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7

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2021

OR

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

For the transition period from                      to                      

Commission File Number 001-37581

Aclaris Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

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

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

19087
(Zip Code)

Registrant’s telephone number, including area code: (484324-7933

N/A

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

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

Title of Each Class:

 

Trading Symbol(s)

Name of Each Exchange on which Registered

Common Stock, $0.00001 par value

 

ACRS

The Nasdaq Stock Market, LLC

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

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

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

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  

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

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

The number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, as of the close of business on July 30, 2021 was 61,215,707.

ACLARIS THERAPEUTICS, INC.

INDEX TO FORM 10-Q

    

PAGE

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

2

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

2

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020

3

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020

4

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

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

21

Item 3. Quantitative and Qualitative Disclosures about Market Risk

35

Item 4. Controls and Procedures

35

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

36

Item 1A. Risk Factors

37

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

37

Item 6. Exhibits

38

Signatures

39

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

    

June 30, 

December 31, 

 

    

2021

    

2020

 

 

Assets

Current assets:

Cash and cash equivalents

$

113,447

$

22,063

Short-term marketable securities

 

118,227

 

32,068

Accounts receivable, net

939

772

Prepaid expenses and other current assets

 

8,648

 

2,590

Total current assets

 

241,261

 

57,493

Marketable securities

 

34,503

 

Property and equipment, net

 

1,287

 

1,654

Intangible assets

7,086

7,123

Other assets

 

3,909

 

4,514

Total assets

$

288,046

$

70,784

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

4,244

$

5,254

Accrued expenses

 

6,931

 

5,906

Current portion of lease liabilities

647

603

Discontinued operations - current liabilities

3,094

3,111

Total current liabilities

 

14,916

 

14,874

Other liabilities

2,917

 

3,179

Long-term debt, net

10,731

10,653

Contingent consideration

25,300

4,061

Deferred tax liability

 

367

 

367

Total liabilities

 

54,231

 

33,134

Commitments and contingencies (Note 17)

Stockholders’ Equity:

Preferred stock, $0.00001 par value; 10,000,000 shares authorized and no shares issued or outstanding at June 30, 2021 and December 31, 2020

Common stock, $0.00001 par value; 100,000,000 shares authorized at June 30, 2021 and December 31, 2020; 61,204,987 and 45,109,314 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

1

 

Additional paid‑in capital

 

785,455

 

542,286

Accumulated other comprehensive loss

 

(184)

 

(94)

Accumulated deficit

 

(551,457)

 

(504,542)

Total stockholders’ equity

 

233,815

 

37,650

Total liabilities and stockholders’ equity

$

288,046

$

70,784

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

2

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

Revenues:

Contract research

$

1,606

$

1,853

$

3,141

$

3,042

Other revenue

218

193

460

411

Total revenue

1,824

2,046

3,601

3,453

Costs and expenses:

Cost of revenue

1,263

1,389

2,465

2,658

Research and development

 

7,897

6,466

 

15,735

 

14,142

General and administrative

 

5,870

5,572

 

10,697

 

11,773

Revaluation of contingent consideration

4,800

21,239

1,767

Total costs and expenses

 

19,830

 

13,427

 

50,136

 

30,340

Loss from operations

 

(18,006)

 

(11,381)

 

(46,535)

 

(26,887)

Other expense, net

 

(155)

 

(189)

 

(380)

 

(11)

Loss from continuing operations

(18,161)

(11,570)

(46,915)

(26,898)

Loss from discontinued operations

(27)

(285)

Net loss

$

(18,161)

$

(11,597)

$

(46,915)

$

(27,183)

Net loss per share, basic and diluted

$

(0.34)

$

(0.28)

$

(0.90)

$

(0.65)

Weighted average common shares outstanding, basic and diluted

 

53,968,405

 

42,133,646

 

52,163,136

 

41,876,037

Other comprehensive income (loss):

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

$

25

$

(37)

$

(10)

$

23

Foreign currency translation adjustment

(69)

5

(80)

58

Total other comprehensive income (loss)

 

(44)

 

(32)

 

(90)

 

81

Comprehensive loss

$

(18,205)

$

(11,629)

$

(47,005)

$

(27,102)

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

3

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)

Accumulated

 

Common Stock

Additional

Other

Total

 

Par

Paidin

Comprehensive

Accumulated

Stockholders’

 

  

  Shares 

  

Value

  

Capital

  

Loss

  

Deficit

  

Equity

 

Balance at December 31, 2020

45,109,314

$

$

542,286

$

(94)

$

(504,542)

$

37,650

Issuance of common stock in connection with exercise of stock options and warrants and vesting of restricted stock units

666,144

(2,579)

(2,579)

Issuance of common stock in connection with public offering, net of offering costs of $7,011

6,306,271

103,348

103,348

Unrealized loss on marketable securities

(35)

(35)

Foreign currency translation adjustment

(11)

(11)

Stock-based compensation expense

2,675

2,675

Net loss

(28,754)

(28,754)

Balance at March 31, 2021

52,081,729

$

$

645,730

$

(140)

$

(533,296)

$

112,294

Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units

1,024,666

1,041

1,041

Issuance of common stock in connection with public offering, net of offering costs of $8,899

8,098,592

1

134,851

134,852

Unrealized gain on marketable securities

25

25

Foreign currency translation adjustment

(69)

(69)

Stock-based compensation expense

3,833

3,833

Net loss

(18,161)

(18,161)

Balance at June 30, 2021

61,204,987

$

1

$

785,455

$

(184)

$

(551,457)

$

233,815

Accumulated

Common Stock

Additional

Other

Total

Par

Paidin

Comprehensive

Accumulated

Stockholders’

  

  Shares 

  

Value

  

Capital

  

Income (Loss)

  

Deficit

  

Equity

Balance at December 31, 2019

41,485,638

$

$

523,505

$

(66)

$

(453,527)

$

69,912

Vesting of restricted stock units

346,582

(121)

(121)

Fair value of warrants issued

378

378

Unrealized gain on marketable securities

60

60

Foreign currency translation adjustment

53

53

Stock-based compensation expense

3,453

3,453

Net loss

(15,586)

(15,586)

Balance at March 31, 2020

41,832,220

$

$

527,215

$

47

$

(469,113)

$

58,149

Vesting of restricted stock units

858,894

(463)

(463)

Unrealized loss on marketable securities

(37)

(37)

Foreign currency translation adjustment

5

5

Stock-based compensation expense

3,309

3,309

Net loss

(11,597)

(11,597)

Balance at June 30, 2020

42,691,114

$

$

530,061

$

15

$

(480,710)

$

49,366

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

4

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Six Months Ended

 

June 30, 

    

2021

    

2020

 

Cash flows from operating activities:

    

    

    

    

Net loss

$

(46,915)

$

(27,183)

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

Depreciation and amortization

 

535

 

1,182

Stock-based compensation expense

 

6,507

 

6,762

Revaluation of contingent consideration

21,239

1,767

Changes in operating assets and liabilities:

Accounts receivable

(167)

4,895

Prepaid expenses and other assets

 

(5,223)

 

890

Accounts payable

 

(1,290)

 

(6,026)

Accrued expenses

 

861

 

87

Net cash used in operating activities

 

(24,453)

 

(17,626)

Cash flows from investing activities:

Purchases of property and equipment

 

(52)

 

(141)

Purchases of marketable securities

 

(147,289)

 

(27,139)

Proceeds from sales and maturities of marketable securities

 

26,557

 

30,735

Net cash provided by (used in) investing activities

 

(120,784)

 

3,455

Cash flows from financing activities:

Proceeds from issuance of common stock in connection with public offerings, net of issuance costs

238,200

Proceeds from debt financing (including warrants), net of issuance costs

10,913

Restricted stock unit employee tax withholdings

(3,038)

Finance lease payments

(92)

Proceeds from exercise of employee stock options and the issuance of stock

1,459

Net cash provided by financing activities

 

236,621

 

10,821

Net increase (decrease) in cash, cash equivalents and restricted cash

 

91,384

 

(3,350)

Cash, cash equivalents and restricted cash at beginning of period

 

22,063

 

35,937

Cash, cash equivalents and restricted cash at end of period

$

113,447

$

32,587

Supplemental disclosure of non-cash investing and financing activities:

Additions to property and equipment included in accounts payable

$

37

$

339

Fair value of warrants issued in connection with debt financing

$

$

378

Offering costs included in accounts payable

$

28

$

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

5

ACLARIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Business

Overview

Aclaris Therapeutics, Inc. was incorporated under the laws of the State of Delaware in 2012.  In July 2015, Aclaris Therapeutics International Limited (“ATIL”) was established under the laws of the United Kingdom as a wholly-owned subsidiary of Aclaris Therapeutics, Inc.  In 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., ATIL and Confluence are referred to collectively as the “Company.”  The Company is a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-inflammatory diseases.  In addition to developing its novel drug candidates, the Company is pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize its novel drug candidates.  

Liquidity

The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business.  As of June 30, 2021, the Company had cash, cash equivalents and marketable securities of $266.2 million and an accumulated deficit of $551.5 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 complete the clinical development of ATI-450 and ATI-1777, to develop its preclinical compounds, and to support its discovery efforts.  

Additional funds may not be available on a timely basis, on commercially acceptable terms, or at all, and such funds, if raised, may not be sufficient to enable the Company to continue to implement its long-term business strategy.  The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.  If 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 Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), 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 condensed consolidated financial statements are issued.  As of the report date, the Company does not believe that substantial doubt exists about its ability to continue as a going concern.  The Company believes its existing cash, cash equivalents and marketable securities are sufficient to fund its operating and capital expenditure requirements for a period greater than 12 months from the date of issuance of these condensed consolidated financial statements.

6

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of June 30, 2021, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020, the condensed consolidated statement of stockholders’ equity for the three and six months ended June 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements contained in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2021 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2021, the results of its operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020, its changes in stockholders’ equity for the three and six months ended June 30, 2021 and 2020 and its cash flows for the six months ended June 30, 2021 and 2020.  The condensed consolidated balance sheet data as of December 31, 2020 was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”).  The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2021 and 2020 are unaudited. The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.  The unaudited interim financial statements of the Company included herein have been prepared, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s annual report on Form 10-K filed with the SEC on February 25, 2021.  

Basis of Presentation

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods.  Significant estimates and assumptions reflected in these financial statements include, but are not limited to, research and development expenses, contingent consideration and the valuation of stock-based awards.  Estimates are periodically reviewed in light of changes in circumstances, facts and experience. The COVID-19 pandemic has resulted in a global slowdown in economic activity. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require an update to its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities.  Actual results could differ from the Company’s estimates.

Reclassifications

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

7

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s annual report on Form 10-K filed with the SEC on February 25, 2021.  Except as set forth below, there have been no changes to the Company’s significant accounting policies from those disclosed in the annual report.

Contingent Consideration

The Company initially recorded a contingent consideration liability at fair value on the date of acquisition related to future potential payments resulting from the acquisition of Confluence based upon significant unobservable inputs including the achievement of development, regulatory and commercial milestones, as well as estimated future sales levels and the discount rates applied to calculate the present value of the potential payments. Significant judgement was involved in determining the appropriateness of these assumptions.  These assumptions are considered Level 3 inputs.  Revaluation of the contingent consideration liability can result from changes to one or more of these assumptions.  The Company evaluates the fair value estimate of the contingent consideration liability on a quarterly basis with changes, if any, recorded as income or expense in the condensed consolidated statement of operations.

The fair value of contingent consideration is estimated using a probability-weighted expected payment model for regulatory milestone payments and a Monte Carlo simulation model for commercial milestone and royalty payments and then applying a risk-adjusted discount rate to calculate the present value of the potential payments.  Significant assumptions used in the Company’s estimates include the probability of achieving regulatory milestones and commencing commercialization, which are based on an asset’s current stage of development and a review of existing clinical data. Probability of success assumptions ranged between 4% and 40%.  Additionally, estimated future sales levels and the risk-adjusted discount rate applied to the potential payments are also significant assumptions used in calculating the fair value.  The discount rate ranged between 5.7% and 8.0% depending on the year of each potential payment.

3. Fair Value of Financial Assets and Liabilities

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

June 30, 2021

 

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets:

   

    

    

    

    

    

    

    

Cash equivalents

$

103,855

$

$

$

103,855

Marketable securities

 

152,730

152,730

Total assets

$

103,855

$

152,730

$

$

256,585

Liabilities:

Contingent consideration

$

$

$

25,300

$

25,300

Total liabilities

$

$

$

25,300

$

25,300

8

December 31, 2020

 

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets:

    

    

    

    

    

    

    

    

Cash equivalents

$

14,955

$

1,500

$

$

16,455

Marketable securities

 

32,068

32,068

Total assets

$

14,955

$

33,568

$

$

48,523

Liabilities:

Contingent consideration

$

$

$

4,061

$

4,061

Total liabilities

$

$

$

4,061

$

4,061

As of June 30, 2021 and December 31, 2020, the Company’s cash equivalents consisted of a money market fund, which was valued based upon Level 1 inputs.  The Company’s cash equivalents as of December 31, 2020 also included commercial paper, which was valued based upon Level 2 inputs.  The Company’s marketable securities as of June 30, 2021 and December 31, 2020 consisted of commercial paper and asset-backed and U.S. government agency debt securities, which were valued based upon Level 2 inputs.  The Company’s marketable securities as of June 30, 2021 also included corporate debt securities, which were valued based upon Level 2 inputs.

In determining the fair value of its Level 2 investments, the Company relied on quoted prices for identical securities in markets that are not active. These quoted prices were obtained by the Company with the assistance of a third-party pricing service based on available trade, bid and other observable market data for identical securities.  Quarterly, the Company compares the quoted prices obtained from the third-party pricing service to other available independent pricing information to validate the reasonableness of the quoted prices provided.  The Company evaluates whether adjustments to third-party pricing are necessary and, historically, the Company has not made adjustments to quoted prices obtained from the third-party pricing service.  During the six months ended June 30, 2021 and 2020, there were no transfers between Level 1, Level 2 and Level 3.

The increase in contingent consideration of $21.2 million during the six months ended June 30, 2021 resulted from updates to the Company’s probability of achieving regulatory milestones and commencing commercialization and estimated future sales level assumptions as a result of the completion of a Phase 2a clinical trial of ATI-450 in subjects with moderate to severe rheumatoid arthritis and the inclusion of estimated future sales of ATI-450 for the potential treatment of hidradenitis suppurativa and psoriatic arthritis, which are additional planned indications for ATI-450, as well as a result of the completion of a Phase 2a clinical trial of ATI-1777 in subjects with moderate to severe atopic dermatitis.

As of June 30, 2021 and December 31, 2020, the fair value of the Company’s available for sale marketable securities by type of security was as follows:

June 30, 2021

 

Gross

Gross

 

Amortized

Unrealized

Unrealized

Fair

 

(In thousands)

Cost

Gain

Loss

Value

 

Marketable securities:

Corporate debt securities

$

28,548

$

3

$

(7)

$

28,544

Commercial paper

70,518

70,518

Asset-backed debt securities

30,951

1

(7)

30,945

U.S. government agency debt securities

22,721

3

(1)

22,723

Total marketable securities

$

152,738

$

7

$

(15)

$

152,730

9

December 31, 2020

 

Gross

Gross

 

Amortized

Unrealized

Unrealized

Fair

 

(In thousands)

Cost

Gain

Loss

Value

 

Marketable securities:

Commercial paper

$

20,483

$

$

$

20,483

Asset-backed debt securities

4,036

1

4,037

U.S. government agency debt securities

7,547

1

7,548

Total marketable securities

$

32,066

$

2

$

$

32,068

4. Property and Equipment, Net

Property and equipment, net consisted of the following:

June 30, 

December 31, 

(In thousands)

2021

2020

 

Computer equipment

    

$

1,232

    

$

1,197

Lab equipment

1,354

1,340

Furniture and fixtures

620

617

Leasehold improvements

1,123

1,123

Property and equipment, gross

 

4,329

 

4,277

Accumulated depreciation

 

(3,042)

 

(2,623)

Property and equipment, net

$

1,287

$

1,654

Depreciation expense was $0.2 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively, and $0.4 million and $0.6 million for the six months ended June 30, 2021 and 2020, respectively.

5. Intangible Assets

Intangible assets consisted of the following:

Gross Cost

Accumulated Amortization

Remaining

June 30, 

December 31, 

June 30, 

December 31, 

(In thousands, except years)

    

Life (years)

    

2021

    

2020

    

2021

    

2020

Other intangible assets

6.1

$

751

$

751

$

294

$

257

In-process research and development

n/a

6,629

6,629

Total intangible assets

$

7,380

$

7,380

$

294

$

257

As of June 30, 2021, estimated future amortization expense was as follows:

Year Ending

(In thousands)

    

December 31,

2021

$

37

2022

 

75

2023

 

75

2024

75

2025

75

Thereafter

120

Total

$

457

10

6. Accrued Expenses

Accrued expenses consisted of the following:

June 30, 

December 31, 

(In thousands)

2021

2020

 

Employee compensation expenses

$

1,922

$

3,971

Research and development expenses

704

761

Litigation settlements (see Note 17)

3,075

Other

 

1,230

 

1,174

Total accrued expenses

$

6,931

$

5,906

7. Debt

Loan and Security Agreement – Silicon Valley Bank

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.  

As of June 30, 2021 and December 31, 2020 the outstanding principal balance on the Loan and Security Agreement was $11.0 million.  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 (see Note 18).

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

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

8. Stockholders’ Equity

Preferred Stock

As of June 30, 2021 and December 31, 2020, the Company’s amended and restated certificate of incorporation authorized the Company to issue 10,000,000 shares of undesignated preferred stock.  There were no shares of preferred stock outstanding as of June 30, 2021 or December 31, 2020.

Common Stock

As of June 30, 2021 and December 31, 2020, the Company’s amended and restated certificate of incorporation authorized the Company to issue 100,000,000 shares of $0.00001 par value common stock.

11

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to any preferential dividend rights of any series of preferred stock that may be outstanding. No dividends have been declared through June 30, 2021.  

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.  

Equity Purchase Agreement with Lincoln Park Capital Fund, LLC  

In August 2020, the Company entered into an equity purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) which provided that, upon the terms and subject to the conditions and limitations set forth therein, the Company could sell to Lincoln Park, at its discretion, up to $15.0 million of shares of its common stock over the 36-month term of the Purchase Agreement. Upon execution of the Purchase Agreement, the Company issued 121,584 shares of its common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Purchase Agreement. The commitment shares were valued using the closing price of the Company’s common stock on the effective date of the Purchase Agreement resulting in an aggregate fair value of $0.3 million.  Through December 31, 2020, the Company sold 2,111,170 shares of its common stock to Lincoln Park under the Purchase Agreement for net proceeds of $7.7 million.  The Company terminated the Purchase Agreement in January 2021 in connection with the public offering of common stock described below.  The Company did not sell any additional shares prior to terminating the Purchase Agreement.

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.

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, restricted stock unit (“RSU”) awards, performance stock awards, cash-based awards and other

12

stock-based awards. The number of shares initially reserved for issuance under the 2015 Plan was 1,643,872 shares of common stock. The number of shares of common stock that may be issued under the 2015 Plan will automatically increase on January 1 of each year ending on January 1, 2025, in an amount equal to the lesser of (i) 4.0% of the shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or (ii) an amount determined by the Company’s board of directors. The shares of common stock underlying any awards that expire, are otherwise terminated, settled in cash or repurchased by the Company under the 2015 Plan and the 2012 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan.  As of January 1, 2021, the number of shares of common stock that may be issued under the 2015 Plan was increased by 1,804,372 shares.  As of June 30, 2021, 2,799,230 shares remained available for grant under the 2015 Plan.  The Company had 2,833,405 stock options and 1,476,308 RSUs outstanding as of June 30, 2021 under the 2015 Plan.

2017 Inducement Plan

In July 2017, the Company’s board of directors adopted the 2017 Inducement Plan (the “2017 Inducement Plan”).  The 2017 Inducement Plan is a non-stockholder approved stock plan adopted pursuant to the “inducement exception” provided under Nasdaq listing rules.  The Company had 421,075 stock options and 22,408 RSUs outstanding as of June 30, 2021 under the 2017 Inducement Plan.  All shares of common stock that were eligible for issuance under the 2017 Inducement Plan after October 1, 2018, including any shares underlying any awards that expire or are otherwise terminated, reacquired to satisfy tax withholding obligations, settled in cash or repurchased by the Company in the future that would have been eligible for re-issuance under the 2017 Inducement Plan, were retired.  

2012 Equity Compensation Plan

Upon the 2015 Plan becoming effective, no further grants can be made under the 2012 Plan. The Company granted stock options to purchase a total of 1,140,524 shares under the 2012 Plan, of which 484,145 were outstanding as of June 30, 2021.  Stock options granted under the 2012 Plan expire after ten years.  

Stock Option Valuation

The weighted average assumptions the Company used to estimate the fair value of stock options granted during the six months ended June 30, 2021 and 2020 were as follows:

    

Six Months Ended

June 30, 

2021

2020

Risk-free interest rate

 

0.91

%

0.87

%

Expected term (in years)

 

6.2

6.1

Expected volatility

 

76.60

%

85.19

%

Expected dividend yield

 

0

%

0

%

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

13

Stock Options

The following table summarizes stock option activity for the six months ended June 30, 2021:

    

    

    

Weighted

    

 

Weighted

Average

 

Average

Remaining

Aggregate

 

Number

Exercise

Contractual

Intrinsic

 

(In thousands, except share and per share data and years)

of Shares

Price

Term

Value

 

(in years)

 

Outstanding as of December 31, 2020

 

2,871,498

$

15.16

 

6.8

$

4,890

Granted

 

993,600

23.88

Exercised

 

(115,548)

12.63

$

1,373

Forfeited and cancelled

 

(10,925)

21.78

Outstanding as of June 30, 2021

 

3,738,625

$

17.54

 

7.2

$

17,541

Options vested and expected to vest as of June 30, 2021

 

3,738,625

$

17.54

 

7.2

$

17,541

Options exercisable as of June 30, 2021

 

2,044,235

$

17.51

 

5.8

$

10,090

The weighted average grant date fair value of stock options granted during the six months ended June 30, 2021 was $15.96 per share.

Restricted Stock Units

The following table summarizes RSU activity for the six months ended June 30, 2021:

Weighted

Average

Grant Date

Aggregate

Number

Fair Value

Intrinsic

(In thousands, except share and per share data)

of Shares

Per Share

Value

Outstanding as of December 31, 2020

2,244,157

$

3.83

Granted

607,148

24.00

Vested

(1,314,214)

2.87

$

31,049

Forfeited and cancelled

(38,375)

6.86

Outstanding as of June 30, 2021

1,498,716

$

12.76

Stock-Based Compensation

Stock-based compensation expense included in total costs and expenses on the condensed consolidated statement of operations included the following:

Three Months Ended

Six Months Ended

 

June 30, 

June 30, 

 

(In thousands)

    

2021

    

2020

    

2021

    

2020

 

Cost of revenue

    

$

335

    

$

252

  

$

582

    

$

512

Research and development

1,154

939

2,030

1,755

General and administrative

 

2,343

 

2,118

 

3,895

 

4,495

Total stock-based compensation expense

$

3,832

$

3,309

$

6,507

$

6,762

As of June 30, 2021, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $16.7 million and $16.7 million, respectively, which is expected to be recognized over a weighted average period of 3.1 years and 3.2 years, respectively.  

14

10. Net Loss per Share

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