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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q

 


 

 

 

(Mark one)

 

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

For the quarterly period ended September 30, 2016

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.)

101 Lindenwood Drive, Suite 400
Malvern, PA
(Address of principal executive offices)

19355
(Zip Code)

 

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

 

N/A

 

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


 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒  No ☐

 

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

 

 

 

 

Large accelerated filer  

 

Accelerated filer  

 

 

 

Non-accelerated filer  ☒

 

Smaller reporting company  

(Do not check if a smaller reporting company)

 

 

 

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 November 2, 2016 was 21,432,907.

 

 

 


 

Table of Contents

ACLARIS THERAPEUTICS, INC.

 

INDEX TO FORM 10-Q

 

 

 

 

 

 

    

PAGE

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

 

Item 1. Financial Statements 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2016 and 2015 

 

 

 

 

Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2016 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements 

 

 

 

 

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

 

19 

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk 

 

30 

 

 

 

Item 4. Controls and Procedures 

 

30 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

 

Item 1. Legal Proceedings 

 

31 

 

 

 

Item 1A. Risk Factors 

 

31 

 

 

 

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

 

36 

 

 

 

Item 6. Exhibits 

 

37 

 

 

 

Signatures 

 

38 

Exhibit Index 

 

39 

 

 


 

Table of Contents

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

    

September 30, 

 

December 31, 

 

 

    

2016

    

2015

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,796

 

$

9,851

 

Marketable securities

 

 

66,246

 

 

75,017

 

Prepaid expenses and other current assets

 

 

1,548

 

 

1,656

 

Total current assets

 

 

85,590

 

 

86,524

 

Marketable securities

 

 

 —

 

 

7,170

 

Property and equipment, net

 

 

461

 

 

360

 

Other assets

 

 

20

 

 

22

 

Total assets

 

$

86,071

 

$

94,076

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

1,774

 

$

810

 

Accrued expenses

 

 

2,817

 

 

745

 

Total current liabilities

 

 

4,591

 

 

1,555

 

Other liabilities

 

 

358

 

 

 —

 

Total liabilities

 

 

4,949

 

 

1,555

 

Stockholders’ Equity:

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value; 10,000,000 shares authorized and no shares issued or outstanding at September 30, 2016 and December 31, 2015

 

 

 —

 

 

 —

 

Common stock, $0.00001 par value; 100,000,000 shares authorized at September 30, 2016 and December 31, 2015; 21,423,995 and 20,157,503 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively

 

 

 —

 

 

 —

 

Additional paid‑in capital

 

 

160,613

 

 

135,503

 

Accumulated other comprehensive loss

 

 

(54)

 

 

(149)

 

Accumulated deficit

 

 

(79,437)

 

 

(42,833)

 

Total stockholders’ equity

 

 

81,122

 

 

92,521

 

Total liabilities and stockholders’ equity

 

$

86,071

 

$

94,076

 

 

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

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ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

 

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

    

$

 —

    

$

 —

    

$

 —

    

$

 —

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

7,162

 

 

9,407

 

 

26,533

 

 

12,937

 

General and administrative

 

 

3,650

 

 

1,233

 

 

10,407

 

 

2,928

 

Total operating expenses

 

 

10,812

 

 

10,640

 

 

36,940

 

 

15,865

 

Loss from operations

 

 

(10,812)

 

 

(10,640)

 

 

(36,940)

 

 

(15,865)

 

Other income, net

 

 

118

 

 

8

 

 

336

 

 

16

 

Net loss

 

 

(10,694)

 

 

(10,632)

 

 

(36,604)

 

 

(15,849)

 

Accretion of convertible preferred stock

 

 

 —

 

 

(1,020)

 

 

 —

 

 

(2,353)

 

Net loss attributable to common stockholders

 

$

(10,694)

 

$

(11,652)

 

$

(36,604)

 

$

(18,202)

 

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.50)

 

$

(5.12)

 

$

(1.76)

 

$

(8.44)

 

Weighted average common shares outstanding, basic and diluted

 

 

21,415,871

 

 

2,274,617

 

 

20,752,590

 

 

2,155,685

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(12)

 

 

1

 

 

144

 

 

7

 

Foreign currency translation adjustments

 

 

(43)

 

 

 —

 

 

(49)

 

 

 —

 

Total other comprehensive (loss) income

 

 

(55)

 

 

1

 

 

95

 

 

7

 

Comprehensive loss

 

$

(10,749)

 

$

(10,631)

 

$

(36,509)

 

$

(15,842)

 

 

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

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ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF

STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Common Stock

 

Additional

 

Other

 

 

 

Total

 

 

 

 

Par

 

Paid‑in

 

Comprehensive

 

Accumulated

 

Stockholders’

 

 

  Shares 

  

Value

  

Capital

  

Loss

  

Deficit

  

Equity

 

Balance at December 31, 2015

20,157,503

 

$

 —

 

$

135,503

 

$

(149)

 

$

(42,833)

 

$

92,521

 

Issuance of common stock in connection with Vixen acquisition

159,420

 

 

 —

 

 

2,355

 

 

 —

 

 

 —

 

 

2,355

 

Issuance of common stock in connection with private placement, net of offering costs of $1,453

1,081,082

 

 

 —

 

 

18,547

 

 

 —

 

 

 —

 

 

18,547

 

Exercise of stock options

25,990

 

 

 —

 

 

14

 

 

 —

 

 

 —

 

 

14

 

Unrealized gain on marketable securities

 —

 

 

 —

 

 

 —

 

 

144

 

 

 —

 

 

144

 

Foreign currency translation adjustment

 —

 

 

 —

 

 

 —

 

 

(49)

 

 

 —

 

 

(49)

 

Stock-based compensation expense

 —

 

 

 —

 

 

4,194

 

 

 —

 

 

 —

 

 

4,194

 

Net loss 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(36,604)

 

 

(36,604)

 

Balance at September 30, 2016

21,423,995

 

$

 —

 

$

160,613

 

$

(54)

 

$

(79,437)

 

$

81,122

 

 

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

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ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2016

    

2015

 

Cash flows from operating activities:

    

 

    

    

 

    

 

Net loss

 

$

(36,604)

 

$

(15,849)

 

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

 

 

 

 

 

 

 

Depreciation expense

 

 

80

 

 

57

 

Stock-based compensation expense

 

 

4,194

 

 

243

 

Non-cash charges related to Vixen acquisition

 

 

2,784

 

 

 —

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

110

 

 

(764)

 

Accounts payable

 

 

915

 

 

(491)

 

Accrued expenses

 

 

1,990

 

 

572

 

Net cash used in operating activities

 

 

(26,531)

 

 

(16,232)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(170)

 

 

(375)

 

Purchases of marketable securities

 

 

(33,747)

 

 

(13,002)

 

Proceeds from sales and maturities of marketable securities

 

 

49,832

 

 

5,914

 

Net cash provided by (used in) investing activities

 

 

15,915

 

 

(7,463)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock in connection with private placement, net of issuance costs

 

 

18,547

 

 

 —

 

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

 

 

 —

 

 

39,864

 

Proceeds from the exercise of employee stock options

 

 

14

 

 

 —

 

Payment of deferred offering costs

 

 

 —

 

 

(1,507)

 

Net cash provided by financing activities

 

 

18,561

 

 

38,357

 

Net increase in cash and cash equivalents

 

 

7,945

 

 

14,662

 

Cash and cash equivalents at beginning of period

 

 

9,851

 

 

10,757

 

Cash and cash equivalents at end of period

 

$

17,796

 

$

25,419

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

Additions to property and equipment included in accounts payable

 

$

13

 

$

19

 

Accretion of convertible preferred stock to redemption value

 

$

 —

 

$

1,764

 

Fair value of stock issued in connection with Vixen acquisition

 

$

2,355

 

$

 —

 

Deferred offering costs included in accounts payable

 

$

 —

 

$

436

 

 

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

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Table of Contents

ACLARIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Amounts in thousands, except share and per share data)

 

1. Organization and Nature of Business

 

Aclaris Therapeutics, Inc. was incorporated under the laws of the State of Delaware in 2012. On July 17, 2015, Aclaris Therapeutics International Limited (“ATIL”) was established under the laws of the United Kingdom as a wholly-owned subsidiary of Aclaris Therapeutics, Inc. On March 24, 2016, Vixen Pharmaceuticals, Inc. (“Vixen”) became a wholly-owned subsidiary of Aclaris Therapeutics, Inc. (see Note 11).  Aclaris Therapeutics, Inc., together with ATIL and Vixen, are referred to collectively as the “Company”. The Company is a clinical‑stage specialty pharmaceutical company focused on identifying, developing and commercializing innovative and differentiated drugs to address significant unmet needs in dermatology. The Company’s lead drug candidate, A‑101, is a proprietary high‑concentration hydrogen peroxide topical solution that is being developed as a prescription treatment for seborrheic keratosis (“SK”), a common non‑malignant skin tumor. The Company has completed three Phase 2 clinical trials and is currently conducting three Phase 3 clinical trials of A-101 in patients with SK.

 

Initial Public Offering

 

On October 6, 2015, the Company’s registration statement on Form S-1 relating to its initial public offering of its common stock (the “IPO”) was declared effective by the Securities and Exchange Commission (“SEC”).  The Company’s common stock began trading on the NASDAQ Global Select Market on October 7, 2015.  The IPO closed on October 13, 2015, and 5,000,000 shares of common stock were sold at a price to the public of $11.00 per share, for aggregate gross proceeds of $55,000.  In addition, upon the closing of the IPO, all of the Company’s outstanding convertible preferred stock was converted into an aggregate total of 11,677,076 shares of common stock.

 

On October 12, 2015, the underwriters of the IPO exercised in full their option to purchase additional shares, and on October 13, 2015, the Company sold 750,000 additional shares of common stock at a price to the public of $11.00 per share, for aggregate gross proceeds of $8,250.

 

The Company paid underwriting discounts and commissions of $4,428 to the underwriters in connection with the IPO, including the underwriters’ exercise of their option to purchase additional shares.  In addition, the Company incurred expenses of $2,272 in connection with the IPO.  The net offering proceeds received by the Company, after deducting underwriting discounts, commissions and offering expenses, were $56,550.

 

Private Placement

 

On June 2, 2016, pursuant to a securities purchase agreement with certain accredited investors dated May 27, 2016, the Company closed a private placement in which it sold an aggregate of 1,081,082 shares of common stock at a price of $18.50 per share, for gross proceeds of $20,000.  The Company incurred placement agent fees of $1,300 and expenses of $153 in connection with the private placement.  The net offering proceeds received by the Company, after deducting placement agent fees and transaction expenses, were $18,547. 

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Reverse Stock Split

 

On September 24, 2015, the Company effected a 1‑for‑3.45 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s then-outstanding convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in these condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

 

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. At September 30, 2016, the Company had cash, cash equivalents and marketable securities of $84,042 and an accumulated deficit of $79,437. The Company has not generated any product revenues and has not achieved profitable operations. There is no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing, and commercialization of the Company’s products will require significant additional financing.  The future viability of the Company is dependent on its ability to generate cash from operating activities or to raise additional capital to finance its operations. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  The financial statements include the consolidated accounts of the Company and its wholly-owned subsidiaries.  All intercompany transactions have been eliminated.

 

Use of Estimates

 

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

 

Unaudited Interim Financial Information

 

The accompanying condensed consolidated balance sheet as of September 30, 2016, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2016 and 2015, the condensed consolidated statement of stockholders’ equity for the nine months ended September 30, 2016, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015 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 SEC on March 23, 2016 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 September 30, 2016, the results of its operations and comprehensive loss for the three and nine months ended September 30, 2016 and 2015 and its cash flows for the nine months ended September 30, 2016 and 2015. The condensed consolidated balance sheet data as of December 31, 2015 was derived from audited financial statements but does not include all disclosures required by accounting

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principles generally accepted in the United States.  The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2016 and 2015 are unaudited. The results for the three and nine months ended September 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016, 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, 2015 included in the Company’s annual report on Form 10-K filed with the SEC on March 23, 2016.

 

Significant Accounting Policies

 

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2015 included in the Company’s annual report on Form 10-K filed with the SEC on March 23, 2016. Since the date of such financial statements, there have been no changes to the Company’s significant accounting policies.

 

Assets Held for Sale

 

In order for an asset to be classified as held for sale there must be an active program to market the asset, and it must be probable the asset will be disposed of within one year. The carrying value of an asset held for sale is reported at the lower of its carrying value or its fair value less costs to sell. No additional depreciation expense is recognized once an asset is classified as held for sale. All current and historical balance sheet information for the Company’s assets held for sale is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets.  As of September 30, 2016 and December 31, 2015, $216 in assets were classified as held for sale.

 

Recently Issued Accounting Pronouncements

 

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

 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.  This ASU requires all tax effects of share-based payment settlements to be recorded through the income statement.  Currently, tax benefits in excess of compensation cost, or “windfalls”, are recorded in equity, and tax deficiencies, or “shortfalls”, are recorded to equity to the extent of previous windfalls, and then to the income statement.  In addition, under the new guidance, companies will be permitted to make a policy election to recognize the impact of forfeitures either when they occur, or on an estimated basis.  Finally, this update simplifies withholding requirements to allow companies to withhold up to an employee’s maximum tax rate without resulting in liability classification for the award.  ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, and early adoption is permitted.  The Company has adopted the provisions of this standard early, the impact of which on its consolidated financial statements was not significant.

 

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3. Fair Value of Financial Assets and Liabilities

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of September 30, 2016

 

 

 

Using:

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets:

    

 

    

    

 

    

    

 

    

    

 

    

 

Cash equivalents

 

$

11,378

 

$

1,401

 

$

 —

 

$

12,779

 

Marketable securities

 

 

 —

 

 

66,246

 

 

 —

 

 

66,246

 

Total

 

$

11,378

 

$

67,647

 

$

 —

 

$

79,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of December 31, 2015

 

 

 

Using:

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets:

    

 

    

    

 

    

    

 

    

    

 

    

 

Cash equivalents

 

$

8,810

 

$

250

 

$

 —

 

$

9,060

 

Marketable securities

 

 

 —

 

 

82,187

 

 

 —

 

 

82,187

 

Total

 

$

8,810

 

$

82,437

 

$

 —

 

$

91,247

 

 

As of September 30, 2016 and December 31, 2015, the Company’s cash equivalents consisted of investments with maturities of less than three months and included a money market fund, which was valued based upon Level 1 inputs, and asset-backed securities. In determining the fair value of its Level 2 investments the Company relied on quoted prices for identical securities in markets that are not active. These quoted prices were obtained by the Company with the assistance of a third-party pricing service based on available trade, bid and other observable market data for identical securities. Quarterly, the Company compares the quoted prices obtained from the third-party pricing service to other available independent pricing information to validate the reasonableness of the quoted prices provided. The Company evaluates whether adjustments to third-party pricing is necessary and, historically, the Company has not made adjustments to quoted prices obtained from the third-party pricing service. During the nine months ended September 30, 2016 and the year ended December 31, 2015, there were no transfers between Level 1, Level 2 and Level 3.

 

As of September 30, 2016 and December 31, 2015, the fair value of the Company’s available for sale marketable securities by type of security was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gain

 

Loss

 

Value

 

 

    

 

    

    

 

    

    

 

    

    

 

    

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

36,963

 

$

 —

 

$

(14)

 

$

36,949

 

Commercial paper

 

 

11,975

 

 

 —

 

 

 —

 

 

11,975

 

Asset-backed securities

 

 

8,299

 

 

2

 

 

 —

 

 

8,301

 

U.S. government agency debt securities

 

 

9,019

 

 

3

 

 

(1)

 

 

9,021

 

Total marketable securities

 

$

66,256

 

$

5

 

$

(15)

 

$

66,246

 

 

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gain

 

Loss

 

Value

 

Marketable securities:

    

 

    

    

 

    

    

 

    

    

 

    

 

Corporate debt securities

 

$

46,270

 

$

 —

 

$

(125)

 

$

46,145

 

Commercial paper

 

 

9,789

 

 

 —

 

 

 —

 

 

9,789

 

Asset-backed securities

 

 

6,234

 

 

 —

 

 

(14)

 

 

6,220

 

U.S. government agency debt securities

 

 

20,048

 

 

 —

 

 

(15)

 

 

20,033

 

Total marketable securities

 

$

82,341

 

$

 —

 

$

(154)

 

$

82,187

 

 

As of September 30, 2016 and December 31, 2015, the Company’s investments in corporate debt securities had credit ratings of A and above and remaining maturities of less than 12 months and less than 15 months, respectively.

 

4. Property and Equipment, Net

 

Property and equipment, net consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

 

2016

 

2015

 

Computer equipment

    

$

340

    

$

262

 

Manufacturing equipment

 

 

131

 

 

101

 

Furniture and fixtures

 

 

112

 

 

39

 

Property and equipment, gross

 

 

583

 

 

402

 

Less: Accumulated depreciation

 

 

(122)

 

 

(42)

 

Property and equipment, net

 

$

461

 

$

360

 

 

Depreciation expense was $32 for each of the three months ended September 30, 2016 and 2015, and was $80 and $57 for the nine months ended September 30, 2016 and 2015, respectively. 

 

5. Accrued Expenses

 

Accrued expenses consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

 

2016

 

2015

 

Research and development expenses

    

$

1,489

    

$

123

 

Employee-related expenses

 

 

1,088

 

 

 —

 

Licensing fees

 

 

 —

 

 

250

 

Vixen contract payable

 

 

100

 

 

 —

 

Professional fees

 

 

37

 

 

283

 

Other

 

 

103

 

 

89

 

Total accrued expenses

 

$

2,817

 

$

745

 

 

 

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6. Stockholders’ Equity

 

Preferred Stock

 

As of September 30, 2016 and December 31, 2015, the Company’s amended and restated certificate of incorporation authorized the Company to issue 10,000,000 shares of undesignated preferred stock.  No shares of preferred stock were outstanding as of September 30, 2016 or December 31, 2015.

 

Common Stock

 

As of September 30, 2016 and December 31, 2015, 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.

 

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 September 30, 2016.

 

7. Stock‑Based Awards

 

2012 Equity Compensation Plan

 

Upon the 2015 Equity Incentive Plan (the “2015 Plan”), described below, becoming effective, no further grants may be made under the 2012 Equity Compensation Plan, as amended and restated (the “2012 Plan”). 

 

The Company granted a total of 1,140,524 stock options under the 2012 Plan, of which 1,075,667 were outstanding as of September 30, 2016 and all of which were outstanding as of December 31, 2015.  Stock options granted under the 2012 Plan vest over four years and expire after ten years.  As required, the exercise price for the stock options granted under the 2012 Plan was not less than the fair value of common shares as determined by the Company as of the date of grant. 

 

2015 Equity Incentive Plan

 

On September 15, 2015, the Company’s board of directors adopted and on September 16, 2015, the Company’s stockholders approved the 2015 Plan, which became effective in connection with the IPO in October 2015.  The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit (“RSU”) awards, performance stock awards, cash-based awards and other stock-based awards. The number of shares initially reserved for issuance under the 2015 Plan was 1,643,872 shares of common stock. The number of shares of common stock that may be issued under the 2015 Plan will automatically increase on January 1 of each year, beginning on January 1, 2016 and 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 January 1, 2016, the number of shares of common stock that may be issued under the 2015 Plan was automatically increased by 806,300 shares. As of September 30, 2016, 1,608,205 shares remained available for grant under the 2015 Plan.

 

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Stock Option Valuation

 

The weighted average assumptions the Company used to estimate the fair value of stock options granted during the nine months ended September 30, 2016 and 2015 were as follows:

 

 

 

 

 

 

 

 

 

 

    

Nine Months Ended September 30, 

 

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate

 

1.41

%  

 

1.73

%

 

Expected term (in years)

 

6.5

 

 

6.2

 

 

Expected volatility

 

96.60

%  

 

96.65

%

 

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. 

 

Stock Options

 

The following table summarizes stock option activity from January 1, 2016 through September 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted

    

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

Number

 

Exercise

 

Contractual

 

Intrinsic

 

 

 

of Shares

 

Price

 

Term

 

Value

 

 

 

 

 

 

 

 

(in years)

 

 

 

 

Outstanding as of December 31, 2015

 

1,738,524

 

$

13.23

 

9.51

 

$

24,722

 

Granted

 

222,528

 

 

20.10

 

 

 

 

 

 

Exercised

 

(25,990)

 

 

0.55

 

 

 

 

 

 

Forfeited and canceled

 

(67,561)

 

 

15.69

 

 

 

 

 

 

Outstanding as of September 30, 2016

 

1,867,501

 

$

14.13

 

8.80

 

$

22,921

 

Options vested and expected to vest as of September 30, 2016

 

1,867,501

 

$

14.13

 

8.80

 

$

22,921

 

Options exercisable as of September 30, 2016

 

384,223

(1)

$

5.54

 

8.07

 

$

7,713

 


(1)

All options granted under the 2012 Plan are exercisable immediately, subject to a repurchase right in the Company’s favor that lapses as the option vests. This amount reflects the number of shares under options that were vested, as opposed to exercisable, as of September 30, 2016.

 

The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2016 was $15.83 per share.

 

The intrinsic value of a stock option is calculated as the difference between the exercise price of the stock option and the fair value of the underlying common stock, and cannot be less than zero. 

 

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Restricted Stock Units

 

The following table summarizes RSU activity from January 1, 2016 through September 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

 

 

Grant Date

 

 

 

Number

 

Fair Value

 

 

 

of Shares

 

Per Share

 

Outstanding as of December 31, 2015

 

53,800

 

$

28.68

 

Granted

 

37,200

 

 

20.32

 

Vested

 

 —

 

 

 —

 

Forfeited and cancelled

 

(2,000)

 

 

28.68

 

Outstanding as of September 30, 2016

 

89,000

 

$

25.19

 

 

The Company did not grant RSUs during the nine months ended September 30, 2015. 

 

Stock‑Based Compensation

 

The following table summarizes stock‑based compensation expense recorded by the Company for the three and nine months ended September 30, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

     

2016

     

2015

     

2016

     

2015

 

Research and development

    

$

623

    

$

47

  

$

1,577

    

$

74

 

General and administrative

 

 

995

 

 

111

 

 

2,617

 

 

169

 

 

 

$

1,618

 

$

158

 

$

4,194

 

$

243

 

 

As of September 30, 2016, the Company had unrecognized stock‑based compensation expense for stock options and RSUs of $16,483 and $1,884, respectively, which is expected to be recognized over weighted average periods of 3.14 years and 3.36 years, respectively. 

 

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8. Net Loss per Share

 

Basic and diluted net loss per share attributable to common stockholders is summarized in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

 

2016

 

2015

 

2016

 

2015

 

Numerator:

    

 

    

    

 

    

  

 

    

    

 

    

 

Net loss

 

$

(10,694)

 

$

(10,632)

 

$

(36,604)

 

$

(15,849)

 

Accretion of redeemable convertible preferred stock

 

 

 —

 

 

(1,020)

 

 

 —

 

 

(2,353)

 

Net loss attributable to common stockholders

 

$

(10,694)

 

$

(11,652)

 

$

(36,604)

 

$

(18,202)

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

21,415,871

 

 

2,730,427

 

 

20,752,590

 

 

2,730,427

 

Less: Weighted average shares of unvested restricted common stock outstanding

 

 

 —

 

 

(455,810)

 

 

 —

 

 

(574,742)

 

Weighted average common shares outstanding used in calculating net loss per share attributable to common stockholders, basic and diluted

 

 

21,415,871

 

 

2,274,617

 

 

20,752,590

 

 

2,155,685

 

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.50)

 

$

(5.12)

 

$

(1.76)

 

$

(8.44)

 

 

The Company’s potentially dilutive securities, which included stock options, RSUs, preferred stock and shares of restricted common stock that were issued but not yet vested, 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 common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.  The following table presents potential common shares excluded from the calculation of diluted net loss per share attributable to common stockholders for both the three and nine months ended September 30, 2016 and 2015.  All share amounts presented in the table below represent the total number outstanding as of September 30.

 

 

 

 

 

 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Stock options to purchase common stock

 

1,867,501

 

1,140,524

 

Restricted stock unit awards

 

89,000

 

 —

 

Unvested restricted common stock

 

 —

 

399,757

 

Convertible preferred stock (as converted to common stock)

 

 —

 

11,677,076

 

 

 

1,956,501

 

13,217,357

 

 

 

9. Commitments and Contingencies

 

Sublease

 

In August 2013, the Company entered into a sublease agreement with a related party (see Note 10) for its office space with a term ending on November 30, 2016. As part of an amendment to the sublease agreement entered into in December 2014, the Company increased the amount of office space to be subleased and agreed to new monthly terms commencing in January 2015.  On August 14, 2015, the Company further amended its sublease agreement to increase the square footage of the space and to extend the term of the lease to November 2019.  Effective December 1, 2015, the Company further amended its sublease agreement to increase the square footage and agreed to new monthly sublease terms. Rent expense under operating leases was $66 and $34 for the three months ended September 30, 2016 and 2015, respectively, and was $178 and $86 for the nine months ended September 30, 2016 and 2015, respectively. The

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Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not yet paid.

 

As of September 30, 2016, future minimum lease payments under the sublease were as follows:

 

 

 

 

 

 

Years Ending December 31, 

    

    

 

 

2016

 

$

65

 

2017

 

 

263

 

2018

 

 

268

 

2019

 

 

251

 

2020

 

 

 —

 

Total

 

$

847

 

 

 

10. Related Party Transactions

 

In August 2013, the Company entered into a sublease agreement with NeXeption, Inc. ("NeXeption"), which was subsequently amended in December 2014 and August 2015. In August 2015, pursuant to an Assignment and Assumption Agreement, NeXeption, Inc. assigned all interests, rights, duties and obligations under the sublease to NST Consulting, LLC, a wholly-owned subsidiary of NST, LLC. Mr. Stephen Tullman, the chairman of the Company’s board of directors, was an executive officer of NeXeption and is also the manager of NST Consulting, LLC and NST, LLC. Total payments made under the sublease during the three months ended September 30, 2016 and 2015 were $64 and $44, respectively, and during the nine months ended September 30, 2016 and 2015 were $179 and $97, respectively. 

 

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

 

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

 

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During the three and nine months ended September 30, 2016 and 2015, amounts included in the consolidated statement of operations for the NST Services Agreement are summarized in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Services provided by NST Consulting, LLC

 

$

79

 

$

105

 

$

237

 

$

358

 

Services provided to NST Consulting, LLC

 

 

(15)

 

 

(69)

 

 

(45)

 

 

(186)

 

General and administrative expense, net

 

$

64

 

$

36

 

$

192

 

$

172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services provided by NST Consulting, LLC

 

$

60

 

$

 —

 

$

181

 

$

 —

 

Services provided to NST Consulting, LLC

 

 

(21)

 

 

(63)

 

 

(63)

 

 

(190)

 

Research and development expense, net

 

$

39

 

$

(63)

 

$

118

 

$

(190)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services provided by NST Consulting, LLC

 

$

139

 

$

105

 

$

418

 

$

358

 

Services provided to NST Consulting, LLC

 

 

(36)

 

 

(132)

 

 

(108)

 

 

(376)

 

Total, net

 

$

103

 

$

(27)

 

$

310

 

$

(18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments made to NST

 

$

88

 

$

(2)

 

$

263

 

$

13

 

 

The Company did not have any open invoices payable to NST Consulting, LLC under the NST Services Agreement as of either September 30, 2016 or December 31, 2015. 

 

11. Agreements Related to Intellectual Property

 

Assignment Agreement and Finder’s Services Agreement

 

In August 2012, the Company entered into an assignment agreement with the Estate of Mickey Miller, or the Miller Estate, under which the Company acquired some of the intellectual property rights covering A-101. In connection with obtaining the assignment of the intellectual property from the Miller Estate, the Company also entered into a separate finder’s services agreement with KPT Consulting, LLC. In February 2016, under the terms of the assignment agreement and the finder’s services agreement, the Company made a one-time milestone payment of $300 upon the dosing of the first subject with A-101 in the Company’s Phase 3 clinical trial. The payment was recorded as general and administrative expense during the nine months ended September 30, 2016.

 

Under the finder’s services agreement, the Company is obligated to make an additional milestone payment of $1,000 upon the submission of an NDA for A-101 and regulatory milestones and up to $4,500 upon the achievement of specified commercial milestones. Under each of the assignment agreement and the finder’s services agreement, the Company is also obligated to pay royalties on sales of A-101 or related products, at low single-digit percentages of net sales, subject to reduction in specified circumstances. The Company has not made any royalty payments to date under either agreement. Both agreements will terminate upon the expiration of the last pending, viable patent claim of the patents acquired under the assignment agreement, but no sooner than 15 years from the effective date of the agreements.

 

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

 

On March 24, 2016, the Company entered into a stock purchase agreement (the “Vixen Agreement”) with Vixen, JAK1, LLC, JAK2, LLC and JAK3, LLC (together with JAK1, LLC and JAK2, LLC, the “Selling Stockholders”) and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the representative of the Selling Stockholders.  Pursuant to the Vixen Agreement, the Company acquired all shares of Vixen’s c