverage of our common stock, and such lack of research coverage may adversely affect the
market price of our common stock. Even if we have equity research analyst coverage, we will not have any control over the
analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity
research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research
analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease,
which in turn could cause our stock price or trading volume to decline.
Environmental, social and governance matters may impact our business and reputation.
Increasingly, in addition to the importance of their financial performance, companies are being judged by their
performance on a variety of environmental, social and governance, or ESG, matters, which are considered to contribute to
the long-term sustainability of companies’ performance.
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A variety of organizations measure the performance of companies on such ESG topics, and the results of these
assessments are widely publicized. In addition, investment in funds that specialize in companies that perform well in such
assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of
such ESG measures to their investment decisions. Topics taken into account in such assessments include, among others, the
company’s efforts and impacts on climate change and human rights, ethics and compliance with law, and the role of the
company’s board of directors in supervising various sustainability issues. In addition to the topics typically considered in
such assessments, in the healthcare industry, issues of the public’s ability to access medicines are of particular importance.
In light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues
successfully. Any failure or perceived failure by us in this regard could have a material adverse effect on our reputation and
on our business, stock price, financial condition, or results of operations, including the sustainability of our business over
time.
Unfavorable conditions, including inflationary pressure, in the global economy could limit our ability to grow
our business and negatively affect our operating results.
General worldwide economic conditions have experienced significant instability in recent years including the
recent global economic uncertainty and financial market conditions. For example, inflation rates, particularly in the United
States and United Kingdom, have increased recently to levels not seen in years, and increased inflation may result in
increases in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or
otherwise raise capital. In addition, the Federal Reserve has raised, and may again raise, interest rates in response to
concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have
the effect of further increasing economic uncertainty and heightening these risks. Additionally, financial markets around
the world have experienced volatility in connection with geopolitical conflicts. These conditions make it extremely difficult
for us to accurately forecast and plan future business activities.
The issuance of additional stock in connection with financings, acquisitions, investments, our equity incentive
plan or otherwise will dilute all other stockholders.
Our certificate of incorporation authorizes us to issue up to 200,000,000 shares of common stock and up to
10,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors.
Subject to compliance with applicable rules and regulations, we may issue our shares of common stock or securities
convertible into our common stock from time to time in connection with a financing, acquisition, investment, our equity
incentive plan or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause
the trading price of our common stock to decline.
Changes in tax laws or regulations that are applied adversely to us may have a material adverse effect on our
business, cash flow, financial condition or results of operations.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time,
which could adversely affect our business operations and financial performance. For example, the Inflation Reduction Act
provides for a minimum tax equal to 15% of the adjusted financial statement income of certain large corporations, as well
as a 1% excise tax on certain share buybacks by public corporations that would be imposed on such corporations. In
addition, it is uncertain if and to what extent various states will conform to newly enacted federal tax legislation. Changes
in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings,
and the deductibility of expenses could have a material impact on the value of our deferred tax assets, could result in
significant one-time charges, and could increase our future U.S. tax expense.
We incur significant costs and demands upon management as a result of being a public company.
As a public company listed in the United States, we incur, and will continue to incur, particularly now that we no
longer qualify as a “smaller reporting company,” significant legal, accounting and other costs. These costs could negatively
affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and
public disclosure, including regulations implemented by the SEC and The Nasdaq Stock Market, may increase legal and
financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are
subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is
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provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and
standards, and this investment may result in increased general and administrative expenses and a diversion of
management’s time and attention from revenue-generating activities to compliance activities. If notwithstanding our efforts
to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal
proceedings against us and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance,
including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or
incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more
difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of
directors or as members of senior management.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
We rely on information technology and data to operate our business of developing new drugs and providing
contract research services. Our critical information technology resources include computer networks and hardware, third
party hosted services, communications systems and software, and critical data including confidential, personal, proprietary
and sensitive data (collectively, “Information Assets”). To operate our business, we also utilize certain third-party service
providers to perform a variety of functions, such as professional services, SaaS platforms, managed services, cloud-based
infrastructure, encryption and authentication technology, corporate productivity services, and other functions. Accordingly,
we have implemented and maintain certain risk assessment processes intended to identify cybersecurity threats, determine
their likelihood of occurring, and assess and manage potential material impact to our business. We implement and maintain
various information security and risk management processes designed to protect the confidentiality, integrity, and
availability of our Information Assets and mitigate harm to our business.
We rely on a multidisciplinary team (including members from information technology (IT), which reports to our
Chief Financial Officer, finance, and legal, as well as third party service providers as described further below) to identify,
assess, and manage cybersecurity threats that could impact our business. We assess the likelihood that such threats could
result in a material impact to our Information Assets, operations, ability to provide our services, core business functions,
personnel, reputation and identified critical business objectives.
Risks from cybersecurity threats are among those that we address in our general risk management program. We
identify, assess, and manage such threats by, among other things, monitoring the threat environment using manual and
automated tools, subscribing to reports and services that identify cybersecurity threats, conducting scans of the threat
environment, and conducting vulnerability assessments. We also engage third parties to conduct annual penetrations tests,
as well as to provide threat and security risk assessments and intelligence feeds.
Based on our assessment process and depending on the environment, we implement and maintain various
technical, physical and organizational measures, processes, standards and policies designed to manage and mitigate such
risks and potential material impacts. These measures we implement for certain of our Information Assets include: policies
and procedures designed to address cybersecurity threats, including an incident response plan; incident detection and
response; risk assessments; background checks on our personnel; encryption of data; network security controls; data
segregation; access controls; physical security; asset management, tracking and disposal; employee security training;
penetration testing; and cyber insurance.
Our assessment and management of material risks from cybersecurity threats are integrated into our overall risk
management processes. For example, the IT department works with management to prioritize our risk management
processes and mitigate cybersecurity threats that are more likely to lead to a material impact to our business.
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We work with third parties from time to time that assist us to identify, assess, and manage material risks from
cybersecurity threats, including, for example, professional services firms (including legal counsel), threat intelligence
service providers, cybersecurity software providers, managed cybersecurity service providers, forensic investigators, and
penetration testing firms.
For a description of the risks from cybersecurity threats that may materially affect us and how they may do so,
refer to “Item 1A. Risk factors” in this Annual Report on Form 10-K, including “If our information technology systems,
those of third parties upon which we rely, or our data are or were compromised, we could experience adverse consequences
resulting from such compromise, including but not limited to regulatory investigations or actions; litigation; fines and
penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse
consequences.”
Governance
Our board of directors, through its Audit Committee, is responsible for overseeing the Company’s risk
management strategy with respect to cybersecurity threats. The Audit Committee is responsible for overseeing the
Company’s cybersecurity risk management processes, including oversight of mitigation of risks from cybersecurity threats.
Our cybersecurity risk assessment and management processes are implemented and maintained by certain
Company management, including our Chief Financial Officer who is supported by our IT department which includes
personnel with over 10 years of experience overseeing and working with various cybersecurity tools.
Our cybersecurity risk management strategy relies on input from management to help us understand cybersecurity
risks, establish priorities, and determine the scope and details of our cybersecurity program and to implement it.
Management, including our Chief Financial Officer, is responsible for approving budgets, helping prepare for cybersecurity
incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
Management, including our Chief Financial Officer and General Counsel, is also responsible for hiring appropriate
personnel, engaging third party vendors, integrating cybersecurity considerations into the company’s overall risk
management strategy, approving cybersecurity policies and procedures, and overseeing employee training. Our
cybersecurity incident response process involves members of management who also participate in our disclosure controls
and procedures.
Our cybersecurity incident response plan and information security incidence response procedures are designed to
escalate certain cybersecurity incidents to members of management depending on the circumstances, including the Chief
Financial Officer and the General Counsel. The Chief Financial Officer and the General Counsel work with our
cybersecurity incident response team to help us mitigate and remediate cybersecurity incidents of which they are notified.
In addition, our cybersecurity incident response plan includes reporting to the Audit Committee for certain cybersecurity
incidents.
Members of management meet periodically with the IT department to discuss cybersecurity risk and to review our
cybersecurity program, and report to the Audit Committee. The Audit Committee holds meetings biannually to discuss
cybersecurity issues including our cybersecurity threats, and has a dedicated agenda during such meetings that is designed
to assist the Audit Committee to exercise its oversight function. These meetings involve regular presentations and reports
from management and third party providers, including updates of contemporary cybersecurity threats faced by us and steps
we are taking to address them.
Item 2. Properties
We lease 11,564 square feet of space for our headquarters in Wayne, Pennsylvania, which we use for our
therapeutics business. The lease has a term through February 2029.
We also sublease 26,694 square feet of office and laboratory space in St. Louis, Missouri, which we use for our
therapeutics and contract research businesses. The sublease has an initial term through June 2029. We have the option to
extend the initial term for two additional five-year periods.
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We believe that our facilities are suitable and adequate to meet our current needs.
Item 3. Legal Proceedings
From time to time we are subject to litigation and claims arising in the ordinary course of business. We are not
currently a party to any material legal proceedings and we are not aware of any other pending or threatened legal
proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or
financial condition.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
PART II
Market Information for Common Stock
Our common stock is listed on the Nasdaq Global Select Market under the symbol “ACRS.”
Dividend Policy
We have never declared or paid any dividends on our common stock. We anticipate that we will retain all of our
future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends
in the foreseeable future.
Stockholders
As of January 31, 2024, we had 70,925,042 shares of common stock outstanding held by 49 holders of record. The
actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial
owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also
does not include stockholders whose shares may be held in trust by other entities.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Parties
None.
Stock Performance Graph
The graph below compares the cumulative total stockholder return for the period December 31, 2018 through
December 31, 2023 for (i) our common stock, (ii) the Nasdaq Biotechnology Index and (iii) the Nasdaq Composite Index.
The graph assumes an investment of $100 on December 31, 2018 in each of our common stock, the Nasdaq Biotechnology
Index and the Nasdaq Composite Index and the reinvestment of dividends, if any, although we have never declared or paid
any dividends on our common stock. The stock price performance shown on the graph below is based on historical data
and is not indicative of future stock price performance.
The graph and table below shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of
Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be
incorporated by reference into any of our filings under the Securities Act or the Exchange Act.
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Aclaris Therapeutics, Inc.
Nasdaq Composite Index
Nasdaq Biotechnology Index
Item 6. [Reserved]
12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23
$ 14.21
$ 236.17
$ 148.72
$ 196.75
$ 242.03
$ 158.20
$ 213.13
$ 163.28
$ 142.19
$ 25.58
$ 136.69
$ 125.11
$ 87.55
$ 198.10
$ 158.17
$ 100.00
$ 100.00
$ 100.00
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in
conjunction with the consolidated financial statements and the related notes to those statements included later in this
Annual Report. In addition to historical financial information, the following discussion contains forward-looking
statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results
and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that
could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report,
particularly in Part I, Item 1A. “Risk Factors,” and “Special Note Regarding Forward-Looking Statements.”
Overview
We are a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-
inflammatory diseases. Our proprietary KINect drug discovery platform combined with our preclinical development
capabilities allows us to identify and advance potential drug candidates that we may develop independently or in
collaboration with third parties. In addition to identifying and developing our novel drug candidates, we are pursuing
strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop,
obtain marketing approval for and/or commercialize our novel drug candidates. We also provide contract research services
to third parties enabled by our early-stage research and development expertise. In January 2024, we announced that we are
undertaking a strategic review of our business.
ATI-1777, an Investigational Topical “Soft” JAK 1/3 Inhibitor
ATI-1777 is an investigational topical “soft” JAK 1/3 inhibitor for the potential treatment of atopic dermatitis and
potentially other dermatologic conditions. “Soft” JAK inhibitors are designed to be topically applied and active in the skin,
but rapidly metabolized and inactivated when they enter the bloodstream, which may result in low systemic exposure.
In January 2024, we announced positive top-line results from our Phase 2b study of ATI-1777 in patients with
mild to severe atopic dermatitis (ATI-1777-AD-202). ATI-1777-AD-202 was a Phase 2b, multicenter, randomized, double-
blind, vehicle-controlled, parallel-group clinical trial to evaluate the efficacy, safety, tolerability and pharmacokinetics, or
PK, of multiple concentrations (0.5%, 1% and 2%) of twice daily, or BID, treatment with ATI-1777 and a single
concentration (2%) of once daily, or QD, treatment with ATI-1777. The trial randomized 250 patients with mild, moderate
or severe atopic dermatitis, including adults and children as young as 12 years old, across 30 clinical trial sites in the
United States. The study met the primary efficacy endpoint, the percent change from baseline in the Eczema Area and
Severity Index, or EASI, score at week 4, with statistical significance for patients treated with ATI-1777 2% BID compared
to patients treated with vehicle (69.7% versus 58.7% in the pooled vehicle group, p=0.035). No meaningful safety findings
were observed and ATI-1777 was well tolerated.
We intend to seek a development and commercialization partner for this program.
ATI-2138, an Investigational Oral Covalent ITK/JAK3 Inhibitor
ATI-2138 is an investigational oral covalent ITK/JAK3 inhibitor for the potential treatment of T cell-mediated
autoimmune diseases. The ITK/JAK3 compound interrupts T cell signaling through the combined inhibition of ITK/JAK3
pathways in lymphocytes.
In September 2023, we announced positive results from our Phase 1 multiple ascending dose, or MAD, trial of
ATI-2138 (ATI-2138-PKPD-102). ATI-2138-PKPD-201 was a two-week Phase 1 placebo-controlled, randomized, MAD
trial to investigate the safety, tolerability, PK, and pharmacodynamics of ATI-2138 in healthy volunteers. The study
enrolled 60 healthy subjects across 6 dosing cohorts ranging from 10 to 80 mg of total daily doses, with eight active and
two placebo controlled per arm. Data from the trial demonstrated that ATI-2138 was generally well tolerated at all doses
tested in the trial and had dose proportional PK. Additionally, ATI-2138 demonstrated a dose-dependent inhibition of both
ITK and JAK3 exploratory pharmacodynamic biomarkers, with near maximal inhibition achieved at the 30 mg total daily
dose. No serious adverse events were reported.
We are assessing the most effective development pathway, including the lead indication, for ATI-2138.
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Zunsemetinib, an Investigational Oral MK2 Inhibitor
Zunsemetinib, or ATI-450, is an investigational oral, novel, small molecule selective MK2 inhibitor for the
potential treatment of metastatic breast cancer and pancreatic ductal adenocarcinoma. We plan to support Washington
University in St. Louis in its investigator-initiated Phase 1b/2 trials of zunsemetinib in patients with MBC and PDAC. We
expect these studies to be primarily funded by grants awarded to Washington University.
Discovery Programs and KINect Drug Discovery Platform
We conduct small molecule drug discovery and preclinical development research through KINect, our proprietary
drug discovery platform. Our KINect platform enables us to identify potential drug candidates through a unique
combination of our proprietary chemical library of kinase inhibitors, our novel approaches to inhibitor modalities, our
expertise in SBDD, and our custom kinase assays.
Our focus has been on difficult to drug kinase targets that exhibit some level of clinical, genetic and/or
pharmacological disease validation. Our approach involves the following mechanisms: (1) reversible and irreversible
covalent inhibitors, (2) molecular glue/complex targeted inhibitors and (3) targeted protein degraders. These novel
approaches are currently being utilized to prosecute additional validated, difficult to drug kinase targets with the goal of
demonstrating potential platform utility.
We are actively progressing several discovery programs focused on delivering the next wave of drug candidates
from our KINect platform. Our discovery efforts center on targeting kinases that play pivotal roles in various inflammatory,
autoimmune, and oncology pathways. We intend to evaluate both internal and external development options, including
strategic partnerships, for these assets.
Discontinued Programs
We were previously developing zunsemetinib as a potential treatment for various immuno-inflammatory diseases,
including hidradenitis suppurativa, psoriatic arthritis, and rheumatoid arthritis. In March 2023, we announced that our
Phase 2a study of zunsemetinib in patients with hidradenitis suppurativa did not meet its primary or second efficacy
endpoints, and in November 2023, we announced that our Phase 2b study of zunsemetinib in patients with rheumatoid
arthritis did not meet its primary or second efficacy endpoints. Following the results of these trials, in 2023 we
discontinued further development of our MK2 inhibitor programs in immuno-inflammatory diseases, including halting
enrollment in our Phase 2a study of zunsemetinib in patients with psoriatic arthritis.
We were previously exploring the use of ATI-2231, our second MK2 inhibitor, as a potential treatment for
oncology diseases, but decided to pursue this with zunsemetinib due to its more advanced clinical development package.
Financial Overview
Since our inception, we have incurred significant net losses. Our net loss was $88.5 million for the year ended
December 31, 2023 and $86.9 million for the year ended December 31, 2022. As of December 31, 2023, we had an
accumulated deficit of $770.8 million. We expect to incur significant expenses and operating losses for the foreseeable
future as we advance our drug candidates from discovery through preclinical and clinical development. In addition, our
drug candidates, even if they are approved by regulatory agencies for marketing, may not achieve commercial success. We
may also not be successful in pursuing strategic alternatives, including identifying and consummating transactions with
third-party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates.
Furthermore, we have incurred and expect to continue to incur significant costs associated with operating as a public
company, including legal, accounting, investor relations and other expenses. As a result, we will need substantial additional
funding to support our continuing operations.
We have historically financed our operations primarily with sales of equity securities and incurring indebtedness
in the form of loans from commercial lenders. In the near term, we expect to finance our operations through these and other
capital sources, including potential partnerships with other companies or other strategic transactions. We may be unable to
raise additional funds or enter into such other agreements or arrangements when needed on commercially acceptable terms,
or at all. If we fail to raise capital or enter into such agreements as, and when needed, we may have to significantly delay,
scale back or discontinue the development of one or more of our drug candidates.
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Impact of Macroeconomic Conditions on Our Business
Unfavorable conditions in the economy both in the United States and abroad may negatively affect the growth of
our business and our results of operations. For example, macroeconomic events, including rising inflation, the U.S. Federal
Reserve raising interest rates and geopolitical conflicts, have led to economic uncertainty globally. The effect of
macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however,
economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations
may be harmed. For further discussion of the potential impacts of macroeconomic events on our business, financial
condition, and operating results, see the section titled “Risk Factors.”
Acquisition and License Agreements
License Agreement with Sun Pharmaceutical Industries, Inc.
In December 2023, we entered into an exclusive patent license agreement with Sun Pharmaceutical Industries,
Inc., or Sun Pharma. Under the license agreement, we granted Sun Pharma exclusive rights under certain patents that we
exclusively license from a third party. The patents relate to the use of deuruxolitinib, Sun Pharma’s JAK inhibitor, or other
isotopic forms of ruxolitinib, to treat alopecia areata or androgenetic alopecia. Under the license agreement, Sun Pharma
has agreed to pay us an upfront payment, regulatory and commercial milestone payments, and a mid single-digit tiered
royalty calculated as a percentage of Sun Pharma’s net sales. We have separate contractual obligations under which we
have agreed to pay to third parties a portion of the consideration we may receive under the license agreement.
Upon execution of the agreement, we received an upfront payment of $15.0 million from Sun Pharma, a portion of
which was payable to third parties.
License Agreement with Pediatrix Therapeutics, Inc.
In November 2022, we entered into a license agreement with Pediatrix Therapeutics, Inc., or Pediatrix, under
which we granted Pediatrix the exclusive rights to develop, manufacture and commercialize ATI-1777 in Greater China.
Pediatrix has agreed to pay us an upfront payment, development, regulatory and commercial milestone payments, and a
tiered royalty ranging from a low-to-high single digit percentage of net sales of ATI-1777 by Pediatrix in Greater China. A
portion of consideration received from Pediatrix is payable to the former Confluence equity holders as described below
under the caption “—Agreement and Plan of Merger with Confluence.”
Upon execution of the agreement, we received an upfront payment of $5.0 million from Pediatrix, a portion of
which was payable to the former Confluence equity holders.
License Agreement with Eli Lilly and Company
In August 2022, we entered into a non-exclusive patent license agreement with Eli Lilly and Company, or Lilly.
Under the license agreement, we granted Lilly non-exclusive rights under certain patents and patent applications that we
exclusively license from a third party. The patents and patent applications relate to the use of baricitinib, Lilly’s JAK
inhibitor, to treat alopecia areata. Under the license agreement, Lilly has agreed to pay us an upfront payment, regulatory
and commercial milestone payments, anniversary payments, and a low single-digit royalty calculated as a percentage of
Lilly’s net sales of baricitinib for the treatment of alopecia areata. We have separate contractual obligations under which we
have agreed to pay to third parties an amount equal to any regulatory and commercial milestone payments we receive
under the Lilly license agreement, as well as a portion of the upfront consideration and a portion of the royalties we may
receive under the license agreement.
During the years ended December 31, 2023 and 2022, respectively, we recorded licensing revenue under this
agreement of $12.7 million and $17.8 million from Lilly, a portion of which was payable to third parties.
Asset Purchase Agreement with EPI Health, LLC
In October 2019, we sold RHOFADE (oxymetazoline hydrochloride) cream, 1%, or RHOFADE, to EPI Health,
LLC, or EPI Health, pursuant to an asset purchase agreement. In July 2023, EPI Health filed a voluntary petition for relief
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under Chapter 11 of the United States Bankruptcy Code. Through the bankruptcy process, EPI Health and its parent
company, Novan, Inc., sold the RHOFADE assets to a third party, which excluded our asset purchase agreement with EPI
Health and the outstanding amounts due. The sale was approved by the bankruptcy court in September 2023.
As a result of the bankruptcy proceedings, we recorded an allowance for doubtful accounts resulting in $1.3
million of bad debt expense for the year ended December 31, 2023, representing all amounts that were due and outstanding
by EPI Health.
Agreement and Plan of Merger with Confluence
In 2017, we entered into an Agreement and Plan of Merger, or the Confluence Agreement, with Confluence Life
Sciences, Inc. (now known as Aclaris Life Sciences, Inc.), or Confluence, Aclaris Life Sciences, Inc., our wholly-owned
subsidiary, or Merger Sub, and Fortis Advisors LLC, as representative of the equity holders of Confluence. Pursuant to the
terms of the Confluence Agreement, Merger Sub merged with and into Confluence, with Confluence surviving as our
wholly-owned subsidiary.
Under the Confluence Agreement, we have agreed to pay the former Confluence equity holders aggregate
remaining contingent consideration of up to $75.0 million based upon the achievement of specified regulatory and
commercial milestones set forth in the Confluence Agreement. In addition, we have agreed to pay the former Confluence
equity holders future royalty payments calculated as a low single-digit percentage of annual net sales, subject to specified
reductions, limitations and other adjustments, until the date that all of the patent rights for that product have expired, as
determined on a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first
commercial sale of such product. In addition to the payments described above, if we sell, license or transfer any of the
intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party, we will be obligated
to pay the former Confluence equity holders a portion of any consideration received from such sale, license or transfer in
specified circumstances.
Restructuring
In December 2023, our Board of Directors approved a reduction of our workforce by approximately 46%, which
we expect to be substantially completed by June 2024. This action was taken in order to streamline operations, reduce costs
and preserve capital. As a result, we terminated certain employees, or terminated employees, and gave notice to additional
employees, or noticed employees, who were asked to provide transition services through termination dates ranging
between one to thirteen months from the date notice was given. The terminated employees were entitled to receive cash
severance payments and other benefits. The noticed employees are entitled to receive cash severance payments and other
benefits, which are contingent upon providing additional services to us.
During the year ended December 31, 2023, we recorded a restructuring charge of $3.1 million which represents a
one-time termination benefit for impacted employees with retention periods less than the sixty-day minimum retention
period, which was triggered immediately upon either terminating or giving notice to the impacted employees. An estimated
charge between $1.9 million and $2.2 million is expected to be incurred for additional termination costs, including
severance and other benefits, over the next 12 months.
Components of Our Results of Operations
Revenue
Contract Research
We earn 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.
Licensing
Licensing revenue primarily consists of upfront consideration, royalties and milestone payments earned pursuant
to license and acquisition agreements with third parties, as described above.
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Other
Other revenue consists of amounts earned from the sub-sublease of our office space, which was terminated during
the year ended December 31, 2022.
Cost and Expenses
Cost of Revenue
Cost of revenue consists of the costs incurred in connection with the provision of contract research services. Cost
of revenue primarily includes:
● employee-related expenses, which include salaries, benefits and stock-based compensation;
● outsourced professional scientific services;
● depreciation of laboratory equipment;
● facility-related costs; and
● laboratory materials and supplies used to support the services provided.
Research and Development
Research and development expenses consist of expenses incurred in connection with the discovery and
development of our drug candidates. These expenses primarily include:
● expenses incurred under agreements with contract research organizations, or CROs, as well as clinical trial
sites and consultants that conduct our clinical trials and preclinical studies, and investigator-initiated trials;
● manufacturing scale-up expenses and the cost of acquiring and manufacturing active pharmaceutical
ingredients and preclinical and clinical trial materials, including domestic technology transfer expenses;
● quality assurance and quality control costs;
● outsourced professional scientific development services;
● medical affairs expenses related to our drug candidates;
● employee-related expenses, which include salaries, benefits and stock-based compensation;
● expenses relating to regulatory activities, including filing fees paid to regulatory agencies; and
● laboratory materials and supplies used to support our research activities.
Research and development activities are central to our business model. Drug candidates in later stages of clinical
development generally have higher development costs than those in earlier stages of clinical development, primarily due to
the increased size and duration of later-stage clinical trials. We expect to continue to incur research and development
expenses in the near term as we continue the development of our drug candidates and pursue our discovery programs. We
expense research and development costs as incurred. Our direct research and development expenses primarily consist of
external costs including fees paid to CROs, consultants, clinical trial sites, regulatory agencies and third parties that
manufacture our preclinical and clinical trial materials and are tracked on a program-by-program basis. We do not allocate
personnel costs or other indirect expenses to specific research and development programs.
The successful development of our drug candidates is highly uncertain. We cannot reasonably estimate or know
the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when,
if ever, material net cash inflows may commence from any of our drug candidates. This uncertainty is due to the numerous
risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a
project as a result of many factors, including:
● the number of clinical sites included in the trials;
● the length of time required to enroll suitable subjects;
● the number of subjects that ultimately participate in the trials;
● the number of doses subjects receive;
● the duration of subject follow-up; and
● the results of our clinical trials.
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Our expenditures are subject to additional uncertainties, including the preparation of regulatory filings for our
drug candidates. We may obtain unexpected results from our clinical trials or other development activities. We may elect to
discontinue, delay or modify the development, including clinical trials, of some drug candidates or focus on others. A
change in the outcome of any of these variables with respect to the development of a drug candidate could mean a
significant change in the costs and timing associated with the development of that drug candidate. For example, if the FDA
or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if
we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant
additional financial resources and time on the completion of clinical development.
General and Administrative
General and administrative expenses consist principally of salaries and related costs, including stock-based
compensation, for personnel in executive, administrative, finance and legal functions. General and administrative expenses
also include facility-related costs, patent filing and prosecution costs, professional fees for legal, auditing and tax services,
investor relations costs, business development costs, insurance costs and travel expenses.
Licensing
Licensing expenses consist of third-party contractual obligations incurred under license and acquisition
agreements with third parties, as described above.
Revaluation of Contingent Consideration
Revaluation of contingent consideration consists of changes in the fair value of our contingent consideration
liability between reporting dates.
Intangible Asset Impairment
Intangible asset impairment consists of changes to the fair value of our in-process research and development, or
IPR&D, intangible asset.
Other Income (Expense), Net
Other income (expense), net primarily consists of interest earned on our cash, cash equivalents and marketable
securities and in prior periods included interest expense related to debt obligations.
Critical Accounting Estimates
This discussion and analysis of our financial condition and results of operations is based on our consolidated
financial statements which have been prepared in accordance with generally accepted accounting principles in the United
States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and
judgments 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 reported period. We base our estimates on
historical experience, known trends and events and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. We evaluate our estimates and judgments on an ongoing basis. Our actual
results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our consolidated financial
statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are
those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Intangible Assets
Our intangible assets include both definite-lived and indefinite-lived assets. Our definite-lived intangible assets
consist of a drug discovery platform acquired through the acquisition of Confluence. Definite-lived intangible assets are
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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. Our indefinite-lived
intangible assets consisted of an IPR&D drug candidate also 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.
Definite-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 we perform during the fourth quarter, or when indicators of an impairment are present. We recognize an
impairment loss when and to the extent that the estimated fair value of an intangible asset is less than its carrying value.
The fair value of an intangible asset is dependent on significant unobservable inputs including the estimated future cash
flows of the asset.
During the quarter ended December 31, 2023, we performed an impairment analysis on the IPR&D intangible
asset due to our decision to discontinue further development of the drug candidate in immuno-inflammatory diseases. Our
impairment analysis resulted in a fair value of the IPR&D intangible asset which was less than the carrying value. As a
result, we recorded an impairment charge of $6.6 million, the full balance of the IPR&D intangible asset.
Contingent Consideration
We record a contingent consideration liability related to future potential payments resulting from the acquisition of
Confluence based upon significant unobservable inputs including the achievement of 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 is involved in determining the appropriateness of these assumptions. These
assumptions are considered Level 3 inputs. Revaluation of our contingent consideration liability can result from changes to
one or more of these assumptions. These assumptions are highly dependent on the outcome and timing of the development
of certain of our drug candidates. We evaluate the fair value estimate of our contingent consideration liability on a quarterly
basis with changes, if any, recorded as income or expense in our consolidated statement of operations. Any such changes
could have a material impact on our financial results.
The fair value of contingent consideration is estimated using a probability-weighted expected payment model for
regulatory milestone payments and a Monte Carlo simulation model for commercial milestone and royalty payments and
then applying a risk-adjusted discount rate to calculate the present value of the potential payments. Significant assumptions
used in our estimates include the probability of achieving regulatory milestones and commencing commercialization,
which are based on an asset’s current stage of development and a review of existing clinical data. The probability of
success assumption was 35% at December 31, 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 7.3% and 8.6% depending on the year of each potential payment.
During the year ended December 31, 2023, we removed estimated sales of zunsemetinib for moderate to severe
rheumatoid arthritis, moderate to severe hidradenitis suppurativa and moderate to severe psoriatic arthritis, following our
decision to discontinue further development of our MK2 inhibitor programs in immuno-inflammatory diseases. These
changes, partially offset by lower discount rates resulting from lower risk-free rates and changes in credit spreads, as well
as the passage of time, resulted in an overall decrease of $26.9 million during the year ended December 31, 2023.
Stock-Based Compensation
We measure the compensation expense of stock-based awards granted to employees and directors using the grant
date fair value of the award. We have issued stock options and restricted stock unit, or RSU, awards with service-based
vesting conditions, as well as with performance-based vesting conditions. We have not issued awards that include market-
based conditions. For service-based awards, we recognize stock-based compensation expense on a straight-line basis over
the requisite service period. For performance-based awards, we recognize 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, we evaluate 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
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on a straight-line basis over the remaining requisite service period. The impact of forfeitures is recognized in the period in
which they occur.
We measure the compensation expense of stock-based awards granted to consultants using the grant date fair
value of the award. We recognize compensation expense over the period during which services are rendered by the
consultant.
We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model. Historically,
we estimated expected volatility based on historical volatility of a set of peer companies, which are publicly traded.
Starting in 2022, we estimated expected volatility based on our stock price's historical volatility, as we determined that we
had adequate historical data regarding the volatility of our own publicly-traded stock price. The expected term of our stock
options has been determined using the “simplified” method for awards that qualify as “plain vanilla” options. The expected
term of stock options we 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. We use an expected dividend yield of zero because we
have not paid cash dividends to date and have no intention of paying cash dividends in the future.
The fair value of each RSU is measured using the closing price of our common stock on the date of grant.
Results of Operations
For discussion on financial condition and results of operations pertaining to the year ended December 31, 2022
compared to the year ended December 31, 2021, see our Annual Report on Form 10-K for the year ended December 31,
2022, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Comparison of Years Ended December 31, 2023 and 2022
(In thousands)
Revenues:
Contract research
Licensing
Other
Total revenue
Costs and expenses:
Cost of revenue
Research and development
General and administrative
Licensing
Revaluation of contingent consideration
Intangible asset impairment
Total costs and expenses
Loss from operations
Other income, net
Loss before income taxes
Income tax benefit
Net loss
70
Year Ended December 31,
2023
2022
Change
$
3,035
28,214
—
31,249
$
4,395
25,100
257
29,752
$
(1,360)
3,114
(257)
1,497
3,423
98,384
32,412
14,658
(26,900)
6,629
128,606
(97,357)
4,023
77,813
25,133
7,937
4,700
—
119,606
(89,854)
8,509
(88,848)
(367)
2,946
(86,908)
—
$ (88,481) $ (86,908) $
(600)
20,571
7,279
6,721
(31,600)
6,629
9,000
(7,503)
5,563
(1,940)
(367)
(1,573)
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Revenue
Contract Research
Contract research revenue was $3.0 million and $4.4 million for the years ended December 31, 2023 and 2022,
respectively, and was comprised of fees earned from the provision of laboratory services to our clients. The decrease was
driven by lower overall hours billed, partially due to an increased focus on internal development programs, which was
offset by a higher average billing rate.
Licensing
Licensing revenue was $28.2 million and $25.1 million for the years ended December 31, 2023 and 2022,
respectively. The increase was primarily driven by the upfront payment received under the Sun Pharma agreement during
the year ended December 31, 2023 and an increase in royalties. This increase was partially offset by both the upfront
payment received under the Lilly agreement and the upfront payment received under the Pediatrix agreement during the
year ended December 31, 2022.
Cost and Expenses
Cost of Revenue
Cost of revenue was $3.4 million and $4.0 million for the years ended December 31, 2023 and 2022, respectively,
and in each case related to providing laboratory services to our clients. Changes in cost of revenue generally correlate to
changes in contract research revenue. Cost of revenue decreased during the year ended December 31, 2023 due to lower
variable costs resulting from the decrease in hours billed, partially offset by an increase in fixed overhead costs, including
personnel-related costs.
Research and Development
The following table summarizes our research and development expenses by drug candidate or, for unallocated
expenses, by type:
(In thousands)
Zunsemetinib
ATI-1777
ATI-2138
ATI-2231
Discovery
Other research and development
Personnel
Stock-based compensation
Total research and development expenses
Zunsemetinib
Year Ended
December 31,
2023
$ 36,461 $
12,129
12,143
1,575
6,881
3,417
18,977
6,801
$ 98,384
$
2022
28,133 $
12,113
7,704
4,828
4,564
1,564
15,162
3,745
77,813
$
Change
8,328
16
4,439
(3,253)
2,317
1,853
3,815
3,056
20,571
The increase in expenses for zunsemetinib during the year ended December 31, 2023 compared to the year ended
December 31, 2022 was primarily due to higher costs associated with drug candidate manufacturing and costs associated
with clinical development activities for a Phase 2b trial in subjects with rheumatoid arthritis, which initiated in December
2021 and was completed in November 2023. The increase was partially offset by a decrease in costs associated with
clinical development activities for a Phase 2a trial in subjects with hidradenitis suppurativa, which initiated in December
2021 and was completed in March 2023.
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ATI-1777
ATI-1777 expenses were higher during the year ended December 31, 2023 compared to the year ended December
31, 2022 primarily due to an increase in costs associated with a Phase 2b clinical trial in subjects with atopic dermatitis,
which initiated in May 2022 and was completed in December 2023. The increase was partially offset by lower costs
associated with drug candidate manufacturing and other preclinical development activities.
ATI-2138
The increase in expenses for ATI-2138 during the year ended December 31, 2023 compared to the year ended
December 31, 2022 was primarily due to an increase in clinical development expenses associated with a Phase 1 MAD
trial, as well as an increase in preclinical development activities and ancillary studies.
ATI-2231
The decrease in expenses for ATI-2231 during the year ended December 31, 2023 compared to the year ended
December 31, 2022 was primarily due to preclinical development activities, IND-enabling studies and drug manufacturing
in the prior period as we progressed the program toward IND submission in 2023.
Discovery
The increase in expenses related to discovery during the year ended December 31, 2023 compared to the year
ended December 31, 2022 was due to continued investment in our discovery-stage programs as we progressed programs
toward candidate selection.
Personnel and stock-based compensation
The increase in personnel and stock-based compensation expenses during the year ended December 31, 2023
compared to the year ended December 31, 2022 was primarily due to an increase in costs associated with higher average
headcount, compensation adjustments, equity awards granted in 2023 and severance expenses that included the cost of
termination benefits given to employees that were involuntarily terminated during the year ended December 31, 2023. This
increase was partially offset by higher forfeiture credits during the year ended December 31, 2023 as a result of our
restructuring in 2023 compared to the year ended December 31, 2022.
General and Administrative
The following table summarizes our general and administrative expenses:
Year Ended
December 31,
(In thousands)
Personnel
Professional and legal fees
Facility and support services
Other general and administrative
Stock-based compensation
Bad debt
Total general and administrative expenses
Personnel and stock-based compensation
$
2023
8,016 $
5,534
3,023
2,240
12,285
1,314
$ 32,412
2022
6,028 $
4,319
2,302
2,341
10,143
—
$ 25,133
$
Change
1,988
1,215
721
(101)
2,142
1,314
7,279
The aggregate increase in personnel and stock-based compensation expenses during the year ended December 31,
2023 compared to the year ended December 31, 2022 was primarily due to an increase in costs associated with higher
average headcount prior to our restructuring, compensation adjustments, and equity awards granted in 2023.
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Professional and legal fees
The increase in professional and legal fees, including accounting, investor relations and corporate communication
costs, during the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by
an increase in patent and accounting related expenses.
Facility and support services
The increase in facility and support services, including general office expenses, information technology costs and
other expenses, during the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily
driven by an increase in rent expense due to leasing additional office and laboratory space during the year ended December
31, 2023, as well as an increase in information technology costs.
Bad debt
Bad debt expenses were related to our determination that amounts due to us as of December 31, 2023 pursuant to
the asset purchase agreement with EPI Health are uncertain as a result of the bankruptcy filing by EPI Health, which was
initiated in July 2023.
Licensing
The increase in licensing expenses during the year ended December 31, 2023 compared to the year ended
December 31, 2022 was primarily driven by amounts payable to third parties during the year ended December 31, 2023 in
connection with amounts earned under the Sun Pharma agreement and an increase in amounts payable to third parties in
connection with amounts earned under the Lilly agreement.
Revaluation of Contingent Consideration
The fair value of our contingent consideration liability decreased during the year ended December 31, 2023
mainly due to the removal of estimated sales of zunsemetinib for moderate to severe rheumatoid arthritis, moderate to
severe hidradenitis suppurativa and moderate to severe psoriatic arthritis, following our decision to discontinue further
development of our MK2 inhibitor programs in immuno-inflammatory diseases. This decrease was partially offset by lower
discount rates resulting from lower risk-free rates and changes in credit spreads, as well as the passage of time.
The fair value of our contingent consideration liability increased during the year ended December 31, 2022 mainly
due to an increase in future sales level assumptions for zunsemetinib and the passage of time.
Intangible Asset Impairment
During the quarter ended December 31, 2023, we performed an impairment analysis on the IPR&D intangible
asset due to our decision to discontinue further development of the drug candidate for immuno-inflammatory diseases. Our
impairment analysis resulted in a fair value of the IPR&D intangible asset which was less than the carrying value. As a
result, we recorded an impairment charge of $6.6 million, the full balance of the IPR&D intangible asset.
Other Income, net
Other income, net increased during the year ended December 31, 2023 compared to the year ended December 31,
2022 primarily due to higher interest income on investment portfolio balances.
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Liquidity and Capital Resources
Overview
Since our inception, we have incurred net losses and negative cash flows from our operations. Prior to our
acquisition of Confluence in August 2017, we did not generate any revenue. We have financed our operations over the last
several years primarily through sales of our equity securities and incurring indebtedness in the form of loans from
commercial lenders. We may engage in additional debt and equity financing transactions in order to raise funds. We may
receive royalties and milestone payments from third-party licensing and acquisition agreements. In addition, to the extent
we are able to consummate transactions with potential third-party partners to further develop, obtain marketing approval
for and/or commercialize our drug candidates, we may receive upfront payments, milestone payments or royalties from
such arrangements that would increase our liquidity.
As of December 31, 2023, we had cash, cash equivalents and marketable securities of $181.9 million. Cash in
excess of immediate requirements is invested in accordance with our investment policy, primarily with a view towards
liquidity and capital preservation.
We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are
expected to affect our liquidity, other than our contingent obligations under the Confluence Agreement, which is
summarized above under “Overview—Acquisition and License Agreements,” and our lease obligations.
Equity Financing
Sale of Common Stock under At-the-Market Facility
In April 2023, we sold 3.4 million shares of our 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. We paid selling commissions of $0.8 million in connection with the sale.
In April 2022, we sold 4,838,709 shares of our 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.
We paid selling commissions and other fees of $2.2 million in connection with the sale.
Cash Flows
Cash and cash equivalents were $39.9 million as of December 31, 2023 compared to $45.3 million as of
December 31, 2022. We also had $142.0 million in short- and long-term marketable securities as of December 31, 2023
compared to $184.5 million as of December 31, 2022.
The sources and uses of cash that contributed to the change in cash and cash equivalents were:
(In thousands)
Cash and cash equivalents beginning balance
Net cash used in operating activities
Net cash provided by investing activities
Net cash provided by financing activities
Cash and cash equivalents ending balance
74
Year Ended
December 31,
2023
45,277
(78,325)
46,220
26,706
39,878
2022
27,349
(67,567)
12,628
72,867
45,277
$
$
$
$
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Operating Activities
Cash flow related to operating activities was the result of:
(In thousands)
Net loss
Non-cash adjustments to reconcile net loss to net cash used in operating activities
Change in accounts payable and accrued expenses
Change in accounts receivable
Change in prepaid expenses and other assets
Net cash used in operating activities
Year Ended
December 31,
2023
(88,481)
767
10,518
186
(1,315)
(78,325)
2022
(86,908)
20,536
960
139
(2,294)
(67,567)
$
$
$
$
Net cash used in operating activities increased for the year ended December 31, 2023 compared to the year ended
December 31, 2022 primarily as a result of higher net loss after adjusting for revaluation of contingent consideration. This
change was partially offset by the impairment charge related to the IPR&D intangible asset during the year ended
December 31, 2023, as well as an increase in licensing expense accruals between periods.
The decrease in non-cash adjustments to reconcile net loss to net cash used in operating activities was mainly the
result of a gain in revaluation of contingent consideration during the year ended December 31, 2023 compared to a loss in
revaluation of contingent consideration during the year ended December 31, 2022. The gain was primarily due to the
removal of estimated sales from zunsemetinib for moderate to severe rheumatoid arthritis, moderate to severe hidradenitis
suppurativa and moderate to severe psoriatic arthritis following our decision to discontinue further development of our
MK2 inhibitor programs in immuno-inflammatory diseases. This was partially offset by lower discount rates resulting from
lower risk-free rates and changes in credit spreads, as well as the passage of time.
Investing Activities
Cash flow related to investing activities was the result of:
(In thousands)
Purchases of property and equipment
Purchases of marketable securities
Proceeds from sales and maturities of marketable securities
Net cash provided by investing activities
Year Ended
December 31,
2023
(1,309)
(135,675)
183,204
46,220
$
$
2022
$
$
(605)
(164,753)
177,986
12,628
The change in net cash provided by investing activities for the year ended December 31, 2023 compared to the
year ended December 31, 2022 primarily resulted from higher sales and maturities of marketable securities during the year
ended December 31, 2023, and a reduction of purchases of marketable securities, which were higher during the year ended
December 31, 2022.
Financing Activities
Cash flow related to financing activities was the result of:
(In thousands)
Proceeds from issuance of common stock under the at-the-market sales agreement, net of
issuance costs
Payments of employee withholding taxes related to restricted stock unit award vesting
Proceeds from exercise of employee stock options and the issuance of stock
Net cash provided by financing activities
Year Ended
December 31,
2023
2022
$
$
26,714
(102)
94
26,706
$
$
72,744
(34)
157
72,867
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Net cash provided by financing activities decreased for the year ended December 31, 2023 compared to December
31, 2022 primarily due to larger proceeds in 2022 from sales under our at-the-market sales agreement.
Funding Requirements
We anticipate we will incur net losses in the near term as we continue the development of our drug candidates and
continue to discover and develop additional drug candidates. We may not be able to generate revenue from these programs
if, among other things, our clinical trials are not successful, the FDA does not approve our drug candidates currently in
clinical trials when we expect, or at all, or we are not able to identify and consummate transactions with third-party
partners to further develop, obtain marketing approval for and/or commercialize our drug candidates.
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, research
and development expenses, laboratory and related supplies, legal and other regulatory expenses, and administrative and
overhead costs. Our future funding requirements will be heavily determined by the resources needed to support the
development of our drug candidates.
As a publicly traded company, we incur and will continue to incur significant legal, accounting and other similar
expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC and the Nasdaq Stock Market
LLC, requires public companies to implement specified corporate governance practices that could increase our compliance
costs.
We believe our existing cash, cash equivalents and marketable securities are sufficient to fund our operating and
capital expenditure requirements for a period greater than 12 months from the date of issuance of our consolidated financial
statements that appear in Item 8 of this Annual Report on Form 10-K based on our current operating assumptions. We will
require additional capital to develop our drug candidates and to support our discovery efforts. Additional funds may not be
available on a timely basis, on commercially acceptable terms, or at all, and such funds, if raised, may not be sufficient to
enable us to continue to implement our long-term business strategy. Our ability to raise additional capital may be adversely
impacted by potential worsening global economic conditions caused by a variety of factors including geopolitical tensions,
rising interest rates, and inflationary pressures. If we are unable to raise sufficient additional capital or generate revenue
from transactions with potential third-party partners for the development and/or commercialization of our drug candidates,
we may need to substantially curtail our planned operations.
We may raise additional capital through the sale of equity or debt securities. In such an event, our stockholders’
ownership will be diluted, and the terms of these securities may include liquidation or other preferences that adversely
affect the rights of a holder of our common stock.
Because of the numerous risks and uncertainties associated with research and development of pharmaceutical
drugs, we are unable to estimate the exact amount of our working capital requirements. Our funding requirements in the
near term will depend on many factors, including:
● the number and development requirements of the drug candidates that we may pursue;
● the scope, progress, results and costs of preclinical development, laboratory testing and conducting preclinical
and clinical trials for our drug candidates;
● the costs, timing and outcome of regulatory review of our drug candidates;
● the extent to which we in-license or acquire additional drug candidates and technologies;
● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our
intellectual property rights and defending any intellectual property-related claims;
● our ability to identify and consummate transactions with third-party partners to further develop, obtain marketing
approval for and/or commercialize our drug candidates; and
● our ability to earn revenue as a result of licenses to, or partnerships or other arrangements with, third parties.
See “Risk Factors” for additional risks associated with our substantial capital requirements.
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Leases
We occupy space for our headquarters in Wayne, Pennsylvania under a lease agreement which has a term through
February 2029. We also occupy office and laboratory space in St. Louis, Missouri under a sublease agreement which has a
term through June 2029.
Our aggregate remaining lease payment obligation for these two spaces was $4.6 million as of December 31,
2023.
Agreement and Plan of Merger – Confluence
Under the Confluence Agreement, we agreed to pay the former Confluence equity holders aggregate remaining
contingent consideration of up to $75.0 million based upon the achievement of specified regulatory and commercial
milestones set forth in the Confluence Agreement. In addition, we have agreed to pay the former Confluence equity holders
future royalty payments calculated as a low single-digit percentage of annual net sales, subject to specified reductions,
limitations and other adjustments, until the date that all of the patent rights for that product have expired, as determined on
a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first commercial sale
of such product. In addition to the payments described above, if we sell, license or transfer any of the intellectual property
acquired from Confluence pursuant to the Confluence Agreement to a third party, we will be obligated to pay the former
Confluence equity holders a portion of any consideration received from such sale, license or transfer in specified
circumstances.
R&D Obligations
We enter into contracts in the normal course of business with CROs, contract manufacturing organizations and
other service providers for clinical trials, preclinical studies and testing, manufacturing and other services and products for
operating purposes. These contracts generally provide for termination upon notice, and therefore we believe that our non-
cancelable obligations under these agreements are not material.
Segment Information
We have two reportable segments, therapeutics and contract research. The therapeutics segment is focused on
identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases. The
contract research segment earns revenue from the provision of laboratory services.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or
ASU, No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This standard
requires disclosure of significant segment expenses and other segment items by reportable segment. This ASU becomes
effective for annual periods beginning in 2024 and interim periods in 2025. We are assessing the impact of this ASU and
upon adoption expect that any impact would be limited to additional segment expense disclosures in the footnotes to the
our consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax
Disclosures.” This standard enhances disclosures related to income taxes, including the rate reconciliation and information
on income taxes paid. This ASU becomes effective January 1, 2025. We are currently assessing the impact of this ASU.
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Our cash equivalents and marketable securities consist of money market funds, asset-backed debt securities,
commercial paper, corporate debt securities, foreign government agency debt securities, U.S. government debt securities
and U.S. government agency debt securities. Our primary exposure to market risk is interest rate sensitivity, which is
affected by changes in the general level of U.S. interest rates. Our marketable securities are subject to interest rate risk and
will fall in value if market interest rates increase. However, due to the short-term nature and low-risk profile of our
investment portfolio, we do not expect that an immediate 10% change in market interest rates would have a material effect
on the fair market value of our investment portfolio. We have the ability to hold our marketable securities until maturity,
and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect
of a change in market interest rates on our investments.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in exchange rates. Our primary exposure to currency risk is foreign government agency debt securities.
We do not enter into any derivative financial instruments to manage our exposure to foreign currency risk. Due to the
conservative nature of our investment portfolio and other financial instruments, we do not believe an immediate 10%
change in currency rates would have a material effect on the fair market value of our portfolio.
Inflation Risk
Inflation generally affects us by increasing our cost of labor. Although inflation has increased generally in the
United States in recent months, we do not believe that inflation has had a material effect on our business, financial
condition or results of operations during the year ended December 31, 2023.
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Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023, 2022 and
2021
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Aclaris Therapeutics, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Aclaris Therapeutics, Inc. and its subsidiaries (the
“Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive
loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023,
including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the
Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained
in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
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detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts
or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair Value of the Contingent Consideration Liability
As described in Notes 2 and 3 to the consolidated financial statements, the Company’s contingent consideration balance
was $6.2 million as of December 31, 2023. The Company records a contingent consideration liability related to future
potential payments resulting from the acquisition of Confluence based upon significant unobservable inputs including the
achievement of 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. Management evaluates fair value estimates of the
contingent consideration liability on a quarterly basis 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 payment. Changes in the fair value of
the contingent consideration are recorded as income or expense in the Company’s consolidated statement of operations and
comprehensive loss. Significant assumptions used in management’s estimates include the probability of achieving
regulatory milestones and commencing commercialization, which are based upon an asset’s current stage of development
and review of existing clinical data.
The principal considerations for our determination that performing procedures relating to the fair value of the contingent
consideration liability is a critical audit matter are (i) the significant judgment by management when developing the fair
value estimate, which in turn led to (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures
and evaluating management’s significant assumptions related to the probability of achieving regulatory milestones and
commencing commercialization. In addition, the audit effort involved the use of professionals with specialized skill and
knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls
relating to management’s contingent consideration evaluation, including controls over the valuation of the Company’s
contingent consideration liability. These procedures also included, among others, (i) testing management’s process for
developing the fair value of the contingent consideration liability, (ii) evaluating the appropriateness of the probability-
weighted expected payment and Monte Carlo simulation valuation models, (iii) testing the completeness and accuracy of
the underlying data used in the models, and (iv) evaluating the reasonableness of the significant assumptions used by
management related to the probability of achieving regulatory milestones and commencing commercialization. Evaluating
management’s assumptions related to the probability of achieving regulatory milestones and commencing
commercialization involved evaluating whether the assumptions were reasonable considering the agreements associated
with the transaction as well as the consistency with industry information, the stage of product development and whether the
assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and
knowledge were used to assist in the evaluation of the Company’s probability-weighted expected payment and Monte
Carlo simulation valuation models.
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/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 27, 2024
We have served as the Company’s auditor since 2015.
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ACLARIS THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net
Prepaid expenses and other current assets
Total current assets
Marketable securities
Property and equipment, net
Intangible assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Current portion of lease liabilities
Discontinued operations
Total current liabilities
Other liabilities
Contingent consideration
Deferred tax liability
Total liabilities
Commitments and contingencies (Note 17)
Stockholders’ Equity:
$
$
$
39,878
79,228
298
9,452
128,856
62,771
1,620
269
3,889
197,405
8,878
19,446
426
2,202
30,952
3,074
6,200
—
40,226
$
45,277
172,294
484
13,495
231,550
12,242
1,099
6,973
2,732
$ 254,596
$
10,351
8,701
684
2,202
21,938
1,570
33,100
367
56,975
Preferred stock, $0.00001 par value; 10,000,000 shares authorized and no shares issued
or outstanding at December 31, 2023 and December 31, 2022
Common stock, $0.00001 par value; 200,000,000 and 100,000,000 shares authorized at
December 31, 2023 and December 31, 2022, respectively; 70,894,889 and 66,688,647
shares issued and outstanding at December 31, 2023 and December 31, 2022,
respectively
Additional paid‑in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
—
—
1
928,080
(106)
(770,796)
157,179
197,405
1
880,832
(897)
(682,315)
197,621
$ 254,596
$
The accompanying notes are an integral part of these consolidated financial statements.
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ACLARIS THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
Revenues:
Contract research
Licensing
Other
Total revenue
Costs and expenses:
Cost of revenue
Research and development
General and administrative
Licensing
Revaluation of contingent consideration
Intangible asset impairment
Total costs and expenses
Loss from operations
Other income (expense), net
Loss before income taxes
Income tax benefit
Net loss
Net loss per share, basic and diluted
Weighted average common shares outstanding, basic and diluted
Other comprehensive loss:
Unrealized gain (loss) on marketable securities, net of tax of $0
Foreign currency translation adjustment
Total other comprehensive gain (loss)
Comprehensive loss
Year Ended
December 31,
2022
2023
$
$
3,035
28,214
—
31,249
$
4,395
25,100
257
29,752
3,423
98,384
32,412
14,658
(26,900)
6,629
128,606
(97,357)
4,023
77,813
25,133
7,937
4,700
—
119,606
(89,854)
8,509
(88,848)
(367)
(88,481) $
2,946
(86,908)
—
(86,908) $
$
(1.27) $
$
69,808,855
65,213,944
(1.33) $
2021
5,830
809
122
6,761
4,713
43,813
23,619
—
24,339
—
96,484
(89,723)
(1,142)
(90,865)
—
(90,865)
(1.60)
56,730,583
$
$
$
791
—
791
(87,690) $
(673) $
—
(673)
(87,581) $
(229)
99
(130)
(90,995)
The accompanying notes are an integral part of these consolidated financial statements.
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ACLARIS THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
Balance at December 31, 2020
Issuance of common stock in connection with exercise of stock
options and warrants and vesting of restricted stock units
Issuance of common stock in connection with public offerings,
net of offering costs of $15,910
Unrealized loss on marketable securities
Foreign currency translation adjustment
Stock-based compensation expense
Net loss
Balance at December 31, 2021
Issuance of common stock in connection with exercise of stock
options and vesting of restricted stock units
Issuance of common stock under at-the-market sales agreement,
net of offering costs of $2,341
Unrealized loss on marketable securities
Stock-based compensation expense
Net loss
Balance at December 31, 2022
Issuance of common stock in connection with exercise of stock
options and vesting of restricted stock units
Issuance of common stock under at-the-market sales agreement,
net of offering costs of $826
Unrealized gain on marketable securities
Stock-based compensation expense
Net loss
Balance at December 31, 2023
Common Stock
Par
Value
Shares
45,109,314 $ — $
Additional
Paid‑in
Capital
542,286 $
Accumulated
Other
Total
Comprehensive Accumulated Stockholders’
Deficit
(504,542) $
Equity
(94) $
37,650
Loss
1,714,269
—
(1,574)
—
—
(1,574)
14,404,863
—
—
—
—
61,228,446 $
1
—
—
—
—
1 $
238,199
—
—
14,060
—
792,971 $
—
(229)
99
—
—
(224) $
—
—
—
—
(90,865)
(595,407) $
238,200
(229)
99
14,060
(90,865)
197,341
621,492
—
163
—
—
163
4,838,709
—
—
—
66,688,647 $
—
—
—
—
1 $
72,659
—
15,039
—
880,832 $
—
(673)
—
—
(897) $
—
—
—
(86,908)
(682,315) $
72,659
(673)
15,039
(86,908)
197,621
806,242
—
(8)
—
—
(8)
3,400,000
—
—
—
70,894,889 $
—
—
—
—
1 $
26,714
—
20,542
—
928,080 $
—
791
—
—
(106) $
—
—
—
(88,481)
(770,796) $
26,714
791
20,542
(88,481)
157,179
The accompanying notes are an integral part of these consolidated financial statements.
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ACLARIS THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Stock-based compensation expense
Revaluation of contingent consideration
Loss on extinguishment of debt
Intangible asset impairment charge
Deferred taxes
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Net cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of marketable securities
Proceeds from sales and maturities of marketable securities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Year Ended
December 31,
2022
2021
2023
$
(88,481)
$
(86,908)
$
(90,865)
797
15,039
4,700
—
—
—
139
(2,294)
368
592
(67,567)
(605)
(164,753)
177,986
12,628
923
14,060
24,339
752
—
—
149
(5,617)
3,655
470
(52,134)
(308)
(235,153)
67,829
(167,632)
—
238,200
863
20,542
(26,900)
—
6,629
(367)
186
(1,315)
(1,473)
11,991
(78,325)
(1,309)
(135,675)
183,204
46,220
—
26,714
—
(102)
94
26,706
(5,399)
45,277
39,878
Proceeds from issuance of common stock in connection with public offerings, net of issuance costs
Proceeds from issuance of common stock under the at-the-market sales agreement, net of issuance
costs
Repayment of debt
Payments of employee withholding taxes related to restricted stock unit award vesting
Proceeds from exercise of employee stock options and the issuance of stock
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of non-cash investing and financing activities:
Additions to property and equipment included in accounts payable
$
$
72,744
—
(34)
157
72,867
17,928
27,349
45,277
$
—
(11,483)
(3,124)
1,459
225,052
5,286
22,063
27,349
143
$
$
— $
24
The accompanying notes are an integral part of these consolidated financial statements.
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ACLARIS THERAPEUTICS, INC.
NOTES TO 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 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. 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. The Company’s proprietary KINect drug discovery platform combined with its preclinical
development capabilities allows the Company to identify and advance potential drug candidates that it may develop
independently or in collaboration with third parties. In addition to identifying and 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. The Company also
provides contract research services to third parties enabled by its early-stage research and development expertise.
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. As of December 31, 2023, the
Company had cash, cash equivalents and marketable securities of $181.9 million and an accumulated deficit of $770.8
million. 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 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 develop its drug candidates 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 potentially worsening global economic
conditions caused by a variety of factors including geopolitical tensions, rising interest rates 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 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 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 consolidated financial statements.
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2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with generally accepted
accounting principles 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. 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
consolidated statement of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.
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 December 31, 2023 and 2022, the Company had $2.2 million in accrued expenses reported as discontinued
operations in the Company’s consolidated balance sheet.
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.
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.
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
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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 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 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.
Cash Equivalents
The Company considers all short-term, highly liquid investments with original maturities of three months or less
at acquisition date to be cash equivalents. Cash equivalents, which have consisted of money market funds and commercial
paper, 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 marketable securities as available-for-sale securities. The Company’s marketable
securities are measured and reported at fair value using either quoted prices in active markets for identical securities or
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 expense, 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.
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. Laboratory
equipment is depreciated over three to 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
continuing operations.
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
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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 definite-lived and indefinite-lived assets. Definite-lived intangible assets consist of
a drug discovery platform the Company acquired through the acquisition of Confluence. Definite-lived intangible assets are
amortized over their estimated useful life based on the pattern over which the intangible assets are consumed or otherwise
used up. If that pattern cannot be reliably determined, the straight-line method of amortization is used. Indefinite-lived
intangible assets consisted 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 is either amortized over its 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 or otherwise impaired.
Definite-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 intangible asset is less
than its carrying value.
During the quarter ended December 31, 2023, the Company performed an impairment analysis on the IPR&D
intangible asset due to the Company’s decision to discontinue further development of the drug candidate in immuno-
inflammatory diseases. The Company’s impairment analysis resulted in a fair value of the IPR&D intangible asset which
was less than the carrying value. As a result, the Company recorded an impairment charge of $6.6 million, the full balance
of the IPR&D intangible asset.
Leases
Leases represent a company’s right to use an underlying asset and a corresponding obligation to make payments to
a lessor for the right to use those assets. The Company evaluates leases at their inception to determine if they are an
operating lease or a finance lease. A lease is accounted for as a finance lease if it meets one of the following five criteria:
the lease has a purchase option that is reasonably certain of being exercised, the present value of the future cash flows are
substantially all of the fair market value of the underlying asset, the lease term is for a significant portion of the remaining
economic life of the underlying asset, the title to the underlying asset transfers at the end of the lease term, or if the
underlying asset is of such a specialized nature that it is expected to have no alternative uses to the lessor at the end of the
term. Leases that do not meet the finance lease criteria are accounted for as an operating lease.
The Company recognizes assets and liabilities for leases at their inception based upon the present value of all
payments due under the lease. The Company uses an incremental borrowing rate to determine the present value of
operating leases. The Company determines incremental borrowing rates by referencing collateralized borrowing rates for
debt instruments with terms similar to the respective lease. The Company recognizes expense for operating leases on a
straight-line basis over the term of each lease. The Company includes estimates for any residual value guarantee
obligations under its leases in lease liabilities recorded on its consolidated balance sheet.
Right-of-use assets are included in other assets on the Company’s consolidated balance sheet for operating leases.
Obligations for lease payments are included in current portion of lease liabilities and other liabilities on the Company’s
consolidated balance sheet for operating leases.
Contingent Consideration
The Company records a contingent consideration liability related to future potential payments resulting from the
acquisition of Confluence based upon significant unobservable inputs including the achievement of 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 is involved in determining the appropriateness of these assumptions.
These assumptions are considered Level 3 inputs. Revaluation of the contingent consideration liability can
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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 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. The
probability of success assumption was 35% at December 31, 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 7.3% and 8.6% depending on the year of each potential payment.
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, 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, which is typically four years. 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 measures the compensation expense of stock-based awards granted to consultants using the grant
date fair value of the award. The Company recognizes compensation expense over the period during which services are
rendered by the consultant.
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. Historically, the Company estimated expected volatility based on historical volatility of a set of peer companies,
which are publicly traded. Starting in 2022, the Company estimated expected volatility based on its stock price's historical
volatility, as the Company determined that it had 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.
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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.
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.
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 and 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 that result from transactions
and economic events other than those with stockholders. Comprehensive loss is primarily comprised of net loss 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 warrants and the assumed vesting of RSUs, 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
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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.
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.
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 has two reportable segments, therapeutics and contract research. The therapeutics segment is focused on
identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases. The
contract research segment earns revenue from the provision of laboratory services. The Company does not report balance
sheet information by segment since it is not reviewed by the chief operating decision maker, and all of the Company’s
tangible assets are held in the United States.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This standard
requires disclosure of significant segment expenses and other segment items by reportable segment. This ASU becomes
effective for annual periods beginning in 2024 and interim periods in 2025. The Company is assessing the impact of this
ASU and upon adoption expects that any impact would be limited to additional segment expense disclosures in the
footnotes to the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax
Disclosures.” This standard enhances disclosures related to income taxes, including the rate reconciliation and information
on income taxes paid. This ASU becomes effective January 1, 2025. The Company is currently assessing the impact of this
ASU.
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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:
(In thousands)
Assets:
Cash equivalents
Marketable securities
Total assets
Liabilities:
Contingent consideration
Total liabilities
(In thousands)
Assets:
Cash equivalents
Marketable securities
Total assets
Liabilities:
Contingent consideration
Total liabilities
Level 1
Level 2
Level 3
Total
December 31, 2023
$ 32,177
—
$ 32,177
$
— $ — $ 32,177
141,999
—
$ — $ 174,176
141,999
$ 141,999
$
$
— $
— $
— $ 6,200
— $ 6,200
$
$
6,200
6,200
Level 1
Level 2
Level 3
Total
December 31, 2022
$ 38,516
—
$ 38,516
$
— $
184,536
$ 184,536
$
— $ 38,516
184,536
—
— $ 223,052
$
$
— $
— $
— $ 33,100
— $ 33,100
$ 33,100
$ 33,100
As of December 31, 2023 and 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 December 31, 2023 consisted of
commercial paper and corporate debt, asset-backed debt, foreign government agency debt and U.S. government agency
debt securities, which were 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 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. During the
years ended December 31, 2023 and 2022, there were no transfers into or out of Level 3.
The decrease in contingent consideration of $26.9 million during the year ended December 31, 2023 primarily
resulted from the removal of estimated sales of zunsemetinib for moderate to severe rheumatoid arthritis, moderate to
severe hidradenitis suppurativa and moderate to severe psoriatic arthritis, following the Company’s decision to discontinue
further development of its MK2 inhibitor programs in immuno-inflammatory diseases. This decrease was partially offset
by lower discount rates resulting from lower risk-free rates and changes in credit spreads, as well as the passage of time.
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As of December 31, 2023 and 2022, the fair value of the Company’s available-for-sale marketable securities by
type of security was as follows:
December 31, 2023
Gross
Unrealized
Loss
Gross
Unrealized
Gain
Book
Value
Fair
Value
$ 52,362
12,345
10,953
4,698
61,750
$ 142,108
$
$
65
2
42
43
8
160
$
$
(142) $ 52,285
12,346
(1)
10,965
(30)
4,741
—
(96)
61,662
(269) $ 141,999
December 31, 2022
Gross
Unrealized
Loss
Gross
Unrealized
Gain
Book
Value
Fair
Value
$ 40,626
79,598
14,641
50,571
$ 185,436
$
$
— $
—
4
—
4
$
(251) $ 40,375
79,598
—
14,522
(123)
(530)
50,041
(904) $ 184,536
(In thousands)
Marketable securities:
Corporate debt securities(1)
Commercial paper
Asset-backed debt securities(2)
Foreign government agency debt securities(3)
U.S. government and government agency debt securities(4)
Total marketable securities
(1) Included in Corporate debt securities is $28.0 million with maturity dates between one and two years.
(2) Included in Asset-backed debt securities is $6.2 million with maturity dates between one and three years.
(3) Included in Foreign government agency debt securities is $4.7 million with a maturity date between one and two
years.
(4) Included in U.S. government and government agency debt securities is $23.9 million with maturity dates
between one and two years.
(In thousands)
Marketable securities:
Corporate debt securities(1)
Commercial paper
Asset-backed debt securities(2)
U.S. government and government agency debt securities(3)
Total marketable securities
(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:
(In thousands)
Computer equipment
Lab equipment
Furniture and fixtures
Leasehold improvements
Property and equipment, gross
Accumulated depreciation
Property and equipment, net
December 31,
2023
December 31,
2022
$
$
1,253 $
3,154
558
817
5,782
(4,162)
1,620
$
1,381
2,010
620
1,123
5,134
(4,035)
1,099
Depreciation expense was $0.8 million, $0.7 million and $0.8 million for the years ended December 31, 2023,
2022 and 2021, respectively.
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5. Intangible Assets
Intangible assets consisted of the following:
(In thousands, except years)
Other intangible assets
In-process research and development
Total intangible assets
Remaining
Life (years)
3.6
n/a
$
$
Gross Cost
Accumulated Amortization
December 31,
December 31,
December 31,
December 31,
2023
2022
2023
2022
751 $
—
751 $
751 $
6,629
7,380 $
482 $
—
482 $
407
—
407
Amortization expense was $75 thousand for each of the years ended December 31, 2023, 2022 and 2021.
As of December 31, 2023, estimated future amortization expense was as follows:
(In thousands)
2024
2025
2026
2027
Total
6. Accrued Expenses
Accrued expenses consisted of the following:
(In thousands)
Employee compensation expenses
Research and development expenses
Licensing expenses
Restructuring expenses (Note 15)
Other
Total accrued expenses
7. Debt
Loan and Security Agreement – Silicon Valley Bank
Year Ending
December 31,
75
75
75
44
269
$
December 31, December 31,
2023
3,910
6,661
5,478
3,112
285
19,446
$
$
2022
5,295
2,689
500
—
217
8,701
$
$
In March 2020, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”). The
Loan and Security Agreement provided for $11.0 million in term loans, of which the Company borrowed the entire amount
on March 30, 2020. In connection with the Loan and Security Agreement, the Company issued to SVB a warrant to
purchase up to 460,251 shares of common stock (the “Warrant”) (see Note 8). The proceeds of the Loan and Security
Agreement were allocated to the term loan and Warrant using a relative fair value approach.
In July 2021, the Company repaid in full the $11.0 million that was outstanding under the Loan and Security
Agreement, together with all accrued and unpaid interest and fees as of the payoff date, for a total payment of $11.7
million. Following this repayment, all of the Company’s obligations under the Loan and Security Agreement are deemed to
be terminated, except as set forth in the agreement.
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8. Stockholders’ Equity
Preferred Stock
As of December 31, 2023 and 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 December 31, 2023 and 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 December 31, 2023 and 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 70,894,889 and 66,688,647 shares of
common stock issued and outstanding as of December 31, 2023 and 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 December 31, 2023.
Warrants
The Warrant issued to SVB in March 2020 had an initial exercise price of $0.956 per share, subject to adjustment
as provided in the Warrant. The Warrant became immediately exercisable in full upon the funding of the term loan facility.
The Company assigned a fair value of $0.4 million to the Warrant using a Black-Scholes valuation methodology, and also
concluded that the Warrant was indexed to its own stock and therefore classified the Warrant as an equity instrument. In
January 2021, SVB net exercised the Warrant in full, and the Company issued to SVB 388,119 shares of common stock.
January 2021 Public Offering
In January 2021, the Company closed a public offering in which it sold 6,306,271 shares of common stock at a
price to the public of $17.50 per share, for aggregate gross proceeds of $110.4 million. The Company paid underwriting
discounts and commissions of $6.6 million, and also incurred expenses of $0.4 million in connection with the offering. As
a result, the net offering proceeds received by the Company, after deducting underwriting discounts, commissions and
offering expenses, were $103.3 million.
June 2021 Public Offering
In June 2021, the Company closed a public offering in which it sold 8,098,592 shares of common stock at a price
to the public of $17.75 per share, for aggregate gross proceeds of $143.8 million. The Company paid underwriting
discounts and commissions of $8.6 million, and also incurred expenses of $0.3 million in connection with the offering. As
a result, the net offering proceeds received by the Company, after deducting underwriting discounts, commissions and
offering expenses, were $134.9 million.
Sales of Common Stock Pursuant to At-The-Market Facility
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.
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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9. 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, 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 31 of the preceding calendar year or (ii) an amount determined by the Company’s board of directors. The shares
of common stock underlying any awards that 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 December 31, 2023, 3,703,234 shares remained available for grant under the 2015 Plan. As of
January 1, 2024, the number of shares of common stock that may be issued under the 2015 Plan was automatically
increased by 2,835,795 shares. The Company had 5,668,063 stock options and 1,521,940 RSUs outstanding as of
December 31, 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 December 31, 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
In August 2012, the Company’s board of directors adopted the 2012 Equity Incentive Plan (“2012 Plan”), and the
Company’s stockholders approved the 2012 Plan. Upon the 2015 Plan becoming effective, no further grants can be made
under the 2012 Plan. The Company had 380,792 stock options outstanding as of December 31, 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 years ended December 31, 2023, 2022 and 2021 were as follows:
Risk-free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield
2023
3.55 %
6.2
Year Ended
December 31,
2022
2.22 %
6.2
77.73 % 77.95 % 76.60 %
0 %
2021
0.92 %
6.2
0 %
0 %
The Company recognizes compensation expense for awards over their vesting period. Compensation expense for
awards includes the impact of forfeitures in the period when they occur.
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Stock Options
The following table summarizes stock option activity for the years ended December 31, 2023, 2022 and 2021:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(in years)
6.8
(In thousands, except share and per share data and years)
Outstanding as of December 31, 2020
Granted
Exercised
Forfeited and cancelled
Outstanding as of December 31, 2021
Granted
Exercised
Forfeited and cancelled
Outstanding as of December 31, 2022
Granted
Exercised
Forfeited and cancelled
Outstanding as of December 31, 2023
Options vested and expected to vest as of December 31, 2023
Options exercisable as of December 31, 2023
Number
of Shares
2,871,498
1,068,100
(115,548)
(31,600)
3,792,450
2,548,750
(88,172)
(1,085,864)
5,167,164
2,241,550
(71,092)
(918,167)
6,419,455
6,419,455
2,879,529
$
$
$
$
$
$
15.16
23.44
12.63
23.26
17.50
14.40
1.78
18.44
16.04
15.62
1.31
16.85
15.94
15.94
16.55
Aggregate
Intrinsic
Value
$
4,890
1,373
6.8
$ 13,710
1,120
7.2
$ 15,288
473
14
14
14
7.1
7.1
5.1
$
$
$
The weighted average grant date fair value of stock options granted during the years ended December 31, 2023,
2022 and 2021 was $10.98, $9.95, and $15.67 per share, respectively.
Restricted Stock Units
The following table summarizes RSU activity for the years ended December 31, 2023, 2022 and 2021.
Weighted
Average
Grant Date Aggregate
Number
Fair Value
Intrinsic
(In thousands, except share and per share data)
Outstanding as of December 31, 2020
Granted
Vested
Forfeited and cancelled
Outstanding as of December 31, 2021
Granted
Vested
Forfeited and cancelled
Outstanding as of December 31, 2022
Granted
Vested
Forfeited and cancelled
Outstanding as of December 31, 2023
99
of Shares
2,244,157 $
664,948
(1,340,042)
(72,117)
1,496,946 $
936,563
(533,212)
(379,567)
1,520,730 $
993,662
(745,279)
(247,173)
1,521,940 $
Value
Per Share
3.83
23.33
3.18 $ 31,492
10.36
12.75
14.43
11.61 $
13.40
14.02
15.17
11.72 $
15.15
15.72
7,943
8,262
Table of Contents
Stock-Based Compensation
Stock-based compensation expense included in total costs and expenses on the consolidated statement of
operations included the following:
(In thousands)
Cost of revenue
Research and development
General and administrative
Total stock-based compensation expense
Year Ended
December 31,
2022
2023
$ 1,456 $ 1,151
3,745
10,143
$ 15,039
6,801
12,285
$ 20,542
2021
$
981
3,866
9,213
$ 14,060
As of December 31, 2023, the Company had unrecognized stock-based compensation expense for stock options
and RSUs of $30.0 million and $17.7 million, respectively, which is expected to be recognized over weighted average
periods of 2.7 years and 2.6 years, respectively.
10. Net Loss per Share
Basic and diluted net loss per share is summarized in the following table:
(In thousands, except for share and per share data)
Numerator:
Net loss
Denominator:
Year Ended
December 31,
2022
2021
2023
$
(88,481)
$
(86,908)
$
(90,865)
Weighted average shares of common stock outstanding, basic and
diluted
Net loss per share, basic and diluted
69,808,855
(1.27)
$
65,213,944
(1.33)
$
56,730,583
(1.60)
$
The Company’s potentially dilutive securities, which included stock options and RSUs, have been excluded from
the computation of diluted net loss per share since the effect would be to reduce the net loss per share. Therefore, the
weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share
is the same. The following table presents potential shares of common stock excluded from the calculation of diluted net
loss per share for the years ended December 31, 2023, 2022 and 2021. All share amounts presented in the table below
represent the total number outstanding as of December 31 of each year.
Options to purchase common stock
Restricted stock unit awards
Total potential shares of common stock
11. Leases
2023
6,419,455
1,521,940
7,941,395
December 31,
2022
2021
5,167,164 3,792,450
1,496,946
1,520,730
5,289,396
6,687,894
The Company has operating leases for office space and laboratory facilities. The components of lease expense
were as follows:
(In thousands)
Operating lease expense
Year Ended
December 31,
2022
2023
2021
$
1,092 $
1,013 $
1,013
Rent expense was $1.1 million for the year ended December 31, 2023, and $1.0 million for each of the years
ended December 31, 2022 and 2021, which was recognized on a straight-line basis over the term of the lease.
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Table of Contents
Operating Leases
Agreements for Office and Laboratory Space
The Company had a sublease agreement pursuant to which it subleased 33,019 square feet of office space for its
headquarters in Wayne, Pennsylvania, which expired on October 31, 2023. In December 2020, the Company entered into a
sub-sublease agreement under which it sub-subleased 8,115 square feet to a third party. The sub-sublease was terminated in
December 2022.
In May 2023, the Company entered into a new lease agreement pursuant to which it leases 11,564 square feet of
office space for its headquarters in Wayne, Pennsylvania. The lease commenced on November 1, 2023 and has a term that
runs through February 2029.
In February 2019, the Company entered into a sublease agreement for 20,433 square feet of office and laboratory
space in St. Louis, Missouri. The lease commenced in June 2019 and has a term that runs through June 2029. In January
2023, the Company amended the sublease agreement to add an additional 6,261 square feet of office and laboratory space
effective February 2023, which term runs concurrently with the existing term.
Supplemental balance sheet information related to operating leases is as follows:
(In thousands)
Operating Leases:
Gross cost
Accumulated amortization
Other assets
Current portion of lease liabilities
Other liabilities
Total operating lease liabilities
December 31,
December 31,
2023
2022
$
$
$
$
5,094
(1,235)
3,859
426
3,074
3,500
$
$
$
$
5,240
(2,560)
2,680
684
1,570
2,254
Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities
totaled $0.8 million for the year ended December 31, 2023, and $1.0 million for each of the years ended December 31,
2022 and 2021.
Supplemental information related to operating leases is as follows:
(In thousands, except for years and percentages)
Supplemental Cash Flow Lease Information:
Operating cash flows from operating leases
Leased assets obtained in exchange for new operating lease liabilities
Year Ended
December 31,
2022
2023
$
$
974
2,010
$
$
$
846
— $
2021
924
—
Weighted-Average Remaining Lease Term (in years):
Operating leases
Weighted-Average Discount Rate:
Operating leases
5.3
5.2
5.4
10.2 %
10.1 %
10.1 %
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Table of Contents
Future minimum lease payments under operating lease agreements are as follows:
(In thousands)
Year Ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total undiscounted lease payments
Less: unrecognized interest
Total lease liability
12. Income Taxes
Operating
Leases
766
847
868
890
912
316
4,598
(1,098)
3,500
$
$
During the years ended December 31, 2023, 2022 and 2021, the Company did not record an income tax benefit for
net operating losses incurred in each year due to the uncertainty of realizing a benefit from those items.
Loss before income taxes is allocated as follows:
Year Ended December 31,
(In thousands)
U.S. operations
Foreign operations
Loss before income taxes
2023
2022
$ (88,848) $ (86,908) $ (90,865)
—
$ (88,848) $ (86,908) $ (90,865)
2021
—
—
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as
follows:
Federal statutory income tax rate
State taxes, net of federal benefit
Impact of state rate changes
Research and development tax credits
Excess equity compensation tax benefit, net of officer limitation
Revaluation of contingent consideration
Non-deductible royalty payments
Change in deferred tax asset valuation allowance
Other
Effective income tax rate
102
Year Ended December 31,
2022
(21.0)%
(2.3)
—
(4.3)
0.2
1.1
—
26.3
2023
(21.0)%
(1.7)
17.7
(5.9)
0.6
(6.3)
4.3
11.7
0.2
(0.4)%
—
— %
2021
(21.0)%
(7.7)
—
(3.0)
(3.9)
5.6
—
30.0
—
— %
Table of Contents
Deferred tax liabilities, net consisted of the following:
(In thousands)
Deferred tax assets:
Net operating loss carryforwards
Capitalized start-up costs
Research and development tax credit carryforwards
Section 174 research and development capitalization
Capitalized research and development expense
Stock‑based compensation expense
Accrued compensation
Lease liabilities
Other
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Intangible asset
Right-to-use assets
Other
Total deferred tax liabilities
Valuation allowance
Deferred tax liabilities, net
December 31,
2023
2022
$
119,155
3,812
20,505
30,984
2,359
18,055
1,219
774
407
197,270
$ 120,554
5,506
15,233
19,639
5,448
19,432
1,146
558
534
188,050
(187)
—
(853)
(1,106)
(2,146)
(195,124)
(137)
(1,576)
(651)
(1,365)
(3,729)
(184,688)
(367)
$
— $
As of December 31, 2023, the Company had federal and state net operating loss (“NOL”) carryforwards of $464.8
million and $395.3 million, respectively, which will begin to expire in 2032. As of December 31, 2023, the Company also
had federal research and development tax credit carryforwards of $20.4 million which will begin to expire in 2032, and
state research and development tax credit carryforwards of $0.1 million which will begin to expire in 2022. Utilization of
the NOLs and research and development tax credit carryforwards in the United States may be subject to a substantial
annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that may have
occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that
can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results
from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more
than 50% over a three-year period. The Company has completed an analysis under Section 382 for NOLs generated from
July 13, 2012 through December 31, 2023. Although the Company has experienced Section 382 ownership changes since
2012, the Company concluded that it should have sufficient ability to utilize NOLs accumulated during the periods tested.
The Company has not yet determined if a Section 382 ownership change has occurred after December 31, 2023. In
addition, the Company may experience ownership changes in the future as a result of subsequent shifts in its stock
ownership, some of which may be outside of the Company’s control.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax
assets. The Company considered its history of cumulative net losses incurred since inception, its lack of substantial revenue
generated to date, and its forecasted future operating losses and concluded that it is more likely than not that the Company
will not realize the benefits of its deferred tax assets. Accordingly, a full valuation allowance has been established against
the deferred tax assets as of December 31, 2023 and 2022. The Company evaluates positive and negative evidence of its
ability to realize deferred tax assets at each reporting period.
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2023, 2022 and
2021, which related primarily to the increases in NOLs, capitalized research and development costs, and research and
development tax credit carryforwards, were as follows:
(In thousands)
Valuation allowance at beginning of year
Decreases recorded as benefit to income tax provision
Increases recorded to income tax provision
Valuation allowance as of end of year
103
2023
Year Ended December 31,
2022
$ (184,688) $ (161,824) $ (134,559)
—
(27,265)
$ (161,824)
(10,436)
$ (195,124)
(22,864)
$ (184,688)
—
—
2021
Table of Contents
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the
normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable.
There are currently no pending income tax examinations. The Company’s tax years are still open under statute from 2021
to the present. All open years may be examined to the extent that tax credit or NOLs are used in future periods. The
Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. The
Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2023 and 2022.
13. Agreements Related to Intellectual Property
License Agreement – Sun Pharmaceutical Industries, Inc.
In December 2023, the Company entered into an exclusive patent license agreement with Sun Pharmaceutical
Industries, Inc. (“Sun Pharma”). Under the license agreement, the Company granted Sun Pharma exclusive rights under
certain patents that the Company exclusively licenses from a third party. The patents relate to the use of deuruxolitinib, Sun
Pharma’s Janus kinase (“JAK”) inhibitor, or other isotopic forms of ruxolitinib, to treat alopecia areata or androgenetic
alopecia. Under the license agreement, Sun Pharma has agreed to pay the Company an upfront payment, regulatory and
commercial milestone payments, and a mid single-digit tiered royalty calculated as a percentage of Sun Pharma’s net sales.
The Company has separate contractual obligations under which the Company has agreed to pay to third parties a portion of
the consideration it may receive under the license agreement.
Upon execution of the agreement, the Company received an upfront payment of $15.0 million from Sun Pharma, a
portion of which was payable to third parties.
License Agreement – Pediatrix Therapeutics, Inc.
In November 2022, the Company entered into a license agreement with Pediatrix Therapeutics, Inc. (“Pediatrix”),
under which the Company granted Pediatrix the exclusive rights to develop, manufacture and commercialize ATI-1777 in
Greater China. Pediatrix has agreed to pay the Company an upfront payment, development, regulatory and commercial
milestone payments, and a tiered royalty ranging from a low-to-high single digit percentage of net sales of ATI-1777 by
Pediatrix in Greater China. A portion of consideration received from Pediatrix is payable to the former Confluence equity
holders as described below.
Upon execution of the agreement, the Company received an upfront payment of $5.0 million from Pediatrix, a
portion of which was payable to the former Confluence equity holders as described below.
License Agreement – Eli Lilly and Company
In August 2022, the Company entered into a non-exclusive patent license agreement with Eli Lilly and Company
(“Lilly”). Under the license agreement, the Company granted Lilly non-exclusive rights under certain patents and patent
applications that the Company exclusively licenses from a third party. The patents and patent applications relate to the use
of baricitinib, Lilly’s JAK inhibitor, to treat alopecia areata. Under the license agreement, Lilly has agreed to pay the
Company an upfront payment, regulatory and commercial milestone payments, anniversary payments, and a low single-
digit royalty calculated as a percentage of Lilly’s net sales of baricitinib for the treatment of alopecia areata. The Company
has separate contractual obligations under which the Company has agreed to pay to third parties an amount equal to any
regulatory and commercial milestone payments it receives under the Lilly license agreement, as well as a portion of the
upfront consideration and a portion of the royalties it may receive under the license agreement.
During the years ended December 31, 2023 and 2022, the Company recorded licensing revenue under this
agreement of $12.7 million and $17.8 million, respectively, from Lilly, a portion of which was payable to third parties.
Asset Purchase Agreement – EPI Health, LLC
In October 2019, the Company sold RHOFADE (oxymetazoline hydrochloride) cream, 1% (“RHOFADE”) to EPI
Health, LLC (“EPI Health”) pursuant to an asset purchase agreement. In July 2023, EPI Health filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code. Through the bankruptcy process, EPI Health and its
parent company, Novan, Inc., sold the RHOFADE assets to a third party, which excluded the Company’s asset
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Table of Contents
purchase agreement with EPI Health and the outstanding amounts due. The sale was approved by the bankruptcy court in
September 2023. As a result of the bankruptcy proceedings, the Company recorded an allowance for doubtful accounts
resulting in $1.3 million of bad debt expense for the year ended December 31, 2023, representing all amounts that were due
and outstanding by EPI Health.
Agreement and Plan of Merger – Confluence
In August 2017, the Company entered into an Agreement and Plan of Merger, pursuant to which it acquired
Confluence (the “Confluence Agreement”). Under the Confluence Agreement, the Company agreed to pay the former
Confluence equity holders aggregate remaining contingent consideration of up to $75.0 million based upon the
achievement of specified regulatory and commercial milestones set forth in the Confluence Agreement. In addition, the
Company agreed to pay the former Confluence equity holders future royalty payments calculated as a low single-digit
percentage of annual net sales, subject to specified reductions, limitations and other adjustments, until the date that all of
the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in
specified circumstances, ten years from the first commercial sale of such product. In addition to the payments described
above, if the Company sells, licenses or transfers any of the intellectual property acquired from Confluence pursuant to the
Confluence Agreement to a third party, the Company will be obligated to pay the former Confluence equity holders a
portion of any consideration received from such sale, license or transfer in specified circumstances.
As of December 31, 2023 and December 31, 2022, the balance of the Company’s contingent consideration
liability was $6.2 million and $33.1 million, respectively (see Note 3).
14. Retirement Savings Plan
The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This
plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a
portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the discretion
of the Company’s board of directors. The Company has elected to match employee contributions to the 401(k) Plan up to
4% of the employee’s earnings, subject to certain limitations. Company contributions under the 401(k) Plan were $0.7
million, $0.5 million and $0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.
15. Restructuring Charges
In December 2023, the Company’s board of directors approved a reduction of the Company’s workforce by
approximately 46%, which the Company expects to be substantially completed by June 2024. This action was taken in
order to streamline operations, reduce costs and preserve capital. As a result, the Company terminated certain employees
(“terminated employees”) and gave notice to additional employees (“noticed employees”) who were asked to provide
transition services through termination dates ranging between one to thirteen months from the date notice was given. The
terminated employees were entitled to receive cash severance payments and other benefits. The noticed employees are
entitled to receive cash severance payments and other benefits, which are contingent upon providing additional services to
the Company.
During the year ended December 31, 2023, the Company recorded a restructuring charge of $3.1 million which
represents a one-time termination benefit for impacted employees with retention periods less than the sixty-day minimum
retention period, which was triggered immediately upon either terminating or giving notice to the impacted employees. Of
the $3.1 million of expenses incurred during the year ended December 31, 2023, $2.2 million, $0.9 million and $19
thousand were recorded in research and development expense, general and administrative expense and cost of revenue,
respectively, in the consolidated statement of operations and comprehensive loss. The Company is expensing the cost of
cash severance payments, other benefits and annual bonus payments for noticed employees with retention periods more
than the minimum retention period over their respective service terms.
16. Segment Information
The Company has two reportable segments, therapeutics and contract research. The therapeutics segment is
focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory
diseases and earns revenue through licensing of the Company’s intellectual property. The contract research segment earns
revenue from the provision of laboratory services. All intersegment revenue has been eliminated in the Company’s
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Table of Contents
consolidated statement of operations. All customers and revenue pertaining to the Company’s segments are based in the
United States. Corporate and other includes general and administrative expenses as well as eliminations of intercompany
transactions. The Company does not report balance sheet information by segment since it is not reviewed by the chief
operating decision maker, and all of the Company’s tangible assets are held in the United States.
The Company’s results of operations by segment for the years ended December 31, 2023, 2022 and 2021 are
summarized in the tables below:
(In thousands)
Year Ended December 31, 2023
Revenue from external customers
Intercompany revenue
Cost of revenue
Research and development
General and administrative
Licensing
Revaluation of contingent consideration
Intangible asset impairment
Restructuring expense
Loss from operations
(In thousands)
Year Ended December 31, 2022
Revenue from external customers
Intercompany revenue
Cost of revenue
Research and development
General and administrative
Licensing
Revaluation of contingent consideration
Loss from operations
(In thousands)
Year Ended December 31, 2021
Revenue from external customers
Intercompany revenue
Cost of revenue
Research and development
General and administrative
Revaluation of contingent consideration
Loss from operations
17. Legal Proceedings
Securities Class Action
Therapeutics
28,214
$
—
—
97,188
—
14,658
(26,900)
6,629
2,202
(65,563)
$
Therapeutics
25,356
$
—
—
78,599
—
7,937
4,700
(65,880)
$
Therapeutics
932
$
—
—
44,259
—
24,339
(67,666)
$
Contract
Research
3,035
16,543
18,941
—
4,561
—
—
—
19
(3,943)
Contract
Research
4,396
12,609
15,847
—
3,505
—
—
(2,347)
Contract
Research
5,829
7,618
11,885
—
3,047
—
(1,485)
$
$
$
$
$
$
Corporate
and Other
$
— $
(16,543)
(15,537)
(1,006)
26,940
—
—
—
911
(27,851)
$
$
Corporate
and Other
$
— $
(12,609)
(11,824)
(786)
21,628
—
—
(21,627)
$
$
Corporate
and Other
$
— $
(7,618)
(7,172)
(446)
20,572
—
(20,572)
$
$
Total
Company
31,249
—
3,404
96,182
31,501
14,658
(26,900)
6,629
3,132
(97,357)
Total
Company
29,752
—
4,023
77,813
25,133
7,937
4,700
(89,854)
Total
Company
6,761
—
4,713
43,813
23,619
24,339
(89,723)
On July 30, 2019, plaintiff Linda Rosi (“Rosi”) filed a putative class action complaint captioned Rosi v. Aclaris
Therapeutics, Inc., et al. in the U.S. District Court for the Southern District of New York against the Company and certain
of its executive officers. On September 5, 2019, an additional plaintiff, Robert Fulcher (“Fulcher”), filed a substantially
identical putative class action complaint captioned Fulcher v. Aclaris Therapeutics, Inc., et al. in the same court against the
same defendants. On November 6, 2019, the court consolidated the Rosi and Fulcher actions (together, the “Consolidated
Securities Action”) and appointed Fulcher “lead plaintiff” for the putative class. The parties signed and filed a settlement
agreement in July 2021. The court granted final approval of the settlement on December 9, 2021. As of December 31,
2021, the Company’s financial obligation under the settlement was $2.7 million, which was within the limits of its
insurance coverage. The settlement was paid in January 2022.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision of and with the participation of our management, including our principal executive officer,
and our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and
procedures as of December 31, 2023, the end of the period covered by this Annual Report. The term “disclosure controls
and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or
the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance
that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the rules and forms promulgated by the
SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide
reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company’s management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes
that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31,
2023, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls
and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Management conducted an assessment of our
internal control over financial reporting based on the framework established in 2013 by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on the assessment,
management concluded that our internal control over financial reporting was effective as of December 31, 2023 to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. GAAP. Our independent registered public accounting firm, PricewaterhouseCoopers
LLP, has issued an audit report with respect to our internal control over financial reporting, which appears in Part II, Item 8
of this Annual Report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation
required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2023
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Disclosure Controls and Procedures and Internal Control over Financial
Reporting
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting,
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and
procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that
management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their
costs.
Item 9B. Other Information
Director and Officer Trading Arrangements
During the quarter ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under
the Exchange Act) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading
arrangement” (as each term is defined in Item 408 of Regulation S-K).
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Table of Contents
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
108
Table of Contents
PART III
We will file a definitive Proxy Statement for our 2024 Annual Meeting of Stockholders, or the 2024 Proxy
Statement, with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly,
certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections
of the 2024 Proxy Statement that specifically address the items set forth herein are incorporated by reference.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 is hereby incorporated by reference to the sections of the 2024 Proxy
Statement under the captions “Information Regarding the Board of Directors and Corporate Governance,” “Election of
Directors” and “Management.”
Item 11. Executive Compensation
The information required by Item 11 is hereby incorporated by reference to the sections of the 2024 Proxy
Statement under the captions “Executive Compensation” and “Non-Employee Director Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is hereby incorporated by reference to the sections of the 2024 Proxy
Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities
Authorized for Issuance under Equity Compensation Plans.”
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is hereby incorporated by reference to the sections of the 2024 Proxy
Statement under the captions “Transactions with Related Persons” and “Information Regarding the Board of Directors and
Corporate Governance—Independence of the Board of Directors.”
Item 14. Principal Accountant Fees and Services
The information required by Item 14 is hereby incorporated by reference to the sections of the 2024 Proxy
Statement under the caption “Ratification of Selection of Independent Registered Public Accounting Firm.”
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
(1) Financial Statements
Our consolidated financial statements are listed in the “Index to Consolidated Financial Statements”
under Part II. Item 8 of this Annual Report on Form 10-K.
(2) Financial Statement Schedules
Financial statement schedules have been omitted in this report because they are not applicable, not
required under the instructions, or the information required is set forth in the consolidated financial
statements or related notes thereto.
(3) Exhibits
See exhibits listed under part (b) below.
(b) Exhibits
Exhibit
Number
Description of Document
2.1# Agreement and Plan of Merger, dated as of August 3, 2017, by and among the Registrant, Aclaris Life
Sciences, Inc., Confluence Life Sciences, Inc. and Fortis Advisors LLC (incorporated by reference to Exhibit
2.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37581), filed with the SEC on
November 7, 2017).
3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37581), filed with the SEC on
October 13, 2015).
3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q (File No.
001-37581), filed with the SEC on August 7, 2023).
3.3 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K (File No. 001-37581), filed with the SEC on June 24, 2020).
4.1* Description of Securities.
10.1+ Amended and Restated 2012 Equity Compensation Plan (incorporated by reference to Exhibit 10.7 to
10.2+
10.3+
10.4+
10.5+
10.6+
Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-206437), filed with
the SEC on September 4, 2015).
Form of Stock Option Grant under Amended and Restated 2012 Equity Compensation Plan (incorporated by
reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 (File No. 333-206437), filed
with the SEC on August 17, 2015).
2015 Equity Incentive Plan (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration
Statement on Form S-8 (File No. 333-207434), filed with the SEC on October 15, 2015).
Form of Stock Option Grant Notice and Stock Option Agreement under 2015 Equity Incentive Plan
(incorporated by reference to Exhibit 10.10 to Amendment No. 2 to the Registrant’s Registration Statement
on Form S-1 (File No. 333-206437), filed with the SEC on September 25, 2015).
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under 2015 Equity
Incentive Plan (incorporated by reference to Exhibit 10.11 to Amendment No. 2 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-206437), filed with the SEC on September 25, 2015).
Form of Performance Stock Option Grant Notice and Stock Option Agreement used in connection with the
2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on
Form 10-K (File No. 001-37581), filed with the SEC on March 18, 2019).
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10.7+
Form of Performance Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement used
in connection with the 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.12 to the
Registrant’s Annual Report on Form 10-K (File No. 001-37581), filed with the SEC on March 18, 2019).
10.8+ Aclaris Therapeutics, Inc. Inducement Plan (incorporated herein by reference to Exhibit 10.1 to the
10.9+
Registrant’s Current Report on Form 8-K (File No. 001-37581), filed with the SEC on August 1, 2017).
Form of Stock Option Grant Notice and Stock Option Agreement used in connection with the Aclaris
Therapeutics, Inc. Inducement Plan (incorporated herein by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K (File No. 001-37581), filed with the SEC on August 1, 2017).
10.10+ Eighth Amended and Restated Non-Employee Director Compensation Policy (incorporated herein by
reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K (File No. 001-37581), filed with
the SEC on February 23, 2023).
10.11+ Ninth Amended and Restated Non-Employee Director Compensation Policy (incorporated herein by
10.12+
reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37581), filed with
the SEC on May 8, 2023).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.12 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-206437), filed with the SEC on August 17, 2015).
10.13+ Employment Agreement, dated as of January 12, 2022, by and between the Registrant and Joseph Monahan
(incorporated herein by reference to Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K (File No.
001-37581), filed with the SEC on February 24, 2022).
10.14+ Amended and Restated Employment Agreement, effective as of July 1, 2023, by and between the Registrant
and Joseph Monahan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K (File No. 001-37581), filed with the SEC on June 12, 2023).
Second Amended and Restated Employment Agreement, effective as of February 1, 2024, by and between
the Registrant and Joseph Monahan.
10.15+*
10.16+ Employment Agreement, dated as of January 31, 2022, by and between the Registrant and James Loerop
(incorporated herein by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K (File No.
001-37581), filed with the SEC on February 24, 2022).
10.17+ Amended and Restated Employment Agreement, dated as of January 1, 2023, by and between the Registrant
and Douglas Manion (incorporated herein by reference to Exhibit 10.23 to the Registrant’s Annual Report on
Form 10-K (File No. 001-37581), filed with the SEC on February 23, 2023).
Separation Agreement, Waiver, and Release, dated as of February 4, 2024, by and between the Registrant and
Douglas Manion.
10.18+*
10.19+ Employment Agreement, dated as of January 1, 2023, by and between the Registrant and Kevin Balthaser
(incorporated herein by reference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K (File No.
001-37581), filed with the SEC on February 23, 2023).
10.20+ Employment Agreement, dated as of June 27, 2022, by and between the Registrant and Gail Cawkwell
(incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-
37581), filed with the SEC on August 3, 2022).
10.21+ Letter Agreement, dated as of November 22, 2022, by and between the Registrant and Neal Walker
(incorporated herein by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K (File No.
001-37581), filed with the SEC on February 23, 2023).
10.22+* Letter Agreement, dated as of January 31, 2024, by and between the Registrant and Neal Walker.
10.23˄ Office Lease, dated May 26, 2023, by and between the Registrant and CBCC – Lee Road Acquisitions, LLC
10.24
(incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.
001-37581), filed with the SEC on June 1, 2023).
Sales Agreement, dated February 23, 2023, by and among the Registrant, SVB Securities LLC and Cantor
Fitzgerald & Co. (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K (File No. 001-37581), filed with the SEC on February 23, 2023).
Subsidiaries of the Registrant.
21.1*
23.1* Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
24.1*
31.1* Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the
Power of Attorney (contained on signature page hereto).
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the
Securities Exchange Act of 1934, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
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32.1† Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(b) and
15d-14(b) promulgated under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
97.1* Aclaris Therapeutics, Inc. Incentive Compensation Recoupment Policy, adopted as of October 2, 2023.
101.INS XBRL Instance Document (the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.DEF
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
†
Filed herewith.
This certification is being furnished solely to accompany this Annual Report pursuant to 18 U.S.C. Section 1350, and
is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of
any general incorporation language in such filing.
Indicates management contract or compensatory plan.
+
# Confidential treatment has been granted with respect to portions of this exhibit (indicated by asterisks) and those
˄
portions have been separately filed with the SEC.
Pursuant to Item 601(a)(5) of Regulation S-K promulgated by the SEC, certain exhibits and schedules to this
agreement have been omitted. The Company hereby agrees to furnish supplementally to the SEC, upon its request, any
or all of such omitted exhibits or schedules.
Item 16. Form 10-K Summary
Not applicable.
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Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 27, 2024
ACLARIS THERAPEUTICS, INC.
By: /s/ Neal Walker
Neal Walker
Interim President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Neal Walker and Kevin Balthaser, jointly and severally, as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and
all capacities, to sign this Annual Report on Form 10-K of Aclaris Therapeutics, Inc., and any or all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Neal Walker
Neal Walker
/s/ Kevin Balthaser
Kevin Balthaser
/s/ Christopher Molineaux
Christopher Molineaux
/s/ Anand Mehra, M.D.
Anand Mehra, M.D.
/s/ William Humphries
William Humphries
/s/ Andrew Powell
Andrew Powell
/s/ Andrew Schiff
Andrew Schiff
/s/ Bryan Reasons
Bryan Reasons
/s/ Maxine Gowen
Maxine Gowen
/s/ Vincent Milano
Vincent Milano
Interim President and Chief Executive Officer, and
Chairman of the Board of Directors
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
Date
February 27, 2024
February 27, 2024
Lead Independent Director
February 27, 2024
Director
Director
Director
Director
Director
Director
Director
113
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
February 27, 2024
Exhibit 4.1
DESCRIPTION OF ACLARIS THERAPEUTICS, INC. CAPITAL STOCK
The following description of the common stock of Aclaris Therapeutics, Inc., or the Company, is a summary and does not purport to
be complete. This summary is qualified in its entirety by reference to the provisions of the Delaware General Corporation Law, or
the DGCL, and the complete text of the Company’s amended and restated certificate of incorporation, as amended, or the certificate
of incorporation, which is incorporated by reference as Exhibits 3.1 and 3.2 of the Company’s Annual Report on Form 10-K, and
amended and restated bylaws, or the bylaws, which is incorporated by reference as Exhibit 3.3 of the Company’s Annual Report on
Form 10-K to which this description is also an exhibit. The Company encourages you to read that law and those documents
carefully.
Common Stock
Under the certificate of incorporation, the Company is authorized to issue up to 200,000,000 shares of common stock,
$0.00001 par value per share, and 10,000,000 shares of preferred stock, $0.00001 par value per share, all of which shares of
preferred stock are undesignated. The Company’s board of directors may establish the rights and preferences of the preferred stock
from time to time.
Voting Rights
Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders,
including the election of directors. Under the certificate of incorporation and the bylaws, common stockholders do not have
cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of
directors can elect all of the directors standing for election, if they should so choose.
Dividends
Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled
to receive ratably those dividends, if any, as may be declared from time to time by the board of directors out of legally available
funds.
Liquidation
In the event of the Company’s liquidation, dissolution or winding up, holders of common stock will be entitled to share
ratably in the net assets legally available for distribution to stockholders after the payment of all of debts and other liabilities and the
satisfaction of any liquidation preference granted to the holders of any then-outstanding shares of preferred stock.
Rights and Preferences
Holders of common stock have no preemptive, conversion or subscription rights and there are no redemption or sinking fund
provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that the Company may
designate in the future.
Anti-Takeover Provisions
Section 203 of the DGCL
The Company is subject to Section 203 of the DGCL, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years after the date that such stockholder became an
interested stockholder, with the following exceptions:
●
●
before such date, the board of directors of the corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder;
upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began,
excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the
interested stockholder, those shares owned (i) by persons who are directors and also officers and (ii) employee stock
plans in which employee participants do not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or
●
on or after such date, the business combination is approved by the board of directors and authorized at an annual or
special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
In general, Section 203 defines a “business combination” to include the following:
●
●
●
●
●
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested
stockholder;
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of
the corporation to the interested stockholder;
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any
class or series of the corporation beneficially owned by the interested stockholder; or
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial
benefits by or through the corporation.
In general, Section 203 defines an “interested stockholder” as an entity or person who, together with the person’s affiliates
and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own,
15% or more of the outstanding voting stock of the corporation.
Certificate of Incorporation and Bylaws
The certificate of incorporation provides for the Company’s board of directors to be divided into three classes with staggered
three-year terms. Only one class of directors will be elected at each annual meeting of stockholders, with the other classes
continuing for the remainder of their respective three-year terms. Because the Company’s stockholders do not have cumulative
voting rights, stockholders holding a majority of the shares of common stock outstanding will be able to elect all of the Company’s
directors. The certificate of incorporation and bylaws also provide that directors may be removed by the stockholders only for cause
upon the vote of 66 2/3% or more of outstanding common stock. Furthermore, the authorized number of directors may be changed
only by resolution of the board of directors, and vacancies and newly created directorships on the board of directors may, except as
otherwise required by law or determined by the board, only be filled by a majority vote of the directors then serving on the board,
even though less than a quorum.
The certificate of incorporation and bylaws also provide that all stockholder actions must be effected at a duly called
meeting of stockholders and will eliminate the right of stockholders to act by written consent without a meeting. The bylaws also
provide that only the Company’s chairman of the board, chief executive officer or the board of directors pursuant to a resolution
adopted by a majority of the total number of authorized directors may call a special meeting of stockholders.
The bylaws also provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate
candidates for election as directors at a meeting of stockholders must provide timely advance notice in writing, and specify
requirements as to the form and content of a stockholder’s notice.
The certificate of incorporation and bylaws provide that the stockholders cannot amend many of the provisions described
above except by a vote of 66 2/3% or more of outstanding common stock.
The combination of these provisions make it more difficult for the Company’s existing stockholders to replace the board of
directors as well as for another party to obtain control of the Company by replacing its board of directors. Since the Company’s
board of directors has the power to retain and discharge the Company’s officers, these provisions also make it more difficult for
existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred
stock makes it possible for the Company’s board of directors to issue preferred stock with voting or other rights or preferences that
could impede the success of any attempt to change the Company’s control.
These provisions are intended to enhance the likelihood of continued stability in the composition of the Company’s board of
directors and its policies and to discourage coercive takeover practices and inadequate takeover bids. These provisions are also
designed to reduce the Company’s vulnerability to hostile takeovers and to discourage certain tactics that may be used in proxy
fights. However, such provisions could have the effect of discouraging others from making tender offers for the Company’s shares
and may have the effect of delaying changes in its control or management. As a consequence, these provisions may also inhibit
fluctuations in the market price of the Company’s stock that could result from actual or rumored takeover attempts. The Company
believes that the benefits of these provisions, including increased protection of its potential ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure the company, outweigh the disadvantages of discouraging takeover
proposals, because negotiation of takeover proposals could result in an improvement of their terms.
Choice of Forum
The Company’s certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive
forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or
proceeding brought on the Company’s behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of the
Company’s directors, officers or other employees to the Company or its stockholders, (iii) any action asserting a claim arising
pursuant to any provision of the DGCL, the Company’s certificate of incorporation or bylaws or (iv) any action asserting a claim
governed by the internal affairs doctrine. However, this exclusive forum provision would not apply to suits brought to enforce a
duty or liability created by the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as
amended.
In addition, the Company’s bylaws provide that unless the Company consents in writing to the selection of an alternative
forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and
exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, and that any person
or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Company shall be deemed to
have notice of and consented to the federal forum selection provision.
Transfer Agent and Registrar
The transfer agent and registrar for the Company’s common stock is Broadridge Corporate Issuer Solutions, Inc. The
transfer agent’s address is 1717 Arch Street, Suite 1300, Philadelphia, Pennsylvania 19103.
Listing on the NASDAQ Global Select Market
The Company’s common stock is listed on the Nasdaq Global Select Market under the symbol “ACRS.”
Exhibit 10.15
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Employment
Agreement”), effective as of February 1, 2024 (“Agreement Effective Date”), is made by and between Aclaris
Therapeutics, Inc., a corporation organized under the laws of the State of Delaware (“Employer”) and Joseph
Monahan (“Executive”).
WHEREAS, Executive is employed by and performing services for Employer pursuant to an Amended
and Restated Employment Agreement with Employer effective as of July 1, 2023 (the “Prior Agreement”);
WHEREAS, Executive desires to continue to provide services to Employer and Employer desires to
continue to employ Executive and, in connection herewith, to compensate Executive for his services to Employer;
WHEREAS, this Second Amended and Restated Employment Agreement amends, restates, replaces and
supersedes in its entirety Executive’s Prior Agreement;
WHEREAS, Executive and Employer agree that this Employment Agreement sets forth the terms and
conditions of Executive’s employment with Employer as of the Agreement Effective Date; and
WHEREAS, this Employment Agreement has been duly approved and its execution has been duly
authorized by the Compensation Committee of Employer’s Board of Directors.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein Employer
and Executive hereby agree as follows:
SECTION 1. EMPLOYMENT
1.1
General. Employer hereby agrees to continue to employ Executive in the capacity of Chief
Scientific Officer (“CSO”). Executive hereby accepts such continued employment upon the terms and subject to
the conditions herein contained.
1.2
Authority and Duties. Executive shall continue to have full responsibility as the CSO of
Employer and all authority normally accorded to such position. Executive agrees to perform such duties and
responsibilities commensurate with the position of CSO as may reasonably be determined by the Board of
Directors of Employer (the “Board”).
1.2.1 Reporting. During Executive’s employment with Employer, Executive will continue to
report directly to, and take direction from, the Chief Executive Officer (the “CEO”).
1.2.2 Time to Be Devoted to Employment. As of the Agreement Effective Date, Executive will
shift to full-time status. Executive shall continue to diligently devote his efforts, business time, attention and
energies to the business of Employer and will not, while employed by Employer, undertake or engage in any other
employment, occupation or business enterprise that would interfere with Executive’s responsibilities and the
performance of Executive’s duties hereunder except for (i) reasonable time devoted to volunteer services for or on
behalf of such
1
religious, educational, non-profit and/or other charitable organization as Executive may wish to serve, (ii)
reasonable time devoted to activities in the non-profit and business communities consistent with Executive’s
duties; and (iii) reasonable time devoted to service as a member of the board of directors of the entities listed on
Exhibit A or as otherwise permitted pursuant to Section 1.3. This restriction shall not, however, preclude
Executive (x) from owning less than one percent (1%) of the total outstanding shares of a publicly traded
company, or (y) from employment or service in any capacity with Affiliates of Employer. As used in this
Employment Agreement, Affiliates means an entity under common management or control with Employer.
1.3
Other Responsibilities. Notwithstanding Section 1.2.2 above, Executive will not engage in any
other for-profit business, profession or occupation, including as a member of a board of directors of any third
party, for compensation which would materially conflict or materially interfere with the rendition of services
hereunder, without the prior written consent of the Board, which shall not be unreasonably withheld. Any
uncertainty as to whether such a conflict exists will be raised by Executive for determination by the Board, acting
reasonably. The Board acknowledges that Executive has ongoing participation in other private and public
businesses that have been disclosed by Executive and are listed on Exhibit A and that such participation does not,
in any way, conflict with his role at Employer. Except for the businesses listed on Exhibit A, which have already
been approved, Executive agrees to disclose to the Board and receive prior written consent from the Board to
participate as a director, with any competing company whether it is a private or public company. Executive further
agrees to disclose any other director positions with any other company that may materially affect his ability to
perform his duties and responsibilities under this Employment Agreement. Notwithstanding the above, nothing
herein shall limit or preclude Executive from managing any passive investments made by Executive.
1.4
Location of Employment. Executive’s principal place of employment during his employment with
Employer shall continue to be Executive’s primary residence (or other remote work location) or such other
location as Employer and Executive shall agree; provided however, that from time to time Executive may be
required to travel to Employer’s offices, including Employer’s principal executive office currently located in
Wayne, Pennsylvania and St. Louis, Missouri.
SECTION 2. COMPENSATION AND BENEFITS
2.1
Salary. Beginning as of the Agreement Effective Date, Employer will pay to Executive an annual
base salary of $430,000, payable subject to standard federal and state payroll withholding requirements in
accordance with the regular payroll practices of Employer (“Base Salary”). The annual Base Salary may be
increased (but not decreased without written consent of Executive) during the term of this Employment
Agreement by the Board in its sole discretion.
2.2
Additional Compensation. In addition to the salary set forth in Section 2.1, Executive shall
continue to be entitled to receive a cash bonus in accordance with the terms of this Section 2.2. For each fiscal
year of Employer during the Employment Term (as defined in Section 2.4 hereof), Executive shall continue to be
eligible to receive a cash bonus based on (i) the “Annual Bonus Expectancy Amount,” which shall be an amount
equal to 40% of Executive’s Base Salary for the applicable fiscal year (provided that for fiscal year 2024,
Executive’s base salary for purposes of calculating his bonus under this section shall be the total salary paid to
him for the
2
year), and (ii) Executive’s attainment of performance targets and other reasonable criteria established by the
Board, to the extent possible, by the end of the first month of such fiscal year. Depending on the targets and
criteria which are achieved or met, the amount of the cash bonus actually payable to Executive for each fiscal
year will be an amount from zero to and including the Annual Bonus Expectancy Amount. Any cash bonus
amount payable pursuant to this Section 2.2 shall be paid to Executive as soon as practicable, but in no event
later than two and one-half (2 1/2) months, following the end of the fiscal year to which it relates. For the
avoidance of doubt, Executive does not have to be employed by Employer on the date such bonus is approved or
paid by Employer to receive such bonus.
2.3
Executive Benefits. In addition to the salary and additional compensation set forth in Sections 2.1
and 2.2, Executive shall also be entitled to the following benefits during Executive’s employment hereunder:
2.3.1 Expenses. Employer will promptly reimburse Executive for expenses he reasonably incurs
in connection with the performance of his duties (including business travel and entertainment expenses), in
accordance with Employer’s standard expense reimbursement policy, as the same may be modified by Employer
from time to time; provided, however, that Executive has provided Employer with documentation of such
expenses in accordance with the Employer’s expense reimbursement policies and applicable tax requirements. For
the avoidance of doubt, to the extent that any reimbursements payable to Executive are subject to the provisions of
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”): (a) any such reimbursements will
be paid no later than December 31 of the year following the year in which the expense was incurred, (b) the
amount of expenses reimbursed in one year will not affect the amount eligible for reimbursement in any
subsequent year, and (c) the right to reimbursement under this Employment Agreement will not be subject to
liquidation or exchange for another benefit.
2.3.2 Employer Plans. Executive will be eligible to participate on the same basis as similarly
situated full-time employees in Employer’s employee benefit plans and programs, as they may be interpreted,
adopted, revised or deleted from time to time in Employer’s sole discretion, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and programs. All matters of eligibility for
coverage or benefits under any benefit plan shall be determined in accordance with the provisions of such plan.
Employer retains the unilateral right to amend, modify or terminate any of its employee benefit plans and
programs at any time.
2.3.3 Vacation. Executive shall be eligible for paid vacation leave (not including regular
holidays) in accordance with Employer’s applicable vacation or PTO policy and consistent with the needs of the
business. Vacation must be scheduled at those times convenient to Employer’s business as reasonably determined
by the CEO.
2.3.4 Coverage. Nothing in this Employment Agreement shall prevent Executive from
participating in any other compensation plan or benefit plan made available to similarly situated full-time
employees of Employer.
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2.3.5 Withholding. All compensation shall be subject to withholding of taxes and deductions of
other amounts as may be required by law.
2.4
Employment Term. Unless earlier terminated pursuant to Section 3.1, Executive’s employment by
Employer pursuant to this Employment Agreement shall continue until the second anniversary of the Agreement
Effective Date (the “Initial Term”). Thereafter, this Employment Agreement shall be automatically renewed for
successive one (1) year periods (any subsequent employment period being referred to herein as the “Renewal
Term”, and together with the Initial Term, the “Employment Term”); provided, however, that either party may
elect to not renew this Employment Agreement by written notice to such effect delivered to the other party at least
ninety (90) days prior to expiration of the Initial Term or the Renewal Term.
SECTION 3. TERMINATION OF EMPLOYMENT
3.1
Events of Termination. Executive’s employment with Employer will terminate upon the
occurrence of any one or more of the following events:
3.1.1 Death. In the event of Executive’s death, Executive’s employment will terminate on the
date of death.
3.1.2 Disability. In the event of Executive’s Disability (as hereinafter defined), Employer will
have the option to terminate Executive’s employment by giving a notice of termination to Executive. The notice of
termination shall specify the date of termination, which date shall not be earlier than thirty (30) calendar days after
the notice of termination is given. For purposes of this Employment Agreement, “Disability” has the meaning set
forth in Employer’s long term disability plan.
3.1.3 Termination by Employer for Cause. Employer may, at its option, terminate Executive’s
employment for Cause (as hereinafter defined) by unilateral action of the Board of Directors upon giving a notice
of termination to Executive. “Cause” shall mean (i) Executive’s conviction of, or guilty plea to, a felony (other
than traffic violations); (ii) any act(s) or omission(s) by Executive which constitutes gross negligence or a material
breach of Executive’s duty of loyalty; (iii) any material breach by Executive of Employer’s personnel policies;
(iv) refusal to follow or implement a clear and reasonable directive of Employer; (v) breach of fiduciary duty; or
(vi) a material violation or breach by Executive of this Employment Agreement (other than an event described in
the foregoing clauses) or any other agreement between the parties. If of such termination shall be the later of the
date the notice of termination is given or the date set forth in such notice of termination.
3.1.4 Without Cause By Employer. Employer may, at its option, terminate Executive’s
employment for any reason whatsoever (other than for the other reasons set forth above in this Section 3.1 that
would constitute “Cause” to terminate) by giving a notice of termination to Executive, and Executive’s
employment shall terminate on the later of the date the notice of termination is given or the date set forth in such
notice of termination.
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3.1.5 By Executive. Executive may, at any time, terminate Executive’s employment for any
reason whatsoever by giving a notice of termination to Employer. Executive’s employment shall terminate on the
earlier of (i) thirty (30) calendar days after the date of receipt by Employer of the notice of termination or (ii) such
earlier date as the Employer and Executive shall agree.
3.1.6 Termination Upon Non-Renewal. Either party may
this Employment
Agreement and Executive’s employment hereunder by providing the other party notice in accordance with Section
2.4 above, in which case this Employment Agreement and Executive’s employment hereunder shall terminate on
the last date of the Initial Term or the Renewal Term, as the case may be. For the avoidance of doubt, Executive
shall continue to be employed by Employer, on the same terms and conditions as set forth in this Employment
Agreement during the ninety (90)-day notice period provided by either party to the other party in accordance with
Section 2.4 above, unless, Employer, in its sole discretion elects to have Executive cease work for Employer, in all
capacities, during such notice period. In such event, Employer shall pay Executive all compensation in accordance
with Section 3.2.3.
terminate
3.1.7 For Good Reason by Executive. Executive may, at his option, terminate Executive’s
employment for “Good Reason” by giving a notice of termination to Employer in the event that, in the absence of
events that would support a termination of Executive for Cause:
(i)
there is a material failure of Employer (or successor employer) to pay Executive’s salary or
additional compensation or benefits hereunder in accordance with this Employment Agreement;
(ii)
Executive’s Base Salary is materially decreased without his prior written consent;
(iii)
Executive is assigned duties materially inconsistent with his title and the responsibilities set
forth in Executive’s job description, without Executive’s prior written consent;
(iv)
Executive’s place of employment is changed to a location that is greater than fifty (50)
miles from Executive’s current place of employment (disregarding for this purpose any remote work
arrangements); or
(v)
any other material violation or breach by Employer of this Employment Agreement.
Notwithstanding the foregoing, none of the events described in clauses (i) through (iv) above shall constitute
Good Reason unless Executive shall have notified Employer in writing describing the event which constitute
Good Reason within thirty (30) days after Executive first becomes aware of such event and then only if Employer
shall have failed to reasonably cure such events, if curable, within thirty (30) days after Employer’s receipt of
such written notice and Executive elects to terminate his employment as a result within thirty (30) days following
the end of such thirty (30) day period (assuming, for the avoidance of doubt, that Employer does not elect to cure).
Executive and Employer agree that Executive’s shift full-time status as of the Agreement Effective Date
(as set forth in this Employment Agreement) was mutually agreed upon by the
5
parties (and with prior consent of Executive) and therefore does not constitute Good Reason as defined in this
Employment Agreement or the Prior Agreement.
3.2
Certain Obligations of Employer Following Termination of Executive’s Employment.
Following the termination of Executive’s employment under the circumstances described below, Employer will
pay to Executive, subject to standard federal and state payroll withholding requirements and in accordance with its
regular payroll practices, the following compensation and provide the following benefits (provided that the
continuing payments of Executive’s then-current Base Salary, as described below, shall occur no less frequently
than monthly):
3.2.1 Death; Disability; Termination by Employer Without Cause or by Executive for Good
Reason. In the event that Executive’s employment is terminated by Employer pursuant to Section 3.1.1
(“Death”), Section 3.1.2 (“Disability”), Section 3.1.4 (“Without Cause by Employer”) or by Executive pursuant
to Section 3.1.7 (“Termination by Executive for Good Reason”) hereof, and Executive, or his estate, as the case
may be, executes and does not revoke a separation agreement containing a release upon such termination, in a
form provided by the Employer, of any and all claims against Employer and all related parties with respect to all
matters arising out of Executive’s employment by Employer, or the termination thereof (the “Release”) in
accordance with Section 3.7, Executive, or his estate, as the case may be, shall be entitled to the following
payments and benefits, which payments and benefits shall be paid in accordance with this Section 3.2.1 and
Section 3.7:
(i)
Continuing payments of Executive’s then-current Base Salary for the Severance Period (as
defined in Section 3.5 herein), payable subject to standard federal and state payroll withholding
requirements in accordance with Employer’s regular payroll practices on Employer’s normal payroll
schedule over the Severance Period, subject to Section 3.7;
(ii)
Employer shall pay to Executive a lump sum payment equal to the gross sum of any
bonuses or portion thereof for any preceding year or for the year of termination which have been or are
approved by Employer, but has not been received by Executive prior to the effective date of termination,
less applicable deductions and withholdings, paid in accordance with Section 2.2 but in no event later than
two and one-half (2 1/2) months following the end of the fiscal year to which it relates. For the avoidance
of doubt, Executive does not have to be employed by Employer on the date such bonuses are approved by
Employer to receive such bonuses;
(iii)
So long as Executive is eligible, and so long as Executive remains eligible, for and upon his
timely election of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, or, if
applicable, state or local insurance laws (“COBRA”), Employer will continue to pay, directly to the
healthcare provider when due, Employer’s portion of the medical, vision and dental coverage premiums
(and Executive will be responsible for Executive’s portion) for a period of twelve (12) months after the
effective date of Executive’s termination (the “COBRA Payment Period”); provided that, if at any time
Employer determines, in its sole discretion, that the payment of the COBRA premiums would result in a
violation of the nondiscrimination rules of Section
6
105(h)(2) of the Code or any statute or regulation of similar effect (including but not limited to the 2010
Patient Protection and Affordable Care Act, as amended by the 2010 Health Care and Education
Reconciliation Act), then in lieu of providing the COBRA premiums for the remainder of the COBRA
Payment Period, Employer will instead pay Executive on the first day of each month of the remainder of
the COBRA Payment Period, a fully taxable cash payment equal to the COBRA premiums for that month,
subject to applicable tax withholdings, for the remainder of the COBRA Payment Period; and
(iv)
In the event such termination of employment occurs on or within three (3) months prior to
or within twelve (12) months following the effective date of a Change of Control (as defined herein),
Executive shall be entitled to the additional following payments and benefits (for the avoidance of doubt,
Executive shall also be entitled to the amounts set forth in Section 3.2.1(i)-(iii)):
(1)
Employer shall pay to Executive a lump sum payment equal to the Annual
Expectancy Bonus Amount (target bonus), less applicable deductions and withholdings, paid
within thirty (30) days of the later of (a) the effective date of the Change of Control or (b)
Executive’s termination, if such termination occurs on or after the effective date of a Change of
Control; and
(2)
In the event such termination of employment occurs (A) on or within three
(3) months prior to the effective date of a Change of Control, all unvested stock options and other
equity awards held by Executive and outstanding on the effective date of termination shall become
fully vested on the effective date of the Change of Control, or (B) within twelve (12) months
following the effective date of a Change of Control, provided that any surviving corporation or
acquiring corporation assumes Executive’s stock options and/or other equity awards, as applicable,
or substitutes similar stock options or equity awards for Executive’s stock options and/or equity
awards, as applicable, in accordance with the terms of Employer’s applicable equity incentive
plans, all such unvested stock options and other equity awards held by Executive and outstanding
on the effective date of termination shall become fully vested on the date of such termination.
For purposes of this Employment Agreement, “Change of Control” means, in each case as approved by
the Board and the requisite stockholders of Employer, (i) any consolidation or merger of Employer with or into
any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of
Employer immediately prior to such consolidation, merger or reorganization, own, in the aggregate, less than 50%
of the surviving entity’s voting power and/or outstanding capital stock immediately after such consolidation,
merger or reorganization, or any transaction or series of related transactions (including any transaction which
results from an option agreement or binding letter of intent with a third party) to which Employer or any of its
stockholders is a party in which in excess of 50% of Employer’s voting power and/or outstanding capital stock is
transferred, or pursuant to which any person or group of affiliated persons obtains in excess of 50% of Employer’s
voting power and/or outstanding capital stock, excluding any consolidation or merger effected exclusively to
change
7
the domicile of Employer; or (ii) any sale, license or other disposition (including through a Board and stockholder
approved division or spin-off transaction) of all or substantially all of the assets of Employer and/or any of its
subsidiaries or any sale, exclusive license or other disposition of all or substantially all of Employer’s intellectual
property, as reasonably determined based upon the potential earning power of the assets or intellectual property;
provided, however, that none of the following shall constitute a Change of Control: (A) transfers of capital stock
by an existing stockholder as a result of death or otherwise for estate planning purposes or to such stockholder’s
affiliates or to any of Employer’s other existing stockholders, and (B) issuances of equity securities of Employer
in connection with financings for working capital and other general corporate purposes; and, provided further, that
such “Change of Control” qualifies as either a change in ownership of Employer as defined in Section 409A of the
Code (“Section 409A”) or a change in the ownership of a substantial portion of Employer’s assets as defined in
Section 409A, as the case may be.
3.2.2 Termination by Executive Other than For Good Reason; Termination Upon Non-
Renewal by Executive; Termination by Employer for Cause. In the event Executive’s employment is
terminated by Executive other than for Good Reason pursuant to Section 3.1.5 hereof (“By Executive”) or by
Executive pursuant to Section 3.1.6 hereof (“Termination Upon Non-Renewal”) or by Employer pursuant to
Section 3.1.3 hereof (“Termination by Employer for Cause”), Executive shall be entitled to no further
compensation or other benefits under this Employment Agreement except as to that portion of any unpaid salary
and other benefits accrued and earned by him hereunder up to and including the effective date of such termination
and to offer COBRA coverage at Executive’s cost pursuant to applicable law.
3.2.3 Termination Upon Non-Renewal by Employer. In the event Executive’s employment is
terminated by Employer pursuant to Section 3.1.6 hereof, then during the ninety (90)-day notice period of Section
2.4, Employer shall continue to pay to Executive his then-current Base Salary and benefits subject to standard
federal and state payroll withholding requirements and in accordance with Employer’s regular payroll practices,
and no later than the effective date of termination of employment, Employer shall pay to Executive any such
unpaid salary accrued and earned by him up to and including the effective date of termination. In addition, in the
event Executive’s employment is terminated by Employer pursuant to Section 3.1.6 hereof, then provided
Executive executes and does not revoke a Release in accordance with Section 3.7, Executive shall be entitled to
the following, which payments and benefits shall be paid in accordance with this Section 3.2.3 and Section 3.7:
(i)
Continuing payments of Executive’s then-current Base Salary for the Severance Period
payable subject to standard federal and state payroll withholding requirements in accordance with
Employer’s regular payroll practices on Employer’s normal payroll schedule over the Severance Period,
subject to Section 3.7;
(ii)
Employer shall pay to Executive a lump sum payment equal to the gross sum of any
bonuses or portion thereof for any preceding year or for the year of termination which have been or are
approved by Employer, but has not been received by Executive prior to the effective date of termination,
less applicable deductions and withholdings, paid in accordance with Section 2.2 but in no event later than
two and one-half (2 1/2)
8
months following the end of the fiscal year to which it relates. For the avoidance of doubt, Executive does
not have to be employed by Employer on the date such bonuses are approved by Employer to receive such
bonuses; and
(iii)
So long as Executive is eligible, and so long as Executive remains eligible, for and upon his
timely election of coverage under COBRA, Employer will continue to pay, directly to the healthcare
provider when due, Employer’s portion of the medical, vision and dental coverage premiums (and
Executive will be responsible for Executive’s portion) for the COBRA Payment Period; provided that, if at
any time Employer determines, in its sole discretion, that the payment of the COBRA premiums would
result in a violation of the nondiscrimination rules of Section 105(h)(2) of the Code or any statute or
regulation of similar effect (including but not limited to the 2010 Patient Protection and Affordable Care
Act, as amended by the 2010 Health Care and Education Reconciliation Act), then in lieu of providing the
COBRA premiums for the remainder of the COBRA Payment Period, Employer will instead pay
Executive on the first day of each month of the remainder of the COBRA Payment Period, a fully taxable
cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings, for
the remainder of the COBRA Payment Period.
3.3
Nature of Payments. All amounts to be paid by Employer to Executive pursuant to Sections
3.2.1(i) — (iv) and 3.2.3(i) — (iii) are considered by the parties to be severance payments and are in lieu of, and
not in addition to, any benefits to which Executive may otherwise be entitled under any Employer severance plan,
policy or program.
3.4
Duties Upon Termination. During the Severance Period, if there is a Severance Period applicable
to Executive’s termination of employment from Employer, Executive shall fully cooperate with Employer in all
matters relating to the winding up of Executive’s pending work including, but not limited to, any litigation in
which Employer is involved, and the orderly transfer of any such pending work to such other employees as may
be designated by Employer. Notwithstanding the foregoing, such cooperation requirement shall not unreasonably
interfere with his then current employment or business activities. With Employer’s prior approval, Executive shall
be reimbursed for all expenses reasonably incurred in connection with such cooperation. Following the end of the
Severance Period, Executive will be released from any duties and obligations hereunder (except those duties and
obligations set forth in Article 4 hereof). In the event of termination of Executive’s employment pursuant to
Sections 3.1.1 through 3.1.7 hereof, the obligations of Employer to Executive will be as set forth in Section 3.2
hereof. Upon termination, Executive shall immediately resign from his position as CSO of Employer.
3.5
Severance Period. “Severance Period” shall mean a period of twelve (12) months beginning on
the effective date of Executive’s termination of employment with Employer.
3.6
Release. Notwithstanding any provision of this Employment Agreement to the contrary, in no
event shall the timing of Executive’s execution of the Release, directly or indirectly, result in Executive
designating the calendar year of payment, and if a payment that is subject to the requirements of Section 409A of
the Code and is subject to execution of the Release could be
9
made in more than one taxable year based on when the Release is executed or becomes effective, payment shall be
made in the later year.
3.7
Commencement of Severance Payments. The severance payments and benefits set forth in
Sections 3.2.1(i) — (iv) (Termination by Employer for Death, Disability, Without Cause, by Executive for Good
Reason) and Sections 3.2.3(i) — (iii) (Termination Upon Non- Renewal by Employer) above will not be paid or
provided unless Executive executes and does not revoke the Release and the Release is enforceable and effective
as provided in the Release on or before the date that is the sixtieth (60th) day following the effective date of
termination (such 60th day, the “Severance Pay Commencement Date”). No cash severance payments will be
paid pursuant to Sections 3.2.1 or 3.2.3 prior to the Severance Pay Commencement Date. On the Severance Pay
Commencement Date, Employer will pay in a lump sum the aggregate amount of the cash severance payments
that Employer would have paid Executive through such date had the payments commenced on the effective date
of termination through the Severance Pay Commencement Date, with the balance paid thereafter on the applicable
schedules described above. Notwithstanding any other provision of this Employment Agreement to the contrary, it
is intended that the payment of severance upon termination for Good Reason by Executive in accordance with
Section 3.1.7 satisfy the safe harbor set forth in Treasury Regulation Section 1.409A-1(n)(2)(ii)), and any
severance payment made pursuant to this Employment Agreement shall satisfy the exemptions from the
application of Section 409A of the Code provided under Treasury Regulation Sections 1.409A-1(b)(4), and
1.409A-1 (b)(9).
SECTION 4. CONFIDENTIALITY, INVENTION RIGHTS, NON-COMPETITION AND NON-
SOLICITATION
4.1
Confidentiality, Invention Rights, Non-Competition and Non-Solicitation. The parties hereto
have entered into a Confidentiality, Invention Rights, Non-Competition and Non- Solicitation Agreement, which
may be amended by the parties from time to time without regard to this Employment Agreement. Executive
agrees as a condition of continued employment hereunder to continue to abide by the terms and conditions set
forth in the Confidentiality, Invention Rights, Non-Competition and Non-Solicitation Agreement. The
Confidentiality, Invention Rights, Non-Competition and Non-Solicitation Agreement contains provisions that are
intended by the parties to survive and do survive termination of this Employment Agreement.
4.2
Remedies. Executive acknowledges and agrees that (a) Employer will be irreparably injured in the
event of a breach by Executive of any of his obligations under this Article 4; (b) monetary damages will not be an
adequate remedy for any such breach; and (c) in the event of any such breach, the Employer will be entitled to
injunctive relief, in addition to any other remedy which it may have, and Executive shall not oppose such
injunctive relief based upon the extent of the harm or the adequacy of monetary damages.
SECTION 5. MISCELLANEOUS PROVISIONS
5.1
Severability. If in any jurisdiction any term or provision hereof is determined to be invalid or
unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, (b) any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other
jurisdiction, and (c) the invalid or unenforceable term
10
or provision shall, for purposes of such jurisdiction, be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.
5.2
Execution in Counterparts. This Employment Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an
original but all of which taken together shall constitute one and the same agreement (and all signatures need not
appear on any one counterpart), and this Employment Agreement shall become effective when one or more
counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto.
Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying
with the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act or other applicable law) or other
transmission method and any counterpart so delivered will be deemed to have been duly and validly delivered and
be valid and effective for all purposes.
5.3
Notices. All notices, requests, demands and other communications hereunder shall be in writing
and shall be deemed duly given when delivered by hand, or when delivered if mailed by registered or certified
mail, postage prepaid, return receipt requested, or private courier service or via facsimile (with written
confirmation of receipt) or email (with written confirmation of receipt) as follows:
If to Employer, to:
Aclaris Therapeutics, Inc.
701 Lee Road, Suite 103
Wayne, PA 19087
Attention: Legal Department
E-mail: legal@aclaristx.com
If to Executive, to the current address on file with Employer,
or to such other address(es) as a party hereto shall have designated by like notice to the other parties hereto.
5.4
Amendment. No provision of this Employment Agreement may be modified, amended, waived or
discharged in any manner except by a written instrument executed by Employer and Executive.
5.5
Entire Agreement. This Employment Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the
parties hereto, oral or written, with respect to the subject matter hereof, including but not limited to the Prior
Agreement. No representation, promise or inducement has been made by either party that is not embodied in this
Employment Agreement, and neither party shall be bound by or liable for any alleged representation, promise or
inducement not so set forth.
11
5.6
Applicable Law. This Employment Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania applicable to contracts made and to be wholly performed
therein without regard to its conflicts or choice of law provisions.
5.7
Headings. The headings contained herein are for the sole purpose of convenience of reference, and
shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this
Employment Agreement.
5.8
Binding Effect; Successors and Assigns. Executive may not delegate his duties or assign his
rights hereunder. This Employment Agreement will inure to the benefit of, and be binding upon, the parties hereto
and their respective heirs, legal representatives, and successors. Employer may assign this Employment
Agreement to any entity purchasing all or substantially all of the assets of Employer.
5.9 Waiver, etc. The failure of either of the parties hereto to at any time enforce any of the provisions
of this Employment Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in
any way affect the validity of this Employment Agreement or any provision hereof or the right of either of the
parties hereto to thereafter enforce each and every provision of this Employment Agreement. No waiver of any
breach of any of the provisions of this Employment Agreement shall be effective unless set forth in a written
instrument executed by the party against whom or which enforcement of such waiver is sought, and no waiver of
any such breach shall be construed or deemed to be a waiver of any other or subsequent breach.
5.10 Continuing Effect. Provisions of this Employment Agreement which by their terms must survive
the termination of this Employment Agreement in order to effectuate the intent of the parties will survive any such
termination, whether by expiration of the term, termination of Executive’s employment, or otherwise, for such
period as may be appropriate under the circumstances.
5.11 Representations and Warranties of Executive. Executive hereby represents and warrants to
Employer that to the knowledge of Executive, Executive is not bound by any non- competition or other agreement
which would prevent his performance hereunder.
5.12
Section 409A of the Code. This Employment Agreement is intended to comply with Section 409A
of the Code and its corresponding regulations, or an exemption, and payments may only be made under this
Employment Agreement upon an event and in a manner permitted by Section 409A of the Code, to the extent
applicable. Payment under this Employment Agreement is intended to be exempt from Code Section 409A under
the “short- term deferral” exception set forth in Treasury Regulation Section 1.409A-1(b)(4), to the maximum
extent applicable, and then under the separation pay exception set forth in Treasury Regulation Section 1.409A-
1(b)(9), to the maximum extent applicable. All payments to be made upon a termination of employment under this
Employment Agreement may only be made upon a separation from service within the meaning of Treasury
Regulation Section 1.409A-1(h) (or any successor provision) (a “Separation from Service”). For purposes of
12
Code Section 409A, the right to a series of installment payments under this Employment Agreement shall be
treated as a right to a series of separate payments. In no event may the Executive, directly or indirectly, designate
the calendar year of a payment. If the termination of employment giving rise to the payments described in Section
3.2.1 is not a Separation from Service, then the amounts otherwise payable pursuant to Section 3.2.1 will instead
be deferred without interest and paid when Executive experiences a Separation from Service. Notwithstanding
anything in this Employment Agreement to the contrary or otherwise, with respect to any expense, reimbursement
or in-kind benefit provided pursuant to this Employment Agreement that constitutes a “deferral of compensation”
within the meaning of Section 409A of the Code and its implementing regulations and guidance, (a) the expenses
eligible for reimbursement or in-kind benefits provided to Executive must be incurred during the Employment
Term (or applicable survival period), (b) the amount of expenses eligible for reimbursement or in-kind benefits
provided to Executive during any calendar year will not affect the amount of expenses eligible for reimbursement
or in-kind benefits provided to Executive in any other calendar year, (c) the reimbursements for expenses for
which Executive is entitled to be reimbursed shall be made on or before the last day of the calendar year following
the calendar year in which the applicable expense is incurred and (d) the right to payment or reimbursement or in-
kind benefits hereunder may not be liquidated or exchanged for any other benefit. Notwithstanding any provision
to the contrary in this Employment Agreement, if Executive is deemed by Employer at the time of his Separation
from Service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, and if any of the
payments due upon Separation from Service set forth herein and/or under any other agreement with Employer are
deemed to be “deferred compensation,” then to the extent delayed commencement of any portion of such
payments is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code and the related
adverse taxation under Section 409A of the Code, such payments will not be provided to Executive prior to the
earliest of (i) the expiration of the six (6)-month period measured from the date of Executive’s Separation from
Service with Employer, (ii) the date of Executive’s death or (iii) such earlier date as permitted under Section 409A
of the Code without the imposition of adverse taxation. Upon the first business day following the expiration of
such applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 5.12 will be
paid in a lump sum to Executive, and any remaining payments due will be paid as otherwise provided in this
Employment Agreement or in the applicable agreement. No interest will be due on any amounts so deferred.
5.13
Section 280G. Notwithstanding any other provision of this Employment Agreement or any other
plan, arrangement or agreement to the contrary, if any of the payments or benefits provided or to be provided by
Employer or its affiliates to Executive or for Executive’s benefit pursuant to the terms of this Employment
Agreement or otherwise (the “Covered Payments”) constitute parachute payments (the “Parachute Payments”)
within the meaning of Section 280G of the Code and, but for this Section 5.13, would be subject to the excise tax
imposed under Section 4999 of the Code (or any successor provision thereto) or any similar tax imposed by state
or local law or any interest or penalties with respect to such taxes (collectively, the “Excise Tax”), then prior to
making the Covered Payments, a calculation shall be made comparing (i) the Net Benefit (as defined below) to
Executive of the Covered Payments after payment of the Excise Tax to (ii) the Net Benefit to Executive if the
Covered Payments are limited to the extent necessary
13
to avoid being subject to the Excise Tax. Only if the amount calculated under clause (i) above is less than the
amount under clause (ii) above will the Covered Payments be reduced to the minimum extent necessary to ensure
that no portion of the Covered Payments is subject to the Excise Tax. “Net Benefit” shall mean the present value
of the Covered Payments net of all federal, state, local, foreign income, employment and excise taxes.
(a)
Any such reduction shall be made in accordance with Section 409A and the following:
(i)
(ii)
(iii)
(iv)
the Covered Payments consisting of cash severance benefits that do not constitute
nonqualified deferred compensation subject to Section 409A shall be reduced first, in
reverse chronological order; and
all other Covered Payments consisting of cash payments, and Covered Payments consisting
of accelerated vesting of equity based awards to which Treas. Reg. §1.280G-1 Q/A-24(c)
does not apply, and that in either case do not constitute nonqualified deferred compensation
subject to Section 409A, shall be reduced second, in reverse chronological order; and
all Covered Payments consisting of cash payments that constitute nonqualified deferred
compensation subject to Section 409A shall be reduced third, in reverse chronological
order; and
all Covered Payments consisting of accelerated vesting of equity-based awards to which
Treas. Reg. § 1.280G-1 Q/A-24(c) applies shall be the last Covered Payments to be
reduced.
(b)
Any determination required under this Section 5.13 shall be made in writing in good faith by an
independent accounting firm selected by Employer and reasonably acceptable to the Executive (the
“Accountants”). Employer and Executive shall provide the Accountants with such information and documents as
the Accountants may reasonably request in order to make a determination under this Section 5.13. For purposes of
making the calculations and determinations required by this Section 5.13, the Accountants may rely on
reasonable, good-faith assumptions and approximations concerning the application of Section 280G and Section
4999 of the Code. The Accountants’ determinations shall be final and binding on Employer and Executive.
Employer shall be responsible for all fees and expenses incurred by the Accountants in connection with the
calculations required by this Section 5.13.
(c)
It is possible that after the determinations and selections made pursuant to this Section 5.13.
Executive will receive Covered Payments that are in the aggregate more than the amount intended or required to
be provided after application of this Section 5.13 (“Overpayment”) or less than the amount intended or required to
be provided after application of this Section 5.13 (“Underpayment”).
(i)
In the event that: (A) the Accountants determine, based upon the assertion of a deficiency
by the Internal Revenue Service against either Employer or Executive that the Accountants
believe has a high probability of success,
14
that an Overpayment has been made or (B) it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding that has been finally
and conclusively resolved that an Overpayment has been made, then Executive shall pay
any such Overpayment to Employer together with interest at the applicable federal rate (as
defined in Section 7872(f)(2)(A) of the Code) from the date of Executive’s receipt of the
Overpayment until the date of repayment.
(ii)
In the event that: (A) the Accountants, based upon controlling precedent or substantial
authority, determine that an Underpayment has occurred or (B) a court of competent
jurisdiction determines that an Underpayment has occurred, any such Underpayment will
be paid promptly by Employer to or for the benefit of Executive together with interest at the
applicable federal rate (as defined in Section 7872(f)(2)(A) of the Code) from the date the
amount should have otherwise been paid to Executive until the payment date.
5.14 Dispute Resolution. The parties recognize that litigation in federal or state courts or before federal
or state administrative agencies of disputes arising out of the Executive’s employment with the Employer or out of
this Employment Agreement, or the Executive’s termination of employment or termination of this Employment
Agreement, may not be in the best interests of either the Executive or Employer, and may result in unnecessary
costs, delays, complexities, and uncertainty. The parties agree that any dispute between the parties arising out of
or relating to the negotiation, execution, performance or termination of this Employment Agreement or the
Executive’s employment, including, but not limited to, any claim arising out of this Employment Agreement,
claims under Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, Section 1981 of the
Civil Rights Act of 1966, as amended, the Family Medical Leave Act, the Executive Retirement Income Security
Act, and any similar federal, state or local law, statute, regulation, or any common law doctrine, whether that
dispute arises during or after employment, shall be settled by binding arbitration in accordance with the National
Rules for the Resolution of Employment Disputes of the American Arbitration Association; provided however,
that this dispute resolution provision shall not apply to any separate agreements between the parties that do not
themselves specify arbitration as an exclusive remedy. The location for the arbitration shall be the Philadelphia,
Pennsylvania metropolitan area. Any award made by such panel shall be final, binding and conclusive on the
parties for all purposes, and judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. The arbitrators’ fees and expenses and all administrative fees and expenses associated
with the filing of the arbitration shall be borne by Employer. The parties acknowledge and agree that their
obligations to arbitrate under this Section survive the termination of this Employment Agreement or the Prior
Agreement and continue after the termination of the employment relationship between Executive and Employer.
The parties each further agree that the arbitration provisions of this Employment Agreement shall provide each
party with its exclusive remedy, and each party expressly waives any right it might have to seek redress in any
other forum, except as otherwise expressly provided in this Employment Agreement. By election arbitration as the
means for final settlement of all
15
claims, the parties hereby waive their respective rights to, and agree not to, sue each other in any action in
a Federal, State or local court with respect to such claims, but may seek to enforce in court an arbitration
award rendered pursuant to this Employment Agreement. The parties specifically agree to waive their
respective rights to a trial by jury, and further agree that no demand, request or motion will be made for
trial by jury.
[SIGNATURE PAGE FOLLOWS]
16
IN WITNESS WHEREOF the parties have executed this Employment Agreement as of the date first above
written.
Agreed to and Accepted this 31st day of January, 2024.
ACLARIS THERAPEUTICS, INC.
/s/ Neal Walker
Name: Neal Walker
Title
Interim President & CEO
EXECUTIVE
/s/ Joseph Monahan
Joseph Monahan
17
Exhibit A
List of Entities Referenced in Section 1.2.2.
Cadre Bioscience, LLC
Myonid Therapeutics, LLC
18
Exhibit 10.18
SEPARATION AGREEMENT, WAIVER AND RELEASE
THE SEPARATION AGREEMENT, WAIVER AND RELEASE (“Agreement”) is made and entered into as of 2/4/2024,
by and among Douglas Manion, whose address is , and their heirs, legatees,
personal representatives, successors and assigns (“Employee”), and Aclaris Therapeutics, Inc. (“Aclaris” or “Employer”).
WHEREAS, Employer and Employee are parties to that certain Amended and Restated Employment Agreement, dated as
of January 1, 2023 (the “Employment Agreement”);
WHEREAS, Employer and Employee mutually desire that Employee step down from all of Employee’s positions with
Employer; and
WHEREAS, it is the desire of the parties to state the terms and conditions of the termination of their relationship as
Employee and Employer.
NOW, THEREFORE, in consideration of the mutual covenants, representations and the payments made herein, the
sufficiency of which are hereby mutually acknowledged, the parties agree as follows:
1. Separation: Employee’s last day worked with Aclaris is January 16, 2024 (“Termination Date”). Employee resigns as a
member of the Board of Directors of Aclaris (“Board”) and/or the board of directors of any subsidiary or affiliate of the
Employer, as an officer of Employer and any subsidiary or affiliate of Employer, and any role or position in which
Employee is acting as a representative or agent of Employer or any subsidiary or affiliate of Employer effective as of the
Termination Date. Employee agrees to submit such documentation as the Board may require to confirm Employee’s
resignation from the Board. In the regular course of business or in accordance with applicable law, Employer will pay
all compensation and benefits due to Employee from Aclaris through the Termination Date. Employee acknowledges
they are not due any further compensation from Aclaris except as specified in this Agreement.
2. Severance and Consideration from Employer: In exchange for Employee’s release and other promises provided
herein, and Employee’s execution of this Agreement, and if Employee complies with the terms and conditions of this
Agreement and the Employment Agreement, then Aclaris will pay (or provide) Employee the same severance benefits as
set forth in Section 3.2.1 of the Employment Agreement on the time lines set forth therein and in Section 3.7 of the
Employment Agreement. In addition, Aclaris will provide Employee with access to career transition services by a
provider selected by Employer, provided that Employee must contact the provider and begin receipt of these services
within 90 days of the Effective Date.
3. Other Benefits
A. Earned and Unused Vacation Time: Employee will also be paid for earned but unused vacation time accrued
through the Termination Date in one lump sum via direct deposit in accordance with applicable law, but no later than
the next regular payroll cycle following the Termination Date in accordance with Aclaris’ usual compensation and
payroll practices. Aclaris will deduct all normal tax withholdings and deductions required by law.
B. Benefit Continuation: Employee separation from Aclaris is a “qualifying event” under the Consolidated Omnibus
Budget Reconciliation Act (“COBRA”). Information about Employee COBRA rights and election paperwork will be
mailed to Employee’s home in accordance with Aclaris’ usual policies and/or practices. Employee and their
dependents may elect to continue health, dental and vision coverages under COBRA by completing and returning
the COBRA election paperwork in accordance with the instructions set forth in those materials. Should
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SEPARATION AGREEMENT, WAIVER AND RELEASE
Employee elect COBRA continuation, except as set forth in Section 3.2.1 of the Employment Agreement, Employee
will be fully responsible for payment of the premium cost of Employee COBRA coverage. Continuation of coverage
shall in all respects be subject to the requirements, conditions and limitations of COBRA and Aclaris’ plans, which
may be amended, modified or discontinued from time to time in the sole discretion of Aclaris.
C. Tax Treatment: Aclaris will issue a Form W-2 to Employee that includes the aforementioned cash severance and
Employer may issue such tax forms as necessary to reflect consideration provided pursuant to this Agreement.
D. 401(k) Savings Plan: Employee will be entitled to any vested amounts held by them or on their account in Aclaris’
401(k) savings plan, such amounts to be distributed to them or on their account in accordance with the plan terms
and/or as required by applicable law.
E. Equity Awards: As of the Termination Date, to the extent that Employee holds Aclaris equity awards that are
outstanding as of the Termination Date, Employee’s rights and entitlements with respect to each such equity award
will be governed by the applicable Company equity plan and award agreement evidencing such award.
F. No Other Compensation or Benefits: Employee agrees and acknowledges that, except for the payments and
benefits described in Paragraphs 1-3, no insurance or employment-related benefits of any type will be provided,
accrue, or mature after the Termination Date and Employee is not entitled to any right to payment for wages, bonus,
commission or other amounts of any nature from Employer, and Employee agrees that all wages, bonuses,
commissions, incentives and other amounts owed to Employee, if any, have been paid to Employee.
4. Consideration from Employee
A. Release: In exchange for the consideration described in Paragraph 2, Employee, for themselves, their heirs,
administrators, executors, agents, insurers, representatives, successors and assigns, hereby generally and specifically
releases, forever discharges and covenants not to sue Aclaris and/or any related entity, including, but not limited to
Aclaris, and all of Aclaris’ (and/or any related entities’) past and present officers, directors, members, agents,
attorneys, employees, predecessors, parents, subsidiaries, affiliates, benefit plans and their respective heirs,
administrators, executors, successors and assigns (all of which are hereinafter collectively called the “Released
Parties”), from any and all demands, claims, debts, lawsuits, or causes of action (collectively, “claims”), both
known and unknown, whether arising under or out of a local, state or federal statute, including, but not limited to,
ERISA, Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967,
as amended (the “ADEA”), the Civil Rights Act of 1991, the Worker Adjustment and Retraining Notification
(“WARN”) Act, 42 U.S.C. §1981 the Americans with Disabilities Act of 1990, the Pennsylvania Human Relations
Act – 43 P.S. § 951, et seq., the Pennsylvania Minimum Wage Act – 43 P.S. § 333.101, et seq., the Pennsylvania
Whistleblower Law – 43 P.S. § 1421, et seq., the Pennsylvania Equal Pay Law, as amended – 43 P.S. § 336.1, et
seq., the Pennsylvania Workers Compensation Act - 77 PS. § 1, et seq., the Pennsylvania Worker and Community
Right to Know Act – 35 Pa. Cons. Stat. Ann. § 7301, and any statute or law of the United States, the Commonwealth
of Pennsylvania, or any other state not mentioned above under which Employee may waive rights, and any claims
based upon the law of any state or municipality which Employee now has, or which were or could have been made
on account of Employee’s employment with Employer, including their separation from Employer, and any
transaction or occurrence between Employee and Employer at any time during such employment and after
separation up to the time of executing this Agreement, any regulation or
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SEPARATION AGREEMENT, WAIVER AND RELEASE
common law, and including, but not limited to, those claims relating to emotional distress, mortal anguish, libel,
slander, defamation, negligence, gross negligence, bad faith, personal injury, workers compensation, or alleged
discrimination of any kind (including age discrimination), breach of contract or public policy, wrongful or retaliatory
discharge, or personal or business injury, and all damages (including contract, compensatory, punitive or liquidated
damages) or equitable relief, for or by reason of any matter, incident or thing from the beginning of time up to the
date Employee executes this Agreement, whether known or unknown, including but not limited to, those matters,
incidents or things arising out of their employment with Aclaris or any related entity or the termination of such
employment. Employee expressly waives the benefits of any statute or rule of law which, if applied to this
Agreement, would otherwise exclude from its binding effect any claim(s) against any Released Party not now
known by Employee to exist. Except as necessary to enforce this Agreement, this Paragraph is intended by
Employee and Aclaris to be a general release and a covenant not to sue which extinguishes all claims and precludes
any attempt by Employee to initiate any litigation against Aclaris or any other Released Party regarding any matter,
incident, or thing which occurred up to the date Employee executes this Agreement.
B. Protected Activity: Nothing in this Agreement prohibits or limits Employee’s ability to file a charge or voluntarily
communicate with the Equal Employment Opportunity Commission, United States Department of Labor, the
National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange
Commission or any other federal, state or local government agency or commission (“Government Agencies”), or
prevents Employee from providing confidential information to Government Agencies (with the exception of
information that is protected from discloser by any applicable law or privilege) or participating in any investigation
or proceeding that may be conducted by any Government Agency, including providing documents or other
information, without notice to Aclaris. This Agreement does not limit Employee’s right to receive an award for
information provided to any Government Agencies. On the other hand, Employee waives and releases any right to
any claims for money damages and equitable relief pursuant to the filing or prosecution of any administrative charge
against Aclaris or any resulting civil proceeding or lawsuit that may be commenced on Employee’s behalf for the
recovery of such relief, and which arises out of the matters that are and may be released in this Agreement.
C. Agreement Not To Participate: With the exception of actions protected in Paragraph 4(B) and/or filings, charges or
complaints protected under the whistleblower provisions of federal or state law or regulation, Employee agrees not
to file, participate in (financially or otherwise), or have filed on their behalf, any administrative or judicial charges,
grievances, complaints, petitions, suits or appeals against Aclaris and/or its officers, agents, employees, contractors,
divisions, directors, parent, subsidiary, and affiliated corporations, together with their predecessors, successors and
assigns because of any act or omission of Aclaris released by this Agreement.
D. Waiver of Right to Assist Others: Employee understands that if this Agreement was not signed, Employee would
have the right to voluntarily assist other individuals or entities in bringing claims against the Released Parties. To the
maximum extent allowed by applicable law, Employee waives the right to voluntarily assist other individuals or
entities in bringing claims against the Released Parties, and unless Employee’s assistance is specifically sought by a
governmental entity or compelled by applicable law or valid court order, Employee shall not aid or assist others in
the pursuit of any claims they may make against the Released Parties. Employee further agrees not to testify in any
lawsuit or other court proceeding that involves or affects Aclaris without the prior consent of Aclaris or unless
compelled by court order and then only after immediately giving reasonable notice to Aclaris (other than in
connection with proceedings protected under the whistleblower provisions of federal or state law or regulation).
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SEPARATION AGREEMENT, WAIVER AND RELEASE
E. Other Rights: Notwithstanding the foregoing, nothing contained in this Agreement shall in any way diminish or
impair: (i) any rights Employee may have to accrued compensation; (ii) Employee’s ability to bring proceedings to
enforce this Agreement; or (iii) any claims Employee may have that cannot be waived under applicable law, such as
unemployment benefits, workers’ compensation and disability benefits.
5. Return of Property: Employee will not in the future use and shall immediately return all Aclaris property, documents
and other materials prepared, used by, or delivered to Employee during Employee’s employment. This property includes,
but is not limited to: all company keys, cards, materials, laptop computers and other company property, including
without limitation, all confidential and/or proprietary business, financial or technical information (excluding wages)
such as, without limitation, writings, documents, manuals, notebooks, reports, audio/video work, inventions, formulas,
processes, technical know-how, machines, compositions, computer software, microfiche, accounting methods, business
plans and information systems including such materials, information and data which are in machine readable form or
otherwise and any information gained through discussions and/or meetings, etc. of Aclaris, if they have not already done
so.
6. Breach of Agreement: The consideration outlined in Paragraph 2 is contingent upon Employee performing all duties
stated in the Agreement. If Employee breaches any part of the Agreement or has misrepresented any fact, such
consideration shall be void, and Aclaris may pursue all remedies available at law or equity to remedy that breach or
misrepresentation. In addition, if Employee breaches this Agreement after payment hereunder has been made, Aclaris
shall be entitled to have the payment refunded pursuant to an adjudication under Paragraph 21 hereof. This provision
shall not limit in any way a claim for damages caused by her breach of this Agreement.
7. Denial of Liability: The Agreement shall not be considered or offered as an admission by or evidence against Aclaris of
any violation of any law or wrongdoing of any kind.
8. References: In accordance with Aclaris’ usual policies, when responding to requests related to Employee’s future
employment or references for Employee, Aclaris will provide only information regarding her employment start date,
Termination Date and
to Human Resources at
job
humanresources@aclaristx.com.
requests should be directed
Any such
titles.
9. Transition and Cooperation: Employee acknowledges Employee’s existing obligation under Paragraph 3.4 of the
Employment Agreement to cooperate during the Severance Period (as defined in the Employment Agreement).
Employee therefore will fully cooperate with Aclaris to affect a professional, cooperative transition of Employee work
and responsibilities. Employee further agrees, upon Aclaris’ reasonable request, to cooperate to the best of their ability
with Aclaris and with any legal counsel, expert or consultant it may retain to assist it in connection with any judicial
proceeding, arbitration, administrative proceeding, governmental investigation or inquiry, internal investigation or audit
in which Aclaris is or becomes involved. This includes, but is not limited to, Employee assistance, cooperation and
participation with respect to any matter in which they have information relevant to the inquiry, or in which they are
identified as a witness. Employee assistance, cooperation and participation includes, without limitation, preparing for
and attending depositions, assisting in answering factual questions for discovery, and preparing for and attending any
hearing or trial as a witness. Aclaris agrees to reimburse Employee for any reasonable out of pocket expenses incurred
as a result of their assistance, cooperation and participation. In addition, Aclaris will pay Employee a reasonable amount
of compensation as agreed by the parties in good faith as compensation for the time and effort required in providing the
requested assistance. Employee will promptly notify Aclaris if they are subpoenaed by an person or entity (other than
any Governmental Agency) to give information or testimony that in any
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SEPARATION AGREEMENT, WAIVER AND RELEASE
way relates to their employment with or representation of Aclaris. Employee agrees they will testify truthfully in all such
matters or proceedings. Nothing in this Agreement is intended to be or may be construed in any way as being dependent
upon or contingent on the content of Employee’s testimony.
10. Mutual Non-Disparagement: Both Employee and Employer agree not to disparage the other party, and the other
party’s officers, directors, employees, shareholders and agents, in any manner likely to be harmful to them or their
business, business reputation or personal reputation; provided that both Employee and Employer will respond accurately
and fully to any question, inquiry or request for information when required by legal process. Employer’s obligations
under this Paragraph are limited to Employer’s officers with knowledge of this provision. Notwithstanding the
foregoing, nothing in this Agreement shall limit Employee’s right to voluntarily communicate with any Government
Agency or to discuss the terms and conditions of Employee’s employment with others to the extent expressly permitted
by Section 7 of the National Labor Relations Act. In addition, nothing in this Paragraph or this Agreement is intended to
prohibit or restrain Employee in any manner from making disclosures protected under the whistleblower provisions of
federal or state law or regulation or other applicable law or regulation.
11. Reports by Employee: Notwithstanding anything herein to the contrary, nothing in this Agreement shall (i) prohibit
Employee from making reports (including voluntary reports) of possible violations of federal law or regulation to any
governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the
Securities Exchange Act of 1934, as amended, or Section 806 of the Sarbanes-Oxley Act of 2002, or making other
disclosures protected under the whistleblower provisions of federal law or regulation, (ii) require prior approval by
Aclaris or notification to Aclaris of any such report or (iii) prevent Employee from collecting a monetary award in
connection with such report.
12. No Assignment of Claims: Employee represents and warrants that they have not filed and has not sold, assigned,
transferred, conveyed or othiswise disposed of to any third party, by operation of law or othiswise, any action, cause or
action, suit, debt, obligation, account, contract, agreement, covenant, guarantee, controversy, judgment, damage, claim,
counterclaim, liability, or demand of any nature whatsoever relating to any matter related to Aclaris or covered by this
Agreement.
13. Age Release: In addition to the provisions contained hereinabove, and by execution of the document, Employee
expressly waives any and all rights to claims arising under the ADEA, and:
a. Employee acknowledges that their waiver of rights or claims arising under the ADEA is in writing, written in a
manner calculated to be understood, and is understood by Employee;
b. Employee expressly understands that the waiver refers to rights or claims arising under the ADEA;
c. Employee expressly understands that by execution of this Agreement, they do not waive any ADEA rights or claims
that may arise after the date this Agreement is executed;
d. Employee acknowledges that the waiver of their rights on claims arising under the ADEA is in exchange for the
consideration outlined above, which is above and beyond that to which Employee is otherwise entitled to receive
from Aclaris;
e. Employee acknowledges that Aclaris expressly advised Employee by this Agreement to consult with an attorney of
Employee’s choosing prior to executing this Agreement;
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SEPARATION AGREEMENT, WAIVER AND RELEASE
f. Employee has been advised by Aclaris that Employee is given at least 21 days after the date Employee receives this
Agreement within which to consider this Agreement. Employee further understands that the offer contained in this
Agreement will automatically be withdrawn and deemed null & void if they do not accept it on or before the 21st
day after Employee receives this Agreement from Aclaris. Employee cannot sign this Agreement, however, until
on or after the Termination Date;
g. Employee acknowledges that the waiver of rights or claims herein is made pursuant to 29 U.S.C. §626(f)(1);
h. Employee understands that the waiver is not requested in connection with an exit incentive or other employment
termination program;
i. Employee understands that they may revoke this Agreement by delivering to Aclaris their written revocation, if such
written revocation is received by Aclaris by the end of the 7th day following Employee’s execution of this
Agreement, and that the Agreement shall not become effective or enforceable until the revocation period has
expired.
j. Employee understands that the signed acceptance of this Agreement and any written revocation of this Agreement,
as well as any correspondence concerning this Agreement, must be delivered to Aclaris’ Legal Department as
follows:
Legal Department
Aclaris Therapeutics
701 Lee Road, Suite 103
Wayne, Pennsylvania 19087
legal@aclaristx.com
14. Entirety of Agreement: Employee warrants that no promise or inducement to enter into this Agreement has been
offered or made except as set forth in this Agreement, that they are entering into this Agreement voluntarily and without
reliance on any statement or representation made on behalf of Aclaris or any related entity, and that the consideration
stated herein is the sole consideration for this Agreement. This Agreement, together with the Employment Agreement,
constitutes the entire agreement between the parties with regard to all matters addressed herein. It cannot be amended
except by a writing executed by both Employee and Aclaris. Notwitstanding anything contained in this Paragraph,
Employee further acknowledges and understands Employee is still subject to the terms and conditions of the
Confidentiality, Invention Rights and Non-Solicitation Agreement as may be applicable to their post-employment, which
remains in full force and effect; provided that in the event of a conflict of any provisions between this Agreement and
the Employee’s Confidentiality, Invention Rights and Non-Solicitation Agreement, the provisions of this Agreement
control.
15. Severability: If any provisions, section, subsection or other portion of this Agreement shall be determined by any court
of competent jurisdiction to be invalid, illegal or unenforceable in whole or in part, and such determination shall become
final, such provision or portion shall be deemed to be severed or limited, but only to the extent required to render the
remaining provisions and portions of this Agreement enforceable. This Agreement as thus amended shall be enforced so
as to give effect to the intention of the parties insofar as that is possible. In addition, the parties hereby expressly
empower a court of competent jurisdiction to modify any term or provision of this Agreement to the extent necessary to
comply with existing law and to enforce this Agreement as modified.
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SEPARATION AGREEMENT, WAIVER AND RELEASE
16. Parties Bound: This Agreement shall be binding upon the heirs, assigns, administrators, executors and legal
representatives of Employee and shall inure to the benefit of Aclaris and its successors and assigns.
17. Remedies: Employee acknowledges that the damages which will be suffered by Aclaris by a breach of any term or
provision of this Agreement may be continuing, irreparable and difficult to ascertain in monetary worth. Consequently,
in addition to any action at law for damages, Employee agrees Aclaris may have equitable relief, including specific
performance and injunction, to ensure and enforce their performance of and adherence to such obligations to which they
have voluntarily agreed. If such action becomes necessary, Employee further agrees to pay reasonable attorneys’ fees
and expenses incurred by Aclaris if Aclaris at all prevails.
18. Rule of Construction: The rule of construction to the effect that ambiguities are to be resolved against the drafting party
shall not be employed in interpreting this Agreement.
19. No Waiver: The failure of a party to insist on the strict observation or performance of any provision of this Agreement
or to exercise any right to which a party may be entitled hereunder shall not impair or preclude the enforcement or
exercise of such provision or right in the future or be construed as a waiver thereof.
20. Modification: The parties agree that this Agreement may not be modified, altered, or changed except by a written
agreement signed by the parties.
21. Arbitration, Waiver Of Jury Trial, Consent To Jurisdiction/Venue, & Governing Law: This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Subject to the duty to
arbitrate set forth below, any action to enforce or construe this Agreement shall exclusively be initiated in any federal or
state court in the Commonwealth of Pennsylvania having jurisdiction over the subject matter, and Employee hereby
consents to the personal jurisdiction of these courts. Subject to Aclaris’ right to seek temporary, preliminary, and/or
permanent injunctive relief for violations of this Agreement, any dispute or controversy arising under or in connection
with this Agreement or any other agreements as set forth in Paragraph 14, above, shall be resolved exclusively by
binding arbitration in Pennsylvania in accordance with the Resolution of Employment Dispute Rules of the American
Arbitration Association or the Employment Arbitration Rules and Procedures of JAMS, at Employer’s sole discretion
(“Arbitrator”), and the Pennsylvania Uniform Arbitration Act, 42 Pa. C.S.A. § 7303, before one arbitrator of exemplary
qualifications and stature, who shall be selected in accordance with the procedures of the Arbitrator. The award of the
arbitrator shall be final and binding and judgment upon the award may be entered in any court of competent jurisdiction
as set forth above. All fees and expenses of the arbitrator and all other expenses of the arbitration, except for attorneys’
fees, costs and witness expenses shall be paid by Aclaris. Each Party shall bear its own witness expenses, costs, and
attorneys’ fees. TO THE FULLEST EXTENT PERMITTED BY LAW, THE PARTIES HEREBY WAIVE THE
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES RELATING TO THE SUBJECT
MATTER HEREOF. EMPLOYEE FURTHER AGREES THAT ANY CLAIMS MUST BE ARBITRATED
SOLELY ON AN INDIVIDUAL, NON-CLASS AND NON-COLLECTIVE BASIS, AND UNDER NO
CIRCUMSTANCE MAY ANY CLAIMS BE CONSOLIDATED WITH ANY ARBITRATION, ACTION OR
LEGAL PROCEEDING INSTITUTED BY A THIRD PARTY FOR ANY PURPOSE. This provision, including
the foregoing requirement that claims be asserted on an individual and not class basis, shall be interpreted in accordance
with and subject to the Federal Arbitration Act, and all questions of arbitrability shall be
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SEPARATION AGREEMENT, WAIVER AND RELEASE
referred to the arbitrator, to be determined in accordance with the Arbitrator rules referenced above, and not any Court.
22. No Reliance: The Parties have not relied on any representations, promises, or agreements of any kind made to them in
connection with this Agreement, except for those set forth in this Agreement.
23. Effective Date: This Agreement shall be effective upon the expiration of the revocation period set forth in Paragraph 13
above (the “Effective Date”).
24. Section Headings: Section headings are for convenience of reference only and shall not be used to interpret or construe
the terms of this Agreement. The invalidity of any provision of this Agreement (or any interpretation or construction
thereof) shall not affect the validity and enforceability of the remaining provisions of this Agreement or its terms or
interpretations.
25. Counterparts: Separate copies of this document shall constitute original documents that may be signed separately but
that together will constitute one single agreement. This Agreement will not be binding on any party, however, until
signed by all parties or their representatives. The parties agree that execution of this Agreement by industry standard
electronic signature software and /or by exchanging PDF signatures shall have the same legal force and effect as the
exchange of original signatures, and that in any proceeding arising under or relating to this Agreement, each party
hereby waives any right to raise any defense or waiver based upon execution of this Agreement by means of such
electronic signatures or maintenance of the executed agreement electronically.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
Page 8 of 9
SEPARATION AGREEMENT, WAIVER AND RELEASE
EMPLOYEE HEREBY ACKNOWLEDGES SHE HAS READ THE SEPARATION AGREEMENT, WAIVER AND
RELEASE CONSISTING OF 8 PAGES (INCLUSIVE OF SIGNATURE PAGE) AND 26 NUMBERED
PARAGRAPHS; SHE HAS HAD A REASONABLE PERIOD OF TIME WITHIN WHICH TO CONSIDER THIS
AGREEMENT AND FULLY UNDERSTANDS AND ACCEPTS ALL OF ITS TERMS OF HER OWN
VOLUNTARY FREE WILL; NO PROMISES OR REPRESENTATIONS HAVE BEEN MADE OTHER THAN AS
EXPRESSLY STATED HEREIN; SHE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY AND HAD
AN ADEQUATE OPPORTUNITY TO DISCUSS THIS DOCUMENT WITH AN ATTORNEY AND HAS DONE SO
OR HAS VOLUNTARILY ELECTED NOT TO DO SO; AND BY EXECUTING THIS AGREEMENT AND
ACCEPTING THE CONSIDERATIONS OUTLINED HEREIN FROM ACLARIS, SHE WILL ABIDE BY THE
TERMS HEREOF. FURTHER,
THIS CONTRACT CONTAINS A BINDING ARBITRATION
PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.
/s/ Douglas Manion
Douglas Manion
ACLARIS THERAPEUTICS, INC.
By:
/s/ Neal Walker
Neal Walker
Chairman of the Board of Directors
Date: 2/4/2024
Date: 2/5/2024
Page 9 of 9
Exhibit 10.22
January 31, 2024
VIA EMAIL
Neal Walker
Dear Neal:
This agreement contains the terms of your position as Interim Chief Executive Officer and President (the “Interim
CEO”) of Aclaris Therapeutics, Inc. (the “Company”) with an effective date of January 17, 2024.
As Interim CEO, you will report directly to the Board of Directors of the Company (the “Board”) and will
perform such duties, consistent with the Interim CEO position, as will reasonably be assigned to you by the
Board. This is intended to be a temporary position and is an at-will appointment, and may be terminated by the
Board at any time. During the term of your employment, you will remain a member of the Board, of which you
are the Chair.
You will perform your services hereunder primarily from your home (or other remote work location) but agree to
perform your services from the Company’s offices in Wayne, PA and St. Louis, MO from time to time, in
accordance with the needs of the business. You may be required to travel from time to time. You will be eligible
for reimbursement of reasonable, necessary expenses incurred by you in connection with the performance of your
duties hereunder in accordance with the Company’s expense reimbursement policies and procedures.
During your term as Interim CEO, you will receive compensation at the rate of $41,666.67 per month (equivalent
to annualized compensation of $500,000), subject to standard federal and state withholding requirements, which
will be paid in accordance with the Company’s regular payroll practices. During the term of your employment,
you will be eligible to receive a cash bonus equal to 60% of your annualized base salary (pro rated based on your
time of service), based upon the actual achievement by you of the performance goals established by the Board, as
determined by the Board in its sole discretion (the “Performance Goals”). Any cash bonus amount payable
pursuant to this letter agreement shall be paid to you within forty-five (45) days of the Board’s determination of
your attainment of the Performance Goals, but in no event later than two and one- half (2 1/2) months following
the end of the fiscal year in which the Performance Goals were achieved as determined by the Board in its sole
discretion. In all events, any earned bonus will be paid not later than March 15 of the year following the year in
which your right to such amount became vested. For the avoidance of doubt, you do not have to be employed by
the Company on the date such bonus is approved or paid by the Company to receive such bonus.
You will not be eligible to participate in the Company’s severance plans. You will be eligible to participate on the
same basis as similarly situated employees in the Company’s employee benefit plans and programs, as they may
be interpreted, adopted, revised or deleted from time to time in
701 Lee Road, Suite 103 • Wayne, PA 19087 • www.aclaristx.com • Main: 484-324-7933
the Company’s sole discretion, subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and programs. Your employment will be subject to the Company’s personnel policies
and procedures as they may be interpreted, adopted, revised or deleted from time to time in the Company’s sole
discretion.
During the term of your employment, you will not be eligible for compensation (either in the form or cash or
equity) under the Company’s non-employee director compensation program. You have previously been granted
one or more equity awards by the Company in connection with your service as a director or officer, which grant(s)
shall continue to vest and which shall continue to be governed, in each case in all respects by the terms of the
applicable equity agreements, grant notices, equity plans and other agreements between you and the Company.
Upon approval by the Board or authorized committee thereof, you will be granted a nonqualified stock option (the
“Option”) to purchase 497,000 shares of the Company’s common stock (the “Common Stock”) and a restricted
stock unit award (“RSU Award”) for 142,000 shares of Common Stock under the Company’s 2015 Equity
Incentive Plan (the “Plan”). The Option will have a per share exercise price equal to the closing price of the
Comon Stock on the Nasdaq Global Select Market on the date of grant of the Option. The Option will vest and
become exercisable, and the RSU Award will vest, in equal monthly installments over a 15-month period
measured from the date of grant, subject to your Continuous Service (as defined in the Plan) as Interim CEO to
the Company, provided that in the event you cease to be Interim CEO but continue to provide Continuous Service
to the Company in any capacity, such Option and RSU Award will continue to vest in the event that the Board
determined in its sole discretion that you achieved the Performance Goals prior to the cessation of your
employment as Interim CEO. Each of the Option and RSU Award will accelerate vesting and exercisability in full
upon a Change in Control (as defined in the Plan). Each of the Option and RSU Award will be governed by the
terms of the Plan and an associated stock option grant agreement or restricted stock unit grant agreement.
The existing indemnification agreement between you and the Company will continue to govern your service as
Interim CEO. You have disclosed to the Board that you currently serve as a director of Aldeyra Therapeutics, Inc.,
ActiveProtectiveTechnologies, Inc., Myota Inc. and Zoomi, Inc., and the parties acknowledge that such work does
not conflict with or otherwise restrict your ability to become Interim CEO of the Company and fulfill your duties
to the Company in such capacity. Nothing in this offer should be construed to interfere with or otherwise restrict
in any way the rights of the Company and the Company’s stockholders to remove any individual from the Board
at any time in accordance with the Company’s certificate of incorporation, bylaws, any applicable agreements and
applicable law.
You acknowledge that as a result of your service as Interim CEO you have obtained and will obtain confidential
information and proprietary information relating to or provided by the Company and its affiliates. During and after
the term of your employment, you shall not use for your benefit or disclose confidential information, proprietary
information, knowledge or data relating to or provided by the Company and its affiliates and you agree to execute
the Company’s standard employee non-disclosure agreement upon the Company’s reasonable request.
701 Lee Road, Suite 103 • Wayne, PA 19087 • www.aclaristx.com • Main: 484-324-7933
To indicate your acceptance of the Company’s offer, please sign and date this letter in the space provided below
and return it to me. This letter sets forth the terms of your service as Interim CEO and supersedes any prior
representations or agreements on this subject matter, whether written or oral. This letter will be construed and
interpreted in accordance with the laws of the Commonwealth of Pennsylvania. This letter may not be modified or
amended except by a written agreement, signed by an officer of the Company or an authorized director of the
Board and by you.
We look forward to continue working with you in your new capacity.
Sincerely,
Aclaris Therapeutics, Inc.
By:/s/ Christopher Molineaux
Christopher Molineaux
Lead Independent Director
of the Board of Directors
I HAVE READ, UNDERSTAND AND AGREE FULLY TO THE FOREGOING AGREEMENT:
/s/ Neal Walker
Neal Walker
701 Lee Road, Suite 103 • Wayne, PA 19087 • www.aclaristx.com • Main: 484-324-7933
Subsidiaries of Aclaris Therapeutics, Inc.
Name of Subsidiary
Aclaris Life Sciences, Inc.
Confluence Discovery Technologies, Inc.
Jurisdiction of Incorporation or
Organization
Delaware
Delaware
Exhibit 21.1
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-212095) and
Form S-8 (Nos. 333-271718, 333-264813, 333-255922, 333-238079, 333-230614, 333-223922, 333-220149, 333-216703,
333-210379, and 333-207434) of Aclaris Therapeutics, Inc. of our report dated February 27, 2024 relating to the financial
statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 27, 2024
1
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Neal Walker, certify that:
1. I have reviewed this annual report on Form 10-K of Aclaris Therapeutics, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 27, 2024
/s/ Neal Walker
Neal Walker
Interim Chief Executive Officer & President
(principal executive officer)
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin Balthaser, certify that:
1. I have reviewed this annual report on Form 10-K of Aclaris Therapeutics, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 27, 2024
/s/ Kevin Balthaser
Kevin Balthaser
Chief Financial Officer
(principal financial officer and principal accounting officer)
CERTIFICATIONS OF
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Neal Walker,
Interim Chief Executive Officer and President, of Aclaris Therapeutics, Inc. (the “Company”), and Kevin Balthaser, Chief
Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:
1. The Company’s Annual Report on Form 10-K for the period ended December 31, 2023 (the “Annual Report”),
to which this Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or
Section 15(d) of the Exchange Act, and
2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition
of the Company as of the end of the period covered by the Annual Report and results of operations of the
Company for the periods covered by the Annual Report.
In Witness Whereof, the undersigned have set their hands hereto as of the 27th day of February 2024.
/s/ Neal Walker
Neal Walker
Interim Chief Executive Officer & President
/s/ Kevin Balthaser
Kevin Balthaser
Chief Financial Officer
* This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933,
as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general
incorporation language contained in such filing.
ACLARIS THERAPEUTICS, INC.
INCENTIVE COMPENSATION RECOUPMENT POLICY
Exhibit 97.1
1.
INTRODUCTION
The Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) of Aclaris
Therapeutics, Inc., a Delaware corporation (the “Company”), and the Board have determined that it is in the best interests of the
Company and its stockholders to adopt this Incentive Compensation Recoupment Policy (this “Policy”) providing for the Company’s
recoupment of Recoverable Incentive Compensation that is received by Covered Officers of the Company under certain circumstances.
Certain capitalized terms used in this Policy have the meanings given to such terms in Section 3 below.
This Policy is designed to comply with, and shall be interpreted to be consistent with, Section 10D of the Exchange Act, Rule
10D-1 promulgated thereunder (“Rule 10D-1”) and Nasdaq Listing Rule 5608 (the “Listing Standards”).
2.
EFFECTIVE DATE
This Policy shall apply to all Incentive Compensation that is received by a Covered Officer on or after October 2, 2023 (the
“Effective Date”). Incentive Compensation is deemed “received” in the Company’s fiscal period in which the Financial Reporting
Measure specified in the Incentive Compensation award is attained, even if the payment or grant of such Incentive Compensation occurs
after the end of that period.
3.
DEFINITIONS
“Accounting Restatement” means an accounting restatement that the Company is required to prepare due to the material
noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting
restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or
that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
“Accounting Restatement Date” means the earlier to occur of (a) the date that the Board, a committee of the Board authorized
to take such action, or the officer or officers of the Company authorized to take such action if Board action is not required, concludes, or
reasonably should have concluded, that the Company is required to prepare an Accounting Restatement, or (b) the date that a court,
regulator or other legally authorized body directs the Company to prepare an Accounting Restatement.
“Administrator” means the Compensation Committee or, in the absence of such committee, the Board.
“Code” means the U.S. Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
“Covered Officer” means each current and former Executive Officer.
“Exchange” means the Nasdaq Stock Market.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
“Executive Officer” means the Company’s president, principal financial officer, principal accounting officer (or if there is no
such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division, or function
(such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs
similar policy-making functions for the Company. Executive officers of the Company’s parent(s) or subsidiaries are deemed executive
officers of the Company if they perform such policy-making functions for the Company. Policy-making function is not intended to
include policy-making functions that are not significant. Identification of an executive officer for purposes of this Policy would include at
a minimum executive officers identified pursuant to Item 401(b) of Regulation S-K promulgated under the Exchange Act.
“Financial Reporting Measures” means measures that are determined and presented in accordance with the accounting
principles used in preparing the Company’s financial statements, and any measures derived wholly or in part from such measures,
including Company stock price and total shareholder return (“TSR”). A measure need not be presented in the Company’s financial
statements or included in a filing with the SEC in order to be a Financial Reporting Measure.
“Incentive Compensation” means any compensation that is granted, earned or vested based wholly or in part upon the
attainment of a Financial Reporting Measure.
“Lookback Period” means the three completed fiscal years immediately preceding the Accounting Restatement Date, as well as
any transition period (resulting from a change in the Company’s fiscal year) within or immediately following those three completed fiscal
years (except that a transition period of at least nine months shall count as a completed fiscal year). Notwithstanding the foregoing, the
Lookback Period shall not include fiscal years completed prior to the Effective Date.
“Recoverable Incentive Compensation” means Incentive Compensation received by a Covered Officer during the Lookback
Period that exceeds the amount of Incentive Compensation that would have been received had such amount been determined based on
the Accounting Restatement, computed without regard to any taxes paid (i.e., on a gross basis without regarding to tax withholdings and
other deductions). For any compensation plans or programs that take into account Incentive Compensation, the amount of Recoverable
Incentive Compensation for purposes of this Policy shall include, without limitation, the amount contributed to any notional account
based on Recoverable Incentive Compensation and any earnings to date on that notional amount. For any Incentive Compensation that is
based on stock price or TSR, where the Recoverable Incentive Compensation is not subject to mathematical recalculation directly from
the information in an Accounting Restatement, the Administrator will determine the amount of Recoverable Incentive Compensation
based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or TSR upon which the Incentive
Compensation was received. The Company shall maintain documentation of the determination of that reasonable estimate and provide
such documentation to the Exchange in accordance with the Listing Standards.
“SEC” means the U.S. Securities and Exchange Commission.
4.
RECOUPMENT
(a)
Applicability of Policy. This Policy applies to Incentive Compensation received by a Covered Officer (i) after
beginning services as an Executive Officer, (ii) who served as an Executive Officer at any time during the performance period for such
Incentive Compensation, (iii) while the Company had a class of securities listed on a national securities exchange or a national securities
association, and (iv) during the Lookback Period.
(b)
Recoupment Generally. Pursuant to the provisions of this Policy, if there is an
2
Accounting Restatement, the Company must reasonably promptly recoup the full amount of the Recoverable Incentive Compensation,
unless the conditions of one or more subsections of Section 4(c) of this Policy are met and the Compensation Committee, or, if such
committee does not consist solely of independent directors, a majority of the independent directors serving on the Board, has made a
determination that recoupment would be impracticable. Recoupment is required regardless of whether the Covered Officer engaged in
any misconduct and regardless of fault, and the Company’s obligation to recoup Recoverable Incentive Compensation is not dependent
on whether or when any restated financial statements are filed.
(c)
Impracticability of Recovery. Recoupment may be determined to be impracticable if, and only if:
(i)
the direct expense paid to a third party to assist in enforcing this Policy would exceed the amount of the
applicable Recoverable Incentive Compensation; provided that, before concluding that it would be impracticable to recover any
amount of Recoverable Incentive Compensation based on expense of enforcement, the Company shall make a reasonable
attempt to recover such Recoverable Incentive Compensation, document such reasonable attempt(s) to recover, and provide that
documentation to the Exchange in accordance with the Listing Standards; or
(ii)
recoupment of the applicable Recoverable Incentive Compensation would likely cause an otherwise tax-
qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the
requirements of Code Section 401(a)(13) or Code Section 411(a) and regulations thereunder.
(d)
Sources of Recoupment. To the extent permitted by applicable law, the Administrator shall, in its sole discretion,
determine the timing and method for recouping Recoverable Incentive Compensation hereunder, provided that such recoupment is
undertaken reasonably promptly. The Administrator may, in its discretion, seek recoupment from a Covered Officer from any of the
following sources or a combination thereof, whether the applicable compensation was approved, awarded, granted, payable or paid to the
Covered Officer prior to, on or after the Effective Date: (i) direct repayment of Recoverable Incentive Compensation previously paid to
the Covered Officer; (ii) cancelling prior cash or equity-based awards (whether vested or unvested and whether paid or unpaid); (iii)
cancelling or offsetting against any planned future cash or equity-based awards; (iv) forfeiture of deferred compensation, subject to
compliance with Code Section 409A; and (v) any other method authorized by applicable law or contract. Subject to compliance with any
applicable law, the Administrator may effectuate recoupment under this Policy from any amount otherwise payable to the Covered
Officer, including amounts payable to such individual under any otherwise applicable Company plan or program, e.g., base salary,
bonuses or commissions and compensation previously deferred by the Covered Officer. The Administrator need not utilize the same
method of recovery for all Covered Officers or with respect to all types of Recoverable Incentive Compensation.
(e)
No Indemnification of Covered Officers. Notwithstanding any indemnification agreement, applicable insurance
policy or any other agreement or provision of the Company’s certificate of incorporation or bylaws to the contrary, no Covered Officer
shall be entitled to indemnification or advancement of expenses in connection with any enforcement of this Policy by the Company,
including paying or reimbursing such Covered Officer for insurance premiums to cover potential obligations to the Company under this
Policy.
(f)
Indemnification of Administrator. Any members of the Administrator, and any other members of the Board who
assist in the administration of this Policy, shall not be personally liable for any action, determination or interpretation made with respect
to this Policy and shall be indemnified by the
3
Company to the fullest extent under applicable law and Company policy with respect to any such action, determination or interpretation.
The foregoing sentence shall not limit any other rights to indemnification of the members of the Board under applicable law or Company
policy.
5.
ADMINISTRATION
Except as specifically set forth herein, this Policy shall be administered by the Administrator. The Administrator shall have full
and final authority to make any and all determinations required under this Policy. Any determination by the Administrator with respect
to this Policy shall be final, conclusive and binding on all interested parties and need not be uniform with respect to each individual
covered by this Policy. In carrying out the administration of this Policy, the Administrator is authorized and directed to consult with the
full Board or such other committees of the Board as may be necessary or appropriate as to matters within the scope of such other
committee’s responsibility and authority. Subject to applicable law, the Administrator may authorize and empower any officer or
employee of the Company to take any and all actions that the Administrator, in its sole discretion, deems necessary or appropriate to
carry out the purpose and intent of this Policy (other than with respect to any recovery under this Policy involving such officer or
employee).
6.
SEVERABILITY
If any provision of this Policy or the application of any such provision to a Covered Officer shall be adjudicated to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Policy,
and the invalid, illegal or unenforceable provisions shall be deemed amended to the minimum extent necessary to render any such
provision or application enforceable.
7.
NO IMPAIRMENT OF OTHER REMEDIES
Nothing contained in this Policy, and no recoupment or recovery as contemplated herein, shall limit any claims, damages or
other legal remedies the Company or any of its affiliates may have against a Covered Officer arising out of or resulting from any actions
or omissions by the Covered Officer. This Policy does not preclude the Company from taking any other action to enforce a Covered
Officer’s obligations to the Company, including, without limitation, termination of employment and/or institution of civil proceedings.
This Policy is in addition to the requirements of Section 304 of the Sarbanes-Oxley Act of 2002 that are applicable to the Company’s
Chief Executive Officer and Chief Financial Officer and to any other compensation recoupment policy and/or similar provisions in any
employment, equity plan, equity award, or other individual agreement, to which the Company is a party or which the Company has
adopted or may adopt and maintain from time to time.
8.
AMENDMENT; TERMINATION
The Administrator may amend, terminate or replace this Policy or any portion of this Policy at any time and from time to time
in its sole discretion. The Administrator shall amend this Policy as it deems necessary to comply with applicable law or any Listing
Standard.
9.
SUCCESSORS
This Policy shall be binding and enforceable against all Covered Officers and, to the extent required by Rule 10D-1 and/or the
applicable Listing Standards, their beneficiaries, heirs, executors, administrators or other legal representatives.
4
10.
REQUIRED FILINGS
The Company shall make any disclosures and filings with respect to this Policy that are required by law, including as required
by the SEC.
* * * * *
5
ACLARIS THERAPEUTICS, INC.
INCENTIVE COMPENSATION RECOUPMENT POLICY
FORM OF EXECUTIVE ACKNOWLEDGMENT
I, the undersigned, agree and acknowledge that I am bound by, and subject to, the Aclaris Therapeutics, Inc. Incentive Compensation
Recoupment Policy, as may be amended, restated, supplemented or otherwise modified from time to time (the “Policy”). In the event of
any inconsistency between the Policy and the terms of any employment agreement, offer letter or other individual agreement with Aclaris
Therapeutics, Inc. (the “Company”) to which I am a party, or the terms of any compensation plan, program or agreement, whether or not
written, under which any compensation has been granted, awarded, earned or paid to me, the terms of the Policy shall govern.
In the event that the Administrator (as defined in the Policy) determines that any compensation granted, awarded, earned or paid to me
must be forfeited or reimbursed to the Company pursuant to the Policy, I will promptly take any action necessary to effectuate such
forfeiture and/or reimbursement. I further agree and acknowledge that I am not entitled to indemnification, and hereby waive any right to
advancement of expenses, in connection with any enforcement of the Policy by the Company.
Agreed and Acknowledged:
Name:
Title:
Date: