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Aclaris Therapeutics, Inc.

Aclaris Therapeutics, Inc.ACRSEarnings & Financial Report

Nasdaq · Health Care · Pharmaceutical Preparations

Aclaris Therapeutics, Inc. is a clinical-stage biopharmaceutical firm focused on developing targeted therapies for immunological, inflammatory, and dermatological diseases. Its pipeline includes candidates for unmet needs like alopecia areata and vitiligo, serving global patient groups.

What changed in Aclaris Therapeutics, Inc.'s 10-K — 2022 vs 2023

Top changes in Aclaris Therapeutics, Inc.'s 2023 10-K

283 paragraphs added · 317 removed · 164 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

36 edited+49 added−36 removed147 unchanged
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 Sanofi and Regeneron Pharmaceuticals.
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 to the payments described above, if we sell, license or transfer any of the intellectual property 9 Table of Contents 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. ​ 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.
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. 9 Table of Contents ​ 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.
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. 11 Table of Contents ​ 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 are submitted to the FDA as part of an NDA requesting approval to market the product.
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 11 Table of Contents are submitted to the FDA as part of an NDA requesting approval to market the product.
Our results of operations could be adversely affected by the Affordable Care Act 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.
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.
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. ​ 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.
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. ​ 18 Table of Contents 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.
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 2031 unless additional Congressional action is taken.
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.
We also own PCT applications 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 U.S. 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.
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.
In addition, we are aware of a number of companies including large pharmaceutical companies, such as Eli Lilly, Novartis, LEO Pharma A/S, Pfizer, and Dermavant Sciences developing and conducting clinical trials for investigational drug candidates, that, if approved, could compete with ATI-1777, 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.
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.
The principal purposes of our equity incentive plans 19 Table of Contents 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.
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.
The impact of such actions on our business, if any, cannot presently be determined. ​ 17 Table of Contents 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.
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.
Patent extension cannot extend the 18 Table of Contents 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.
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.
In addition to including the results of the preclinical studies, the IND will also include a protocol detailing, among other things, the objectives of 10 Table of Contents 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.
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.
Our principal executive offices are located at 640 Lee Road, Suite 200, 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.
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.
Further, we own numerous pending patent applications in the U.S., European Union and other foreign countries directed to certain methods of using zunsemetinib, methods of manufacturing zunsemetinib and crystal forms of 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.
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 and the FDA must resolve any outstanding concerns before clinical trials can begin.
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 and the 10 Table of Contents FDA must resolve any outstanding concerns before clinical trials can begin.
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. ​ Employees and Human Capital Resources ​ As of December 31, 2022, we had 105 total employees, of which 100 were full-time employees.
Our business could be harmed 19 Table of Contents 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.
For example, we own one U.S. patent and pending applications in the U.S., European Union and other 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.
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.
Patent and Trademark Office, or USPTO, and its foreign counterparts. ​ With respect to our MK2 signaling pathway inhibitor development program, we own numerous issued patents and pending applications to novel MK2 pathway inhibitors, including our lead candidate 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 be available in a particular country.
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 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. ​ 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.
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.
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.
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.
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.
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.
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. ​ The Affordable Care Act, 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.
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.
We also own pending patent applications in the U.S., European Union and other foreign countries directed to ATI-2231, and methods of use, which, if issued, would expire in 2040, subject to any applicable adjustment or extension. ​ 8 Table of Contents With respect to our “soft” JAK inhibitor development program, we own one issued U.S. patent and numerous pending applications in the U.S. 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.
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 8 Table of Contents be available in a particular country.
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 Zunsemetinib MK2 inhibitor Oral ​ Rheumatoid arthritis (moderate to severe) Phase 2b Hidradenitis suppurativa (moderate to severe) Phase 2a Psoriatic arthritis (moderate to severe) Phase 2a ATI- 1 777 “Soft” JAK 1/3 inhibitor Topical Atopic dermatitis (moderate to severe) Phase 2b ATI-2138 ITK/JAK3 inhibitor Oral T cell-mediated autoimmune diseases Phase 1 Gut-Biased Program JAK inhibitor Oral Inflammatory bowel disease Discovery Oncology ATI-2231 MK2 inhibitor Oral Metastatic breast cancer Preclinical ​ ​ ​ Pancreatic cancer ​ 4 Table of Contents ​ Clinical Programs ​ Zunsemetinib, an Investigational Oral MK2 Inhibitor ​ We are developing zunsemetinib, an investigational oral MK2 inhibitor, as a potential treatment for rheumatoid arthritis, hidradenitis suppurativa and psoriatic arthritis.
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- 1 777 “Soft” JAK 1/3 inhibitor Topical Atopic dermatitis Phase 2b Complete ATI-2138 ITK/JAK3 inhibitor Oral T cell-mediated autoimmune diseases Phase 1 Complete Oncology Zunsemetinib MK2 inhibitor Oral Metastatic breast cancer Phase 1* Pancreatic cancer ​ ​ ​ ​ ​ ​ ​ * We plan to support Washington University in St.
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. ​ 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.
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.
These provisions will 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.
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.
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.
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.
In addition to 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. ​ In 2017, we acquired Confluence Life Sciences, Inc. (now known as Aclaris Life Sciences, Inc.), or Confluence.
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 addition, we are aware of a number of companies developing and conducting clinical trials for investigational drug candidates, including biosimilars, that, if approved, could compete with zunsemetinib, if approved, for the treatment of immuno-inflammatory diseases. ​ With respect to ATI-1777 as a potential treatment for moderate to severe atopic dermatitis, there are several different types of therapies in the atopic dermatitis market, such as biologics, oral and topical corticosteroids, injectable and oral methotrexate products, oral and topical calcineurin inhibitors, oral mycophenolate products, other JAK inhibitors, other oral antibiotics and antihistamines and phototherapy.
Our drug candidates, if approved, will compete with existing treatments and new treatments that may become available in the future. 7 Table of Contents ​ 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.
It is unclear whether this executive order 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.
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.
“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 October 2020, we initiated a Phase 2a, multicenter, randomized, double-blind, vehicle-controlled, parallel-group clinical trial to determine the efficacy, safety, tolerability and pharmacokinetics of ATI-1777 in subjects with moderate to severe atopic dermatitis (ATI-1777-AD-201).
“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).
Under current legislation the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of this sequester. 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.
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.
Item 1. Business ​ Overview ​ We are a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-inflammatory diseases.
Item 1. Business ​ 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 December 2022, we initiated a Phase 1 placebo-controlled, randomized, multiple ascending dose (MAD) trial to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of ATI-2138 in healthy volunteers (ATI-2138-PKDP-102). This trial seeks to enroll approximately 60 healthy volunteers in the United States.
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.
We expect topline data by the end of 2023. ​ ATI-1777, an Investigational Topical “Soft” JAK 1/3 Inhibitor ​ We are developing ATI-1777, an investigational topical “soft” JAK 1/3 inhibitor, as a potential treatment for moderate to severe atopic dermatitis.
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.
The primary endpoint is the percentage change from baseline in EASI score at week 4. We expect topline data mid-2023. ATI-2138, an Investigational Oral Covalent ITK/JAK3 Inhibitor ​ We are developing ATI-2138, an investigational oral covalent ITK/JAK3 inhibitor, as a potential treatment for T cell-mediated autoimmune diseases.
We intend to seek a development and commercialization partner for this program. 5 Table of Contents 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.
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The acquisition of Confluence added small molecule drug discovery and preclinical development capabilities, including KINect, a proprietary drug discovery platform. This allowed us to bring early-stage research and development activities in-house that we previously outsourced to third parties. We leverage these capabilities and KINect to identify potential drug candidates that we may develop independently or in collaboration with third parties.
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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 .
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As part of the Confluence acquisition we also acquired our investigational drug candidates zunsemetinib, an inhibitor of the mitogen-activated protein kinase-activated protein kinase 2, or MK2, signaling pathway, ATI-1777, a topical “soft” Janus kinase, or JAK, 1/3 inhibitor, and ATI-2138, an inhibitor of interleukin-2-inducible T cell kinase, or ITK.
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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.
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We also earn revenue from Confluence’s provision of contract research services to third parties. ​ Our Drug Candidates ​ Our pipeline of drug candidates that we are currently developing is summarized in the table below.
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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.
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MK2 is a key regulator of pro-inflammatory mediators including TNFα, IL1β, IL6, IL8, IL17 and other essential pathogenic signals in chronic immuno-inflammatory diseases, as well as in oncology. As an oral drug candidate, we are developing zunsemetinib as a potential alternative to injectable anti-TNF/IL1/IL6/IL17 biologics and JAK inhibitors for treating certain immuno-inflammatory diseases.
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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.
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Zunsemetinib has been adopted as the nonproprietary name for ATI-450. ​ Moderate to Severe Rheumatoid Arthritis ​ In March 2020, we initiated a 12-week, Phase 2a, multicenter, randomized, investigator and patient-blind, sponsor-unblinded, parallel group, placebo-controlled clinical trial to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of zunsemetinib in subjects with moderate to severe rheumatoid arthritis (ATI-450-RA-201).
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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.
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In the trial, which consisted of a 12-week treatment period and a 4-week follow-up period, 19 subjects were randomized in a 3:1 ratio and received either zunsemetinib at 50 mg twice daily or placebo, in combination with methotrexate, for 12 weeks. ​ The final per-protocol analysis, which consisted of the 17 subjects who completed the treatment period (15 in the treatment arm and two in the placebo arm), showed that zunsemetinib demonstrated durable clinical activity, as defined by a marked and sustained reduction in DAS28-CRP and improvement of American College of Rheumatology 20%/50%/70% (ACR20/50/70) responses over 12 weeks.
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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.
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Zunsemetinib was generally well tolerated. All adverse events were mild to moderate. The most common adverse events (each reported in 2 subjects) were urinary tract infection, or UTI, and ventricular extrasystoles, all of which were determined to be unrelated to treatment except for one UTI.
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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.
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Two subjects withdrew from the trial during the treatment period, one in the treatment arm and one in the placebo arm.
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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.
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The subject in the treatment arm withdrew due to an elevated creatine phosphokinase, or CPK, level, which was determined by the site investigator to be treatment-related; this subject also had palpitations and ventricular extrasystoles, which were unrelated to the trial medication. The subject in the placebo arm withdrew as a result of prohibited medication needed to treat muscle strain.
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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.
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There was also one non-treatment-related serious adverse event (COVID-19) reported in the 4-week follow-up period of the trial in a subject who was no longer receiving treatment; the subject withdrew during the 4-week follow-up period of the trial. ​ A final analysis, which consisted of the 17 subjects, of ex vivo stimulated cytokines from blood samples taken from the treatment arm showed a marked and durable inhibition of TNFα, IL1β, IL6, and IL8 over the 12-week treatment period.
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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. 4 Table of Contents Our Drug Candidates ​ Our pipeline of drug candidates is summarized in the table below.
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Similarly, analysis of endogenous inflammation biomarkers also demonstrated a marked and sustained inhibition of median concentrations of hsCRP, TNFα, IL6, IL8 and MIP1β in the treatment arm over the 12-week period. ​ In December 2021, we initiated a Phase 2b randomized, multicenter, double-blind, parallel group, placebo-controlled, dose-ranging trial to investigate the efficacy, safety, tolerability, pharmacokinetics and pharmacodynamics of multiple doses (20 mg and 50 mg twice daily) of zunsemetinib in combination with methotrexate in subjects with moderate to severe rheumatoid arthritis (ATI-450-RA-202).
Added
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.
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This trial consists of a 12-week treatment period and a 30-day follow-up period, and seeks to enroll approximately 240 subjects in the United States and in multiple countries in Europe. The primary endpoint is the proportion of subjects achieving ACR20 at week 12.
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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.
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We expect topline data in the second half of 2023. ​ Moderate to Severe Hidradenitis Suppurativa ​ In December 2021, we initiated a Phase 2a, randomized, multicenter, double-blind, placebo-controlled trial to investigate the efficacy, safety, tolerability, pharmacokinetics and pharmacodynamics of zunsemetinib (50 mg twice daily) in subjects with moderate to severe hidradenitis suppurativa (ATI-450-HS-201).
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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).
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This trial consists of a 12-week treatment period and a 30-day follow-up period. The trial has completed enrollment with 95 subjects randomized in the United States. The primary endpoint is the change in inflammatory nodule and abscess count at week 12.
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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).
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We expect topline data in March of 2023. ​ 5 Table of Contents Moderate to Severe Psoriatic Arthritis ​ In June 2022, we initiated a Phase 2a, randomized, multicenter, double-blind, placebo-controlled trial to investigate the efficacy, safety, tolerability, pharmacokinetics and pharmacodynamics of zunsemetinib (50 mg twice daily) in subjects with moderate to severe psoriatic arthritis (ATI-450-PsA-201).
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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.
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This trial consists of a 12-week treatment period and a 30-day follow-up period, and seeks to enroll approximately 70 subjects in the United States and in Poland. The primary endpoint is the proportion of subjects achieving ACR20 at week 12.
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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.
Removed
In the trial, which consisted of a 4-week treatment period and a 2-week follow-up period during which no treatment was given, 50 subjects with moderate to severe atopic dermatitis were randomized in a 1:1 ratio into one of two arms: ATI-1777 topical solution 2.0% w/w or vehicle applied twice daily.
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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.
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In June 2021, we announced that the trial achieved its primary endpoint, which was the percent change from baseline in the modified Eczema Area and Severity Index, or mEASI, score at week 4, with a high degree of statistical significance (p In May 2022, we initiated a Phase 2b, multicenter, randomized, double-blind, vehicle-controlled, parallel-group trial to determine the efficacy, safety, tolerability and pharmacokinetics of ATI-1777 in subjects with moderate to severe atopic dermatitis (ATI-1777-AD-202).
Added
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.
Removed
In this trial, we are exploring multiple concentrations of twice daily treatment with ATI-1777 and a single concentration of once daily treatment with ATI-1777, in patients 12 years and older. This trial consists of a 4-week treatment period and a 2-week follow-up period, and seeks to enroll approximately 240 subjects in the United States.
Added
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.
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The ITK/JAK3 compound interrupts T cell signaling through the combined inhibition of ITK/JAK3 pathways in lymphocytes. We have selected ulcerative colitis as the intended first clinical development target for ATI-2138.
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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.
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We are also exploring additional indications that are relevant to the mechanism of action. ​ In October 2021, we submitted an Investigational New Drug application, or IND, for ATI-2138 for the treatment of psoriasis. The IND was allowed by the U.S.
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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.
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Food and Drug Administration, or FDA, in November 2021. 6 Table of Contents In December 2021, we initiated a Phase 1 randomized, observer-blind, placebo-controlled, single ascending dose (SAD) trial to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of ATI-2138 in healthy subjects (ATI-2138-PKPD-101).
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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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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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; 27 Table of Contents ● 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. ​ 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.
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. ​ 27 Table of Contents 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.
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 Sanofi and Regeneron Pharmaceuticals.
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.
If we are unable to do so, we may have to curtail the development of such drug candidate, or 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 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.
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 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; 34 Table of Contents ● 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.
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 33 Table of Contents 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.
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, 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. ​ 41 Table of Contents 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.
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, 40 Table of Contents 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.
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. ​ 42 Table of Contents 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.
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. ​ 41 Table of Contents 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.
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, 45 Table of Contents 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.
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, 44 Table of Contents 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.
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.
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.
The success of any drug candidates that we develop, including zunsemetinib, 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; 24 Table of Contents ● 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.
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.
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. ​ 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.
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. ​ 29 Table of Contents 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.
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: 51 Table of Contents ​ ● 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.
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.
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; 25 Table of Contents ● 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; ● the COVID-19 pandemic may impact the recruitment, enrollment, conduct and timing of our clinical trials; ● 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; ● 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.
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; 25 Table of Contents ● 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.
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. ​ 23 Table of Contents 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.
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.
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 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.
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 39 Table of Contents 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.
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. ​ 26 Table of Contents 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.
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.
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. ​ 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.
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. ​ 49 Table of Contents 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.
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. ​ 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.
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. 36 Table of Contents ​ 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.
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. ​ A variety of organizations measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized.
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. ​ 56 Table of Contents A variety of organizations measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized.
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- 43 Table of Contents label uses of products for which marketing clearance has not been issued.
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- 42 Table of Contents label uses of products for which marketing clearance has not been issued.
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. ​ 31 Table of Contents 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.
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.
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 2031 unless additional Congressional action is taken.
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.
Subject enrollment is affected by other factors including: ​ ● 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.
Subject enrollment is affected by other factors including: 26 Table of Contents ​ ● 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.
If the FDA, EMA or any comparable regulatory authority does 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.
If the FDA, EMA or any comparable regulatory authority does 28 Table of Contents 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.
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 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.
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 32 Table of Contents 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.
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 may be limited.
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 53 Table of Contents may be limited.
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. ​ 30 Table of Contents 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.
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.
As a result, we may forego or delay pursuit of opportunities with other drug candidates or for other indications 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.
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 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. ​ 33 Table of Contents Our drug candidates may compete with other products and drug candidates for access to manufacturing facilities.
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.
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 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.
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 24 Table of Contents 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.
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 44 Table of Contents violation.
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 43 Table of Contents violation.
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; 50 Table of Contents ● 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; ● 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; ● the evolution of the COVID-19 pandemic and success of mass vaccination efforts; 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.
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; 51 Table of Contents ● 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.
In addition, we are aware of a number of companies including large pharmaceutical companies, such as Eli Lilly, Novartis, LEO Pharma A/S, Pfizer, and Dermavant Sciences developing and conducting clinical trials for investigational drug candidates, that, if approved, could compete with ATI-1777, 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.
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.
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 38 Table of Contents or require substantial time and monetary expenditure.
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.
While we are currently taking precautions to 48 Table of Contents 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.
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.
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 commercialize our drug candidates without infringing third-party patent rights.
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 35 Table of Contents commercialize our drug candidates without infringing third-party patent rights.
Competitors may be able to circumvent our patents by developing similar or alternative technologies or drugs in a non-infringing manner. ​ 36 Table of Contents 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.
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.
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 and accurate reporting of financial information or data.
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 50 Table of Contents and accurate reporting of financial information or data.
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 22 Table of Contents report based on our current operating assumptions.
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.
We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, 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.
We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, 46 Table of Contents 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.
Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices, or GCPs, for 32 Table of Contents 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.
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.
If any of our trade secrets were to be lawfully obtained or independently 39 Table of Contents 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 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 we are unable to raise capital when needed, we could be forced to curtail our planned operations. ● Our business is dependent on the successful development of our investigational drug candidate, zunsemetinib. ● 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 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.
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.
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. 45 Table of Contents ​ In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
These conditions make it extremely difficult for us to accurately forecast and plan future business activities. 54 Table of Contents ​ ​ 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 100,000,000 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.
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.
We seek to protect our trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have 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.
We seek to protect our trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have 38 Table of Contents 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.
The FDA, EMA or comparable foreign regulatory authorities may not accept data from such trials. ​ We currently conduct 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.
Once we select new trademarks and apply to register them, our trademark applications may not be 40 Table of Contents approved. Third parties may oppose or attempt to cancel our trademark applications or trademarks, or otherwise challenge our use of the trademarks.
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.
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, such as the COVID-19 pandemic.
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.
In addition, any third parties conducting 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.
In addition, any third parties conducting 31 Table of Contents 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 such third-party partners fail to obtain an adequate level of acceptance for our drug candidates, we may not earn significant revenue 29 Table of Contents and we may not become profitable.
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.
In addition, we rely on consultants and advisors, including scientific 49 Table of Contents 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.
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.
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 28 Table of Contents and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates. ​ We currently conduct and may in the future conduct clinical trials for our drug candidates outside the United States.
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.
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.
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.
Owners of traditional European patent applications who receive notice of grant after the EU Patent Package is ratified could 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.
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.
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.
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 30 Table of Contents approved.
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 provided by regulatory and governing bodies.
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 57 Table of Contents provided by regulatory and governing bodies.
If we elect to increase our expenditures to fund development or commercialization activities 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 elect to increase our expenditures to fund development or commercialization activities 34 Table of Contents on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all.
For example, the United States recently passed the Inflation Reduction Act, which 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.
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.
Our spending on current and future development programs and drug candidates for specific indications may not yield any commercially viable drugs.
Our spending on current and future development programs and drug candidates for specific indications or therapeutics areas may not yield any commercially viable drugs.
As of December 31, 2022, we also had federal research and development tax credit carryforwards of 15.1 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.
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.
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, 2022, we had federal and state net operating loss carryforwards, or NOLs, of $446.7 million and $477.9 million, respectively, which will begin to expire in 2032.
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.
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.
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.
Our future capital requirements 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; ● the impact on the timing of our preclinical studies, on the recruitment, enrollment, conduct and timing of our clinical trials, and on our business, due to the COVID-19 pandemic; ● 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 complete the clinical development of zunsemetinib, ATI-1777 and ATI-2138, to develop our preclinical compounds and to support our discovery efforts.
Our future capital requirements will depend on many factors, including: ​ ● the number and development requirements of the drug candidates that we may pursue; 22 Table of Contents ● 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.
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.
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.
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 $86.9 million and $90.9 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $682.3 million.
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.
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 control transaction.
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.
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 the clinical development of zunsemetinib as a potential treatment for moderate to severe rheumatoid arthritis, moderate to severe hidradenitis suppurativa and moderate to severe psoriatic arthritis, ATI-1777 as 21 Table of Contents a potential treatment for moderate to severe atopic dermatitis, and ATI-2138 as a potential treatment for T cell-mediated autoimmune diseases; ● continue to develop our preclinical drug candidates, including ATI-2231; ● 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. ​ 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 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. 21 Table of Contents ​ 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.
Douglas Manion, our Chief Executive Officer and President, Kevin Balthaser, our Chief Financial Officer, Dr. Joseph Monahan, our Chief Scientific Officer, Dr. Gail Cawkwell, our Chief Medical Officer, and James Loerop, our Chief Business Officer, as well as the other members of our scientific and clinical teams.
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.
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.
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.
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- 37 Table of Contents 1777 and ATI-2138.
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.
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. It is possible that implementation of the EU Patent Package will occur in the first half of 2023.
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.
Consequently, we or our potential third-party partner could be forced, including by court order, to cease developing or 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.
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.
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.
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.
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 zunsemetinib as a potential treatment for immuno-inflammatory diseases such as rheumatoid arthritis, hidradenitis suppurativa and psoriatic arthritis, there are several different types of therapies in the market.
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.
It is unclear whether this executive order or similar policy initiatives will be implemented in the future. 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.
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.
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. We also expect to add additional personnel to support our operational plans and strategic direction . ​ As of December 31, 2022, we had cash, cash equivalents and marketable securities of $229.8 million.
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.
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 other than for Dr.
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.
Manion. ​ 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.
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.
The success of our business will significantly depend on our successful development of and/or our ability to pursue strategic alternatives for, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize, zunsemetinib. ​ 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.
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.
As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely affected.
The issuance of shares of preferred stock may delay or prevent a change of 52 Table of Contents 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.

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Item 2. Properties

Properties — owned and leased real estate

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We have the option to extend the initial term for two additional five-year periods. ​ We believe that our facilities are suitable and adequate to meet our current needs. ​ ​
The sublease has an initial term through June 2029. We have the option to extend the initial term for two additional five-year periods. ​ 59 Table of Contents We believe that our facilities are suitable and adequate to meet our current needs. ​ ​
Item 2. Properties ​ We sublease 33,019 square feet of space for our headquarters in Wayne, Pennsylvania, which we use for our therapeutics business. The sublease has a term through October 2023.
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.
Removed
If for any reason the master lease is terminated or expires prior to October 2023, our sublease will automatically terminate. ​ 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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. Legal Proceedings ​ From time to time we are subject to litigation and claims arising in the ordinary course of business including intellectual property and product liability litigation.
Item 3. Legal Proceedings ​ From time to time we are subject to litigation and claims arising in the ordinary course of business.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The graph assumes an investment of $100 on December 31, 2017 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 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.
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, 2017 through December 31, 2022 for (i) our common stock, (ii) the Nasdaq Biotechnology Index and (iii) the Nasdaq Composite Index.
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.
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, 2023, we had 66,692,964 shares of common stock outstanding held by 48 holders of record.
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 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. 57 Table of Contents ​ ​ ​ 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 ​ Aclaris Therapeutics, Inc. ​ $ 100.00 ​ $ 29.97 ​ $ 7.66 ​ $ 26.24 ​ $ 58.96 ​ $ 63.87 ​ Nasdaq Composite Index ​ $ 100.00 ​ $ 97.16 ​ $ 132.81 ​ $ 192.47 ​ $ 235.15 ​ $ 158.65 ​ Nasdaq Biotechnology Index ​ $ 100.00 ​ $ 91.14 ​ $ 114.02 ​ $ 144.15 ​ $ 144.18 ​ $ 129.59 ​ ​ ​
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. 61 Table of Contents ​ ​ ​ ​ 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 ​ Aclaris Therapeutics, Inc. ​ $ 100.00 ​ $ 25.58 ​ $ 87.55 ​ $ 196.75 ​ $ 213.13 ​ $ 14.21 ​ Nasdaq Composite Index ​ $ 100.00 ​ $ 136.69 ​ $ 198.10 ​ $ 242.03 ​ $ 163.28 ​ $ 236.17 ​ Nasdaq Biotechnology Index ​ $ 100.00 ​ $ 125.11 ​ $ 158.17 ​ $ 158.20 ​ $ 142.19 ​ $ 148.72 ​ ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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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, clinical costs, external research and development services, laboratory and related supplies, legal and other regulatory expenses, and administrative and overhead costs.
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.
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. ​ 72 Table of Contents We may raise additional capital through the sale of equity or debt securities.
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.
These contracts generally provide for termination upon notice, and therefore we believe that our non-cancelable obligations under these agreements are not material. ​ 73 Table of Contents 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.
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.
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, 2022, we had cash, cash equivalents and marketable securities of $229.8 million.
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.
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 $25.1 million and $0.8 million for the years ended December 31, 2022 and 2021, respectively.
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.
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; ● the impact on the timing of our preclinical studies, the recruitment, enrollment, conduct and timing of our clinical trials and our business due to the COVID-19 pandemic; ● 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. ​ Leases ​ We occupy space for our headquarters in Wayne, Pennsylvania under a sublease agreement which has a term through October 2023.
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. ​ 76 Table of Contents Leases ​ We occupy space for our headquarters in Wayne, Pennsylvania under a lease agreement which has a term through February 2029.
We expect to add additional personnel to support our operational plans and strategic direction. 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.
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.
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. ​ 69 Table of Contents Equity Financing ​ Sale of Common Stock under At-the-Market Facility ​ In April 2022, we sold 4,838,709 shares of our common stock at a weighted average price per share of $15.50, 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.
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.
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.
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.
The increase was primarily driven by $17.6 million of upfront and milestone payments received under the Lilly agreement and the $5.0 million upfront payment received under the Pediatrix agreement. ​ Cost and Expenses ​ Cost of Revenue ​ Cost of revenue was $4.0 million and $4.7 million for the years ended December 31, 2022 and 2021, respectively, and in each case related to providing laboratory services to our clients.
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.
We also had $184.5 million in short- and long-term marketable securities as of December 31, 2022 compared to $198.3 million as of December 31, 2021. ​ 70 Table of Contents The sources and uses of cash that contributed to the change in cash and cash equivalents were: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2022 2021 Cash and cash equivalents beginning balance ​ $ 27,349 ​ $ 22,063 Net cash used in operating activities ​ (67,567) ​ (52,134) Net cash provided by (used in) investing activities ​ 12,628 ​ (167,632) Net cash provided by financing activities ​ ​ 72,867 ​ ​ 225,052 Cash and cash equivalents ending balance ​ $ 45,277 ​ $ 27,349 ​ Operating Activities ​ Cash flow related to operating activities was the result of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2022 2021 Net loss ​ $ (86,908) ​ $ (90,865) Non-cash adjustments to reconcile net loss to net cash used in operating activities ​ 20,536 ​ 40,074 Change in accounts payable and accrued expenses ​ ​ 960 ​ ​ 4,125 Change in accounts receivable ​ ​ 139 ​ ​ 149 Change in prepaid expenses and other assets ​ (2,294) ​ (5,617) Net cash used in operating activities ​ $ (67,567) ​ $ (52,134) ​ Net cash used in operating activities increased for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily as a result of higher net losses after adjusting for revaluation of contingent consideration and other non-cash items and an increase in cash paid for prepaid expenses and other assets.
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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2023 2022 Cash and cash equivalents beginning balance ​ $ 45,277 ​ $ 27,349 Net cash used in operating activities ​ (78,325) ​ (67,567) Net cash provided by investing activities ​ 46,220 ​ 12,628 Net cash provided by financing activities ​ ​ 26,706 ​ ​ 72,867 Cash and cash equivalents ending balance ​ $ 39,878 ​ $ 45,277 ​ 74 Table of Contents Operating Activities ​ Cash flow related to operating activities was the result of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2023 2022 Net loss ​ $ (88,481) ​ $ (86,908) Non-cash adjustments to reconcile net loss to net cash used in operating activities ​ 767 ​ 20,536 Change in accounts payable and accrued expenses ​ ​ 10,518 ​ ​ 960 Change in accounts receivable ​ ​ 186 ​ ​ 139 Change in prepaid expenses and other assets ​ (1,315) ​ (2,294) Net cash used in operating activities ​ $ (78,325) ​ $ (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.
Cost of revenue decreased during the year ended December 31, 2022 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ December 31, ​ ​ ​ (In thousands) ​ 2022 2021 ​ Change Zunsemetinib $ 28,133 $ 17,887 $ 10,246 ATI-1777 ​ ​ 12,113 ​ ​ 2,439 ​ ​ 9,674 ATI-2138 ​ ​ 7,704 ​ ​ 4,114 ​ ​ 3,590 ATI-2231 ​ ​ 4,828 ​ ​ 2,949 ​ ​ 1,879 Discovery ​ 4,564 ​ 3,192 ​ 1,372 Other research and development ​ ​ 1,564 ​ ​ 1,568 ​ ​ (4) Personnel ​ ​ 15,162 ​ ​ 7,798 ​ ​ 7,364 Stock-based compensation ​ ​ 3,745 ​ ​ 3,866 ​ ​ (121) Total research and development expenses ​ $ 77,813 ​ $ 43,813 ​ $ 34,000 ​ Zunsemetinib ​ The increase in expenses for zunsemetinib during the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to costs associated with clinical development activities for a Phase 2b trial in subjects with rheumatoid arthritis, which initiated in December 2021, a Phase 2a trial in subjects with hidradenitis suppurativa, which initiated in December 2021, a Phase 2a trial in subjects with psoriatic arthritis, which initiated in June 2022, and several ancillary clinical trials. ​ ATI-1777 ​ The increase in expenses for ATI-1777 during the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to higher costs associated with drug candidate manufacturing and other preclinical development activities as well as costs associated with a Phase 2b clinical trial in subjects with atopic dermatitis.
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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ (In thousands) ​ ​ 2023 2022 ​ Change Zunsemetinib $ 36,461 $ 28,133 $ 8,328 ATI-1777 ​ ​ ​ 12,129 ​ ​ 12,113 ​ ​ 16 ATI-2138 ​ ​ ​ 12,143 ​ ​ 7,704 ​ ​ 4,439 ATI-2231 ​ ​ ​ 1,575 ​ ​ 4,828 ​ ​ (3,253) Discovery ​ ​ 6,881 ​ 4,564 ​ 2,317 Other research and development ​ ​ ​ 3,417 ​ ​ 1,564 ​ ​ 1,853 Personnel ​ ​ ​ 18,977 ​ ​ 15,162 ​ ​ 3,815 Stock-based compensation ​ ​ ​ 6,801 ​ ​ 3,745 ​ ​ 3,056 Total research and development expenses ​ ​ $ 98,384 ​ $ 77,813 ​ $ 20,571 ​ Zunsemetinib ​ 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.
Louis. ​ 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.
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.
This change was partially offset by a decrease in cash paid to settle outstanding accounts payable. ​ The decrease in non-cash adjustments to reconcile net loss to net cash used in operating activities was mainly the result of a decrease in revaluation of contingent consideration during the year ended December 31, 2022 compared to the year ended December 31, 2021.
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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations. ​ Comparison of Years Ended December 31, 2022 and 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ (In thousands) 2022 2021 Change Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract research ​ $ 4,395 ​ $ 5,830 ​ $ (1,435) Licensing ​ ​ 25,100 ​ ​ 809 ​ ​ 24,291 Other ​ ​ 257 ​ ​ 122 ​ ​ 135 Total revenue ​ ​ 29,752 ​ ​ 6,761 ​ ​ 22,991 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenue ​ ​ 4,023 ​ ​ 4,713 ​ ​ (690) Research and development ​ 77,813 ​ 43,813 ​ 34,000 General and administrative ​ 25,133 ​ 23,619 ​ 1,514 Licensing ​ ​ 7,937 ​ ​ — ​ ​ 7,937 Revaluation of contingent consideration ​ ​ 4,700 ​ ​ 24,339 ​ ​ (19,639) Total costs and expenses ​ 119,606 ​ 96,484 ​ 23,122 Loss from operations ​ (89,854) ​ (89,723) ​ (131) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense), net ​ 2,946 ​ (1,142) ​ 4,088 Net loss ​ $ (86,908) ​ $ (90,865) ​ $ 3,957 ​ 66 Table of Contents Revenue ​ Contract Research ​ Contract research revenue was $4.4 million and $5.8 million for the years ended December 31, 2022 and 2021, respectively, and was comprised of fees earned from the provision of laboratory services to our clients.
Management’s Discussion and Analysis of Financial Condition and Results of Operations. ​ Comparison of Years Ended December 31, 2023 and 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ (In thousands) 2023 2022 Change Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract research ​ ​ $ 3,035 ​ $ 4,395 ​ $ (1,360) Licensing ​ ​ ​ 28,214 ​ ​ 25,100 ​ ​ 3,114 Other ​ ​ ​ — ​ ​ 257 ​ ​ (257) Total revenue ​ ​ ​ 31,249 ​ ​ 29,752 ​ ​ 1,497 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenue ​ ​ ​ 3,423 ​ ​ 4,023 ​ ​ (600) Research and development ​ ​ 98,384 ​ 77,813 ​ 20,571 General and administrative ​ ​ 32,412 ​ 25,133 ​ 7,279 Licensing ​ ​ ​ 14,658 ​ ​ 7,937 ​ ​ 6,721 Revaluation of contingent consideration ​ ​ ​ (26,900) ​ ​ 4,700 ​ ​ (31,600) Intangible asset impairment ​ ​ ​ 6,629 ​ ​ — ​ ​ 6,629 Total costs and expenses ​ ​ 128,606 ​ 119,606 ​ 9,000 Loss from operations ​ ​ (97,357) ​ (89,854) ​ (7,503) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income, net ​ ​ 8,509 ​ 2,946 ​ 5,563 Loss before income taxes ​ ​ ​ (88,848) ​ ​ (86,908) ​ ​ (1,940) Income tax benefit ​ ​ ​ (367) ​ ​ — ​ ​ (367) Net loss ​ ​ $ (88,481) ​ $ (86,908) ​ $ (1,573) ​ 70 Table of Contents 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.
Additionally, the inclusion of estimated future sales of zunsemetinib as a potential treatment for hidradenitis suppurativa and psoriatic arthritis, which are additional planned indications for zunsemetinib, also contributed to the higher charges during the year ended December 31, 2021. ​ Investing Activities ​ Cash flow related to investing activities was the result of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2022 2021 Purchases of property and equipment ​ $ (605) ​ $ (308) Purchases of marketable securities ​ (164,753) ​ (235,153) Proceeds from sales and maturities of marketable securities ​ ​ 177,986 ​ ​ 67,829 Net cash provided by (used in) investing activities ​ $ 12,628 ​ $ (167,632) ​ The change in net cash provided by investing activities for the year ended December 31, 2022 compared to net cash used in investing activities for the year ended December 31, 2021 primarily resulted from higher sales and maturities of marketable securities during the year ended December 31, 2022, which were used to fund our operations, and a reduction of purchases of marketable securities, which were higher during the year ended December 31, 2021 following our January 2021 and June 2021 public offerings. 71 Table of Contents ​ Financing Activities ​ Cash flow related to financing activities was the result of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2022 2021 Proceeds from issuance of common stock in connection with public offerings, net of issuance costs ​ $ — ​ $ 238,200 Proceeds from issuance of common stock under the at-the-market sales agreement, net of issuance costs ​ ​ 72,744 ​ ​ — Repayment of debt ​ ​ — ​ ​ (11,483) Payments of employee withholding taxes related to restricted stock unit award vesting ​ ​ (34) ​ ​ (3,124) Proceeds from exercise of employee stock options and the issuance of stock ​ 157 ​ 1,459 Net cash provided by financing activities ​ $ 72,867 ​ $ 225,052 ​ Cash provided by financing activities decreased for the year ended December 31, 2022 compared to December 31, 2021 primarily due to our January 2021 and June 2021 public offerings, partially offset by the proceeds from our April 2022 sale under the at-the-market sales agreement. ​ Funding Requirements ​ We anticipate we will incur net losses in the near term as we continue the clinical development of zunsemetinib as a potential treatment for moderate to severe rheumatoid arthritis, moderate to severe hidradenitis suppurativa and moderate to severe psoriatic arthritis, ATI-1777 as a potential treatment for moderate to severe atopic dermatitis, ATI-2138 as a potential treatment for T cell-mediated autoimmune diseases and ATI-2231 as a potential treatment for pancreatic cancer and metastatic breast cancer as well as in preventing bone loss in patients with metastatic breast cancer, continue the development of our preclinical compounds, and continue to discover and develop additional drug candidates.
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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2023 2022 Purchases of property and equipment ​ $ (1,309) ​ $ (605) Purchases of marketable securities ​ (135,675) ​ (164,753) Proceeds from sales and maturities of marketable securities ​ ​ 183,204 ​ ​ 177,986 Net cash provided by investing activities ​ $ 46,220 ​ $ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2023 2022 Proceeds from issuance of common stock under the at-the-market sales agreement, net of issuance costs ​ $ 26,714 ​ $ 72,744 Payments of employee withholding taxes related to restricted stock unit award vesting ​ ​ (102) ​ ​ (34) Proceeds from exercise of employee stock options and the issuance of stock ​ 94 ​ 157 Net cash provided by financing activities ​ $ 26,706 ​ $ 72,867 ​ 75 Table of Contents 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.
Additionally, the inclusion of estimated future sales of zunsemetinib as a potential treatment for hidradenitis suppurativa and psoriatic arthritis, which are additional planned indications for zunsemetinib, also contributed to the increase during the year ended December 31, 2021. ​ Other Income (Expense), net ​ Other income (expense), net increased during the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to there being no interest expense associated with the Loan and Security Agreement with Silicon Valley Bank, or SVB, which was repaid in July 2021, and higher interest income on investment portfolio balances. ​ Liquidity and Capital Resources ​ Overview ​ Since our inception, we have incurred net losses and negative cash flows from our operations.
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. ​ 73 Table of Contents Liquidity and Capital Resources ​ Overview ​ Since our inception, we have incurred net losses and negative cash flows from our operations.
We paid selling commissions and other fees of $2.2 million in connection with the sale. ​ June 2021 Public Offering ​ In June 2021, we closed a public offering in which we 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.
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.
Lower 67 Table of Contents costs associated with a Phase 2a clinical trial in subjects with atopic dermatitis, which commenced in 2020 and concluded in 2021, partially offset the overall increase in expenses. ​ ATI-2138 ​ Expenses for ATI-2138 were higher during the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due higher costs associated with preclinical development activities as well as costs associated with a Phase 1 SAD trial, which initiated in December 2021, and a Phase 1 MAD trial, which initiated in December 2022. ​ ATI-2231 ​ Expenses for ATI-2231 were higher during the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to preclinical development activities and IND-enabling studies as we progressed the program toward IND submission . ​ Discovery ​ Expenses related to discovery increased during the year ended December 31, 2022 compared to the year ended December 31, 2021 due to continued investment in our discovery-stage programs as we progressed programs toward candidate selection. ​ Personnel and stock-based compensation ​ Personnel and stock-based compensation expenses increased in the aggregate during the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in costs associated with higher average headcount, which was partially offset by a decrease in stock-based compensation expense mainly attributable to forfeiture credits recorded during the period. ​ General and Administrative ​ The following table summarizes our general and administrative expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ December 31, ​ ​ ​ (In thousands) ​ 2022 2021 ​ Change Personnel $ 6,028 $ 4,887 $ 1,141 Professional and legal fees ​ ​ 4,319 ​ ​ 5,249 ​ ​ (930) Facility and support services ​ 2,302 ​ 1,984 ​ 318 Other general and administrative ​ ​ 2,341 ​ ​ 2,286 ​ ​ 55 Stock-based compensation ​ ​ 10,143 ​ ​ 9,213 ​ ​ 930 Total general and administrative expenses ​ $ 25,133 ​ $ 23,619 ​ $ 1,514 ​ Personnel and stock-based compensation ​ Personnel and stock-based compensation expenses increased during the year ended December 31, 2022 compared to December 31, 2021 primarily due to higher average headcount and an increase in stock-based compensation expense associated with new equity awards granted in 2022, partially offset by lower costs associated with the separation of executive officers. ​ Professional and legal fees ​ Professional and legal fees, including accounting, investor relations and corporate communication costs, were lower during the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily as a result of lower accounting and other professional expenses due to a reduction in temporary staffing costs. ​ 68 Table of Contents Facility and support services ​ Facility and support services, including general office expenses, information technology costs and other expenses, increased during the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in overhead expenses, including increases in tax and license fees and information technology support costs. ​ Licensing ​ We incurred licensing expense during the year ended December 31, 2022 due to amounts payable to third parties under third-party license and acquisition agreements.
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.
The contract research segment earns revenue from the provision of laboratory services. ​ Recently Issued Accounting Pronouncements ​ In November 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606.
The 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.
The decrease in revaluation of contingent consideration during the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily the result of higher charges during the year ended December 31, 2021 from updates to the probability of success and estimated future sales level assumptions as a result of the completion of a Phase 2a clinical trial of zunsemetinib in subjects with rheumatoid arthritis, as well as the completion of a Phase 2a clinical trial of ATI-1777 in subjects with atopic dermatitis.
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. ​ 71 Table of Contents 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.
We did not incur licensing expense during the year ended December 31, 2021. ​ Revaluation of Contingent Consideration ​ 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. ​ The fair value of our contingent consideration liability increased during the year ended December 31, 2021 primarily from updates to the probability of success and estimated future sales level assumptions as a result of the completion of a Phase 2a clinical trial of zunsemetinib in subjects with rheumatoid arthritis, as well as the completion of a Phase 2a clinical trial of ATI-1777 in subjects with atopic dermatitis.
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.
In July 2021, we 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. ​ Cash Flows ​ Cash and cash equivalents were $45.3 million as of December 31, 2022 compared to $27.3 million as of December 31, 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.
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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.
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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.
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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.
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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) ​ ​ 2023 2022 ​ Change Personnel $ 8,016 $ 6,028 $ 1,988 Professional and legal fees ​ ​ ​ 5,534 ​ ​ 4,319 ​ ​ 1,215 Facility and support services ​ ​ 3,023 ​ 2,302 ​ 721 Other general and administrative ​ ​ ​ 2,240 ​ ​ 2,341 ​ ​ (101) Stock-based compensation ​ ​ ​ 12,285 ​ ​ 10,143 ​ ​ 2,142 Bad debt ​ ​ ​ 1,314 ​ ​ — ​ ​ 1,314 Total general and administrative expenses ​ ​ $ 32,412 ​ $ 25,133 ​ $ 7,279 ​ Personnel and stock-based compensation ​ 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. ​ 72 Table of Contents 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 .
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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.
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Our impairment analysis resulted in a fair value of the IPR&D intangible asset which was less than the carrying value.
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In addition to 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. ​ Clinical Programs ​ Zunsemetinib, an Investigational Oral MK2 Inhibitor ​ We are developing zunsemetinib, an investigational oral, novel, small molecule selective MK2 inhibitor, as a potential for the treatment for rheumatoid arthritis, hidradenitis suppurativa and psoriatic arthritis.
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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.
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MK2 is a key regulator of pro-inflammatory mediators including TNFα, IL1β, IL6, IL8, IL17 and other essential pathogenic signals in chronic immuno-inflammatory diseases, as well as in oncology. As an oral drug candidate, we are developing zunsemetinib as a potential alternative to injectable anti-TNF/IL1/IL6/IL17 biologics and JAK inhibitors for treating certain immuno-inflammatory diseases.
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We also occupy office and laboratory space in St.
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Zunsemetinib has been adopted as the nonproprietary name for ATI-450. ​ Moderate to Severe Rheumatoid Arthritis ​ In December 2021, we initiated a Phase 2b randomized, multicenter, double-blind, parallel group, placebo-controlled, dose-ranging trial to investigate the efficacy, safety, tolerability, pharmacokinetics and pharmacodynamics of multiple doses (20 mg and 50 mg twice daily) of zunsemetinib in combination with methotrexate in subjects with moderate to severe rheumatoid arthritis (ATI-450-RA-202).
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This ASU becomes effective for annual periods beginning in 2024 and interim periods in 2025.
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This trial consists of a 12-week treatment period and a 30-day follow-up period, and seeks to enroll approximately 240 subjects in the United States and in multiple countries in Europe. The primary endpoint is the proportion of subjects achieving ACR20 at week 12.
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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.
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We expect topline data in the second half of 2023. ​ Moderate to Severe Hidradenitis Suppurativa ​ In December 2021, we initiated a Phase 2a, randomized, multicenter, double-blind, placebo-controlled trial to investigate the efficacy, safety, tolerability, pharmacokinetics and pharmacodynamics of zunsemetinib (50 mg twice daily) in subjects with moderate to severe hidradenitis suppurativa (ATI-450-HS-201).
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This ASU becomes effective January 1, 2025. We are currently assessing the impact of this ASU. ​ ​ 77 Table of Contents
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This trial consists of a 12-week treatment period and a 30-day follow-up period. The primary endpoint is the change in inflammatory nodule and abscess count at week 12. The trial has completed enrollment with 95 subjects randomized in the United States.
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We expect topline data in March of 2023. ​ Moderate to Severe Psoriatic Arthritis ​ In June 2022, we initiated a Phase 2a, randomized, multicenter, double-blind, placebo-controlled trial to investigate the efficacy, safety, tolerability, pharmacokinetics and pharmacodynamics of zunsemetinib (50 mg twice daily) in subjects with moderate to severe psoriatic arthritis (ATI-450-PsA-201).
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This trial consists of a 12-week treatment period and a 30-day follow-up period, and seeks to enroll approximately 70 subjects in the United States and in Poland. The primary endpoint is the proportion of subjects achieving ACR20 at week 12.
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We expect topline data by the end of 2023. ​ 59 Table of Contents ATI-1777, an Investigational Topical “Soft” JAK 1/3 Inhibitor ​ We are developing ATI-1777, an investigational topical “soft” JAK 1/3 inhibitor, as a potential treatment for moderate to severe atopic dermatitis.
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“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 May 2022, we initiated a Phase 2b, multicenter, randomized, double-blind, vehicle-controlled, parallel-group trial to determine the efficacy, safety, tolerability and pharmacokinetics of ATI-1777 in subjects with moderate to severe atopic dermatitis (ATI-1777-AD-202).
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In this trial, we are exploring multiple concentrations of twice daily treatment with ATI-1777 and a single concentration of once daily treatment with ATI-1777, in patients 12 years and older. This trial consists of a 4-week treatment period and a 2-week follow-up period, and seeks to enroll approximately 240 subjects in the United States.
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The primary endpoint is the percentage change from baseline in EASI score at week 4. We expect topline data mid-2023. ​ ATI-2138, an Investigational Oral Covalent ITK/JAK3 Inhibitor ​ We are developing ATI-2138, an investigational oral covalent ITK/JAK3 inhibitor, as a potential treatment for T cell-mediated autoimmune diseases.
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The ITK/JAK3 compound interrupts T cell signaling through the combined inhibition of ITK/JAK3 pathways in lymphocytes. We have selected ulcerative colitis as the intended first clinical development target for ATI-2138.
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We are also exploring additional indications that are relevant to the mechanism of action. ​ In October 2022, we submitted a new IND for ATI-2138 for the treatment of ulcerative colitis, which was allowed by the FDA in November 2022.
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In December 2022, we initiated a Phase 1 placebo-controlled, randomized, multiple ascending dose (MAD) trial to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of ATI-2138 in healthy volunteers (ATI-2138-PKPD-102). This trial seeks to enroll approximately 60 healthy volunteers in the United States.
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We expect topline data in the second half of 2023. ​ Preclinical Programs ​ ATI-2231, an Investigational Oral MK2 Inhibitor ​ We are exploring the use of ATI-2231, an investigational oral MK2 inhibitor designed to have a long half-life, as a potential treatment for pancreatic cancer and metastatic breast cancer as well as in preventing bone loss in patients with metastatic breast cancer.
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We expect clinical development activities to be initiated in 2023, which we expect to advance as a collaboration with an academic third party. ​ Discovery Programs ​ We are developing oral gut-biased JAK inhibitors with limited systemic exposure as potential treatments for inflammatory bowel disease.
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In addition, we are engaged in research to identify brain penetrant kinase inhibitor candidates as potential treatments for neurodegenerative diseases. ​ Financial Overview ​ Since our inception, we have incurred significant net losses. Our net loss was $86.9 million for the year ended December 31, 2022 and $90.9 million for the year ended December 31, 2021.
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As of December 31, 2022, we had an accumulated deficit of $682.3 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.
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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.
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We also expect to add additional personnel to support our operational plans and strategic direction. As a result, we will need substantial additional funding to support our continuing operations. ​ 60 Table of Contents We have historically financed our operations primarily with sales of equity securities and incurring indebtedness in the form of loans from commercial lenders.
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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.
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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. ​ 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.
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For example, macroeconomic events, including the COVID-19 pandemic, rising inflation, the U.S. Federal Reserve raising interest rates and the Russia-Ukraine war, have led to economic uncertainty globally. The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods.
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If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed.
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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 ​ 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.
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(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.
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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.
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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. ​ Asset Purchase Agreement with EPI Health ​ In 2019, we entered into an asset purchase agreement with EPI Health, LLC, or EPI Health, pursuant to which we sold the worldwide rights to RHOFADE (oxymetazoline hydrochloride) cream, 1%, or RHOFADE, which included the assignment of certain licenses for related intellectual property assets, or the Disposition.
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Pursuant to the asset purchase agreement, EPI Health paid us closing consideration of $35.2 million.
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In addition, EPI Health has agreed to pay us (i) potential sales milestone payments of up to $20.0 million in the aggregate upon the achievement of specified levels of net sales of products covered by the agreement, (ii) a specified high single-digit royalty calculated as a percentage of net sales, on a product-by-product and country-by-country basis, until the date that the patent rights related to a particular product, such as RHOFADE, have expired, provided, that with respect to sales of RHOFADE in any territory outside of the United States, such royalty shall be paid on a country-by-country basis until the date that the RHOFADE patent rights in the particular country have expired or, if later, 10 years from the date of the first commercial sale of RHOFADE in such country and (iii) 25% of any upfront, license, milestone, maintenance or fixed payment received by EPI Health in connection with any license or sublicense of the assets transferred in the Disposition in any territory outside of the United States, subject to specified exceptions.
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In addition, EPI Health has agreed to assume our obligation to pay specified royalties and milestone payments under certain agreements with third parties. ​ 61 Table of Contents 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.
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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.
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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.
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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. ​ Upon execution of the agreement, we received $17.6 million from Lilly, a portion of which represented payments for regulatory and commercial milestones that were deemed to have been achieved as of the execution of the license agreement.
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We remain eligible to receive future milestone payments, all of which will be paid by us to third parties following receipt as described above.
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We recorded amounts paid to third parties of $7.3 million during the year ended December 31, 2022. ​ During the year ended December 31, 2022, we received $0.2 million in royalties from Lilly, 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.
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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.
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A portion of consideration received from Pediatrix is payable to the former Confluence equity holders as described above. ​ 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 as described above. ​ Components of Our Results of Operations ​ Revenue ​ Contract Research ​ We earn revenue from the provision of laboratory services.
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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. ​ 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. ​ 62 Table of Contents Cost and Expenses ​ Cost of Revenue ​ Cost of revenue consists of the costs incurred in connection with the provision of contract research services.
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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.
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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; ● payments made under agreements with third parties under which we have acquired or licensed intellectual property; ● 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.
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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.
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We expect to continue to incur research and development expenses in the near term as we continue the clinical development of zunsemetinib as a potential treatment for moderate to severe rheumatoid arthritis, moderate to severe hidradenitis suppurativa and moderate to severe psoriatic arthritis, ATI-1777 as a potential treatment for moderate to severe atopic dermatitis, ATI-2138 as a potential treatment for T cell-mediated autoimmune diseases, ATI-2231 as a potential treatment for pancreatic cancer and metastatic breast cancer as well as in preventing bone loss in patients with metastatic breast cancer, and as we continue the development of our preclinical compounds and discover and develop additional drug candidates.
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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.
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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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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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, U.S. government debt securities and U.S. government agency debt securities.
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.
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, 2022. ​ ​ ​ ​ 74 Table of Contents
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. ​ ​ 78 Table of Contents
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. ​ Inflation Risk ​ Inflation generally affects us by increasing our cost of labor.
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.
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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.
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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.

Other ACRS 10-K year-over-year comparisons