Aclaris Therapeutics, Inc. (ACRS) Earnings Call Transcript & Summary

Hello, everyone, and welcome to this latest in our series of “"HCW@Home" presentations in fireside chat format. I'm joined here today by Neal Walker, Chairman and CEO of Aclaris Therapeutics. Aclaris is traded on the NASDAQ under the ticker symbol ACRS, and we cover Aclaris with a buy rating and price target of $16 per share. Neal, it's a pleasure to have you with us.

Thank you, Ram. Appreciate it.

So Neal, you've been with Aclaris for a very long time and seen the company through many, many ups and downs. And at this juncture, one might say the company's clinical stage pipeline is broader than it's ever been, has multiple shots on goal in several very exciting areas within the dermatology-focused domain of the I&I space, which for those of you in our audience who don't know what I&I is, that's inflammation and immunology. This effectively spans a broad spectrum of autoimmune inflammatory conditions, which are generally chronic and often highly debilitating. So it's a very exciting time to speak about Aclaris. But I think it would be helpful for our audience if you could maybe just provide a brief overview of Aclaris' history and the process by which the company became involved in the discovery, design and development of both novel small molecules as well as novel macromolecule constructs, including both monoclonal antibodies as well as bispecifics. And perhaps give us a description of how the company made the decision to move into the I&I space and kind of some of the background of both yourself and the company within the domain of dermatology, which, as I understand, is still very close to your heart and is certainly the focus of many of the company's ongoing clinical development efforts.

Yes. Thank you. Well, as you know, I did train as a dermatologist originally. So I have quite a rich set of experiences, not only as a practitioner many years ago, but also having founded a number of companies in the space and successfully exited those companies. And certainly, I think a great word to describe Aclaris over the years has been resilience. We certainly have weathered a lot of storms and biotech is about kind of managing the binary process of wins and losses. And so Aclaris is a development stage biopharmaceutical company focused on both now large and small molecule therapeutics for the treatment of a variety of immuno-inflammatory disorders. We have a research and development engine with a drug discovery platform that, in my opinion, is world-class, providing us with what I like to call large pharma capability within a small company. We have both large and small molecule capability now with a portfolio that includes 3 clinical stage assets as well as a variety of preclinical targets. On the large molecule side, we have a tezepelumab with potential best-in-class potency that is in Phase II currently and a bispecific IL-4R TSLP in Phase I. On the small molecule front, we have 2138, an oral small molecule ITK/JAK3 inhibitor that has quite unique pharmacology that's in Phase II. And then a next-gen ITK inhibitor that's tracking towards an IND in 2026. So to one of your questions, in 2017, we embarked on an acquisition of Confluence, which was a drug discovery company that was started by ex-senior leaders of immunology at Pfizer. And what they had developed was a proprietary drug discovery engine that had already been productive in developing 3 preclinical stage assets that ultimately form the basis of our development portfolio. The people that came along with the acquisition are all world-class scientists. So it really turned us immediately into a formidable small I&I company. And then late last year, we added kind of, in my mind, a synergistic acquisition. We added large molecule capability with our license deal with Biosion for 2 of their assets, a clinical stage TSLP that was in Phase II and a bispecific that was on the cusp at the time of an IND. With this deal, we onboarded 6 FTEs from Biosion, all with years of relevant large molecule expertise. And whether it's a license deal or acquisition, what I always like to do is get the people who are deeply embedded and involved in the development of these molecules because it brings historical context and also expertise. And so it was a great fit with our focus on I&I and honestly provides us with, I think, a pretty unique perspective for a small company in that we're targeting obviously, massive markets, highly competitive markets, but we can do so on both the large and small molecule side, which expands our scope. So our target addressable market because as we all know, some people prefer orals, some people prefer injectables is much larger than most people can claim. And I think as markets evolve, there will always be a need to provide both patients and docs with these 2 options, and we've seen that time and time again.

Really grateful for that overview, Neal. Very helpful. I would just give some context to our audience regarding TSLP. That's thymic stromal lymphopoietin. This is a well-known pleiotropic cytokine that is widely considered a clinically validated target within the I&I space. And from an economic perspective, was probably never better highlighted than by the acquisition of Aiolos Bio by GSK in early 2024 for an upfront payment of $1 billion with milestones rising to $400 million. So on the TSLP front, that's clearly an area that's been hot lately that's been validated both from a commercial perspective as well as a scientific standpoint, but still relatively early in its development class of therapeutics in terms of having brands on the market and so forth. IL-4, of course, is a well-known member of the interleukin class of cytokines and certainly will be familiar to many in our audience who follow the I&I space. I think it would be helpful, you alluded earlier to the fact that many of these dermatology disease markets within I&I are some of the largest indications around. Maybe give us a sense of just how large these markets are in terms of patient numbers and also with respect to dollar value, especially as we consider what some of the biggest marketed drugs in some of these areas are, particularly in, for example, the indication known as atopic dermatitis or eczema.

Yes. It's well said. And I think the reality is these are massive markets now, and it's interesting. It's growing more rapidly than ever. And I think that's why you're seeing obviously so much competition. People are trying to grab their slate of real estate there. But we're seeing increasing prevalence, which you always see with more investment in the pharmaceutical space. We're seeing more innovations on both the biologic and small molecule front and importantly, heightened awareness of some of these diseases. And so we are seeing projections for the AD market, specifically of well over $30 billion in the short term, which just for context, will eclipse psoriasis in terms of total size. And we also know that indications like alopecia areata and vitiligo, which may be lesser known, alopecia areata is a type of hair loss, vitiligo is a condition where patients lose some of their pigment. These are both multibillion-dollar market opportunities that are just very poorly addressed. And that's, I think, the key take-home point is we're at a stage in this market cycle where there's a ton of headroom for both mainly efficacy, but also safer options. And I don't think people fully appreciate, at least some in the market may not fully appreciate that these were -- just 20 years ago, these were largely topical-driven markets with very few, if any, really good oral options. And now look at where we've evolved in psoriasis. You went from an $800 million fully genericized topical dominated marketplace to all these biologics and now look how much more we understand the disease, how specific the therapies are. And so I think you're going to see that in AD. We're really at the front end of that cycle. And as such, that's why I think you can very confidently say we haven't reached any efficacy ceilings yet. We're not even close to maxing out the efficacy, and we still got work to do on the oral side with safety. So in my mind, there's just -- there's every reason to be thinking long and hard about investing in oral and biologic AD drugs, not just in AD, but also thinking across the board in indications like alopecia and vitiligo because we simply need better therapies for both patients and physicians. And we're starting to really understand now the pathophysiology. Again, I referenced psoriasis. We knew very little about the specifics of that just 20 years ago. That sounds like a long time, but it takes time for these markets to evolve. So we're really excited about what we have to offer the market.

And again, for our audience's benefit, I think there are several things that have been going on for quite some time that should benefit Aclaris' strategic positioning. One is, as you said, increased knowledge about the pathways underlying these diseases and the ability to focalize in on key signaling pathways that may enable therapeutic benefit without having to deal with the safety trade-off. And in particular, I would point to not just IL-4 and TSLP, but also IL-23 and really moving away from kind of the old guard immunomodulatory therapies that were very much like sledgehammers. And in particular, we can talk about the anti-TNFs all day long. But also, I think it's important to note that as you said, getting away from the topical creams and lotions and agents that were historically considered very cumbersome to administer, inconvenient for the patient and not particularly effective, but that needed to be applied in that manner so that you, again, could avoid some of the systemic side effects. These are being supplanted now by, as you mentioned, both oral drugs, which are clearly pretty much the most convenient pharmacotherapeutic interventions you can contemplate as well as long-acting biologics that do not require you to take an injection every day or even every week and sometimes even every month, right, when you think about long-acting agents like Skyrizi that are already around. But overall, that, I think, gives Aclaris a very interesting springboard on 2 very different therapeutic modality fronts as we move forward in the next stage of maturation of these indications. And clearly, they've proven to be multibillion-dollar markets, partly because dermatology is an area that often involves highly debilitating conditions that are very, very inconvenient for the patients that they clearly have a strong motivation to treat with whatever is the best available intervention out there. And also -- and I'd love you to just opine on this briefly, you've got a dermatologist prescriber base that historically has been relatively straightforward to target. These are not particularly transient physicians. They generally tend to set up shop and stay there for years and years, pass on their practices, et cetera. And they've also historically been, correct me if I'm wrong, relatively speaking, receptive to sales and marketing approaches from pharmaceutical companies, particularly as this pertains to offering meaningful value for their patients.

Yes. I think that's right. Derms are a loyal bunch, and they certainly -- they crave innovation because you can imagine, if a patient is waiting -- there's practical dynamics to all this. If a patient is waiting 6 months in some areas, in some major metropolitan areas to get in to see the physician and they're looking for a solution, the physician really wants to provide them with something that's going to give them sustained relief. And nothing is more frustrating for everybody involved if you don't have that in your armamentarium. So one aspect of this is just breadth of treatment options because we know that all these patients have -- these diseases are heterogeneous. There's not -- never a one size fits all. And I think to me, that's been a little bit of the frustration with the current market environment is there are those who think that one solution is going to -- or 2 solutions are going to serve the market well. And I don't think historically, that's ever been the case. And certainly, when you take it out in the field and you're seeing patients in the real world, you need the ability to rotate patients through treatments. And you need to be thinking about good induction treatments and good maintenance treatments because there's different aspects of that disease. And so I think derms are well positioned in that regard to thinking through the polypharmacy aspect of these indications.

Moving now to some aspects of the company's pipeline. In particular, I think it would be helpful as a starting point to look at how you've moved into the biologics space. So Aclaris in-licensed 2 high-profile candidates aimed at scientifically and clinically validated targets. You mentioned TSLP, you mentioned IL-4 from Biosion, which is a China-based company. Can you give us an overview of your sense of the current level of sophistication of Chinese biotechnology in life sciences and what some of the key strengths and weaknesses of this sector are relative to that of the U.S. as it currently stands and some of the rationales for why you found the Biosion product candidate so interesting.

Sure. Well, I think it's very similar to the U.S. in the respect that there are some really strong companies, and there's some that aren't. And so I think the sophistication in China is actually really high. And one is to remember that these companies are typically run by ex-large U.S. pharma folks who have decades of big pharma experience, learned the business over in the U.S. and then went back home and started these companies. And they brought their talents and the best practices with them in addition to some of their colleagues. So there's a tremendous work ethic in China, and it's really driving innovation forward at quite a clip. And I think one of the key strengths back to your question is on the discovery and the chemistry side of the house. The evidence is very clear there. There's many -- not just us, many U.S.-based companies that outsource chemistry work to China, they do license deals there, they do acquisitions up there. It's very clear, and it's not just a one-off. And I think that's here to stay. So we've seen a number of deals announced over the last few years with China and large pharma, and now that's percolating through the biotech ecosystem. So I think that's going to continue. Maybe one area where perhaps there could be improvement is just on the clinical drug development side. And I think that space in China is evolving. It's getting much, much better. But everybody excels in certain areas and often not all of them. And so from my perspective, it's just a reality now that we all have to keep looking worldwide for the very best assets.

Are we likely to see more ex-China licensing deals between Chinese originators and U.S. development partners? And what are some of the key factors driving this? I mean, obviously, we could think about the relative size of the U.S. pharmaceutical market as a clear motivator for Chinese companies to want to get their technology exposed state side and across the finish line at the FDA. But maybe give us a sense of whether you think the move towards establishing licensing partnerships with U.S. companies is going to be a durable trend for Chinese originators.

Yes, I absolutely do. And again, I go back to -- if you think about it before this was maybe front page news and you were seeing a bunch of licensing deals or acquisitions, a lot of the companies, a lot of my peer companies would outsource chemistry and discovery work too in places like China, India and others. And there's just a ton of good work going on there. You can't ignore it. And so you're always going to, in my mind, continue to attract interest in some form, whether that's contracting, licensing, everything across the board. And there's just so many smart people on the discovery and chemistry side. The gentleman who developed many of the Biosion assets was ex-AbbVie and he was just off the chart smart and just took his skills there and quickly developed a portfolio of 20, 30 different discovery assets. So I think you need that part of the ecosystem where you're talking about the competitive landscape as it currently sits. We all want to find ways to increase the speed of drug development and people talk about AI. That's one way to do it. But the other way to do it is just expand the breadth of who you work with as well. And there's no question that speed is key there.

So moving specifically to what Aclaris has said publicly regarding its clinical development plans with first, the more advanced the Biosion assets, Bosakitug. What motivated the narrowed focus into specifically dermatological immuno-inflammatory indications? And maybe talk a little bit about you've mentioned that outside of that scope, you would be looking to establish partnerships to move the drug forward, for example, in respiratory indications. And do you think that there would be a possibility for such partnerships to be established based solely on clinical data that so far has been generated in China?

No, it's a good question. And I think there's a number of factors that come into play, and we all know about how choppy the market has been from a macro, micro and sector level. And first, yes, we feel very confident that we can drive a partnership on Bosakitug based on the China data. For our own internal program, I think, again, this turbulent market environment, access to capital, et cetera, has played a role in focusing for us on the most efficient way to move the asset forward in the U.S. on AD. And I also like that as an indication because not many people are playing there. Most people are focused on respiratory. So I think if we can generate a win there with a very small amount of spend, I think there'll be a lot of people interested, and I'll come back to that in a moment. But as we know, the respiratory studies are pretty capital intensive. And when you're talking about initiating Phase III programs, I think those are better suited to be in the hands of a partner. So we always -- as kind of good stewards of the capital, we always have to be kind of mindful of the market conditions and always have the idea that about how we allocate that capital moving forward. And I think we've shown that over time. Again, I mentioned we always seem to be pretty resilient. What we were able to do is design a study. We're originally contemplating doing 4 different dose -- or 3 different dose groups and placebo. And we talked to a couple of potential partners, and we decided to narrow that down to one dose arm that we think is a high probability of working, get the answer quickly and more efficiently, obviously, have that in a placebo-controlled study. And we know we have the results in the single-arm data, but now we got to prove it out in a double-blind, placebo-controlled study. So we're really excited about that opportunity, and we can get that answer in '26 and do it with a pretty small amount of spend. And I would just remind people, again, back to our earlier comments on the AD market, this is rapidly evolving. And we need to be thinking about good maintenance treatment, good induction treatments, thinking about how you layer treatments. And from the TSLP approach, I think if you think about OX40 and the smoothing of that effect for treat the flare disease, it's something that the space needs, and we certainly need more treatment options.

Absolutely. You mentioned the planned Phase II study for Bosakitug state side. Give us a sense of how comparable the populations are that were enrolled in the Phase IIa study, which obviously has generated favorable results and those that you are slated to enroll in the upcoming Phase II study. Are the definitions of moderate to severe atopic dermatitis comparable between these studies? And if not, how do they differ? And is there any significant -- likely to be any significant difference in treatment history between these groups?

Yes, it's a good question. And I'm sure you and some of those in the audience are aware of some of the creep we've had with placebo effects over time. And recall that the IIa was a U.S.-based study with 7 sites. And that had, I think, I mean baseline EASI score of around 18 or so. And I think we'll be enrolling a more severe population than in the IIa given the placebo effect creep that I just mentioned that we've seen of late, taking the EASI score up to greater than 16 is one way to do it, but really focusing more specifically on EASI scores north of 21. And as a reminder, that EASI kind of gradation, once you click over 21, you're into the severe category. And a ranking of a severe on an EASI score can be different than how a physician categorizes a patient on an IGA score. So there's a couple of different measures that a dermatologist might use in a clinical study. And so those are 2 of them, EASI and IGA. But we want to focus on those patients who have lesions and EASI scores that are guided by more of the severity of the lesion rather than extent because an EASI score is the composite of those 2 aspects. Extent, which is how much disease you have over the breadth of your skin. And then severity, of course, is it mild, moderate or severe. And why you want that is because if you have a patient in the placebo group who tends to have an EASI score that's driven by extent, they're going to be more apt to respond in the placebo group just a good skin care. So we really want to tease out how these patients respond, how the severity responds to these different treatment modalities. So I think the treatment history will also be more indicative of that severity as well. You want to see patients who -- you want to have a mix of patients who failed other treatments, including systemic treatments, but have a balance with treatment naive. And we'll be importantly recruiting for both U.S. and ex-U.S. sites to ensure that we have a more robust data set that encompasses both of those patient types. And I think the single most important thing is you have to screen these patients in with pictures. You've got to make sure that you're getting the right patients in. And you can do that using a central review process. This is something that's been implemented in the IBD landscape over time. And we're going to actually take that a step further. We're going to have an independent medical reviewer at the CRO, but then we're going to overread that internally. And fortunately, I have the ability to do that, and you can do that prior to randomization and just double check that you're getting the appropriate patients in the study.

So we talked a little bit about what the endpoints are in the Phase II, the planned Phase II. And maybe you could try to set the stage for us in giving us a description of what you would consider to be a positive outcome from this Phase II and how that might inform potential future pivotal clinical development. And in particular, I think there are some aspects here that are particularly germane, such as how Bosakitug might differentiate itself within the competitive AD market from drugs that have established themselves as kind of powerhouses in the space, perhaps most notably dupilumab, but not restricted to dupilumab per se as well as how synergistic or complementary Bosakitug is likely to be based on its mechanism of action to approved anti-AD drugs.

Yes. No, it's a good question. And that's where I was kind of mentioning before that there's lots of different ways to show that you have a place in this market. Take JAKs, for instance, right, very potent efficacy, but maybe some shortcomings on the safety side. A lot of my colleagues will use JAK inhibitors more as pulse treatment for the flares. And then DUPIXENT is perhaps more of a maintenance treatment. Part of the issue that we've seen with DUPI is that there's a waning of effect over time. And so again, like thinking about durability of effect and you're in an indication that is unlike psoriasis in that this is very much a treat the flare disease. So you want to get a nice consistent effect over time where patients aren't going through these massive vacillations. So what I would like to see is stronger efficacy and safety and a more consistent and durable effect. And I think the mechanism of TSLP, much like the OX40 ligand asset lends itself to that. If you just look at the mechanism and it's a little bit orthogonal to some of the others that you mentioned. So synergy, maybe. Certainly, much of derm treatment is characterized by polypharmacy. We certainly haven't reached a ceiling in terms of efficacy. There's lots of headrooms there. Maybe the physician can get there by layering treatment. It's certainly not foreign to dermatologists to do that out in the real world and not something necessarily that gets studied in clinical trial work because it can massively increase the cost. But in the real world, I can tell you all these things get mixed and matched. And that's why you've seen the evolution of bispecifics. If you really think about it, people are just trying to get to that next layer by trying to get 2 different mechanisms that can provide some synergy, and that's why we're excited about the bispecific. TSLP itself maybe that's better for a more moderate patient population and perhaps that maybe you need for the more severe patients in IL-4 TSLP mechanism. I don't know. But I think that's why you've seen that evolution as people are looking to get to that next layer up. So that's the way we think about it. And I think we have -- I mean, again, just to highlight our portfolio, we have so many different ways to target this market and not just in atopic. I know we've spoken a lot about atopic, but I think a lot of these same themes are germane to a lot of the Th2-driven diseases and respiratory. Like I said, we would partner that on the TSLP front, but you can think in the same vein with bispecifics and you can think in the same vein with our ITK oral small molecule in a whole variety of respiratory diseases.

I think that's a good segue into a discussion of the second asset that you brought in from Biosion, which you designated ATI-052. So maybe tell us a little bit about where ATI-052 is in development and what the determinants of indication selection might be for this candidate? Because as of right now, you've indicated that there are several different ways you could go here and you haven't necessarily settled on a definitive singular clinical development path as is the case with Bosakitug. And maybe give us a sense of how the initial clinical program that you're envisaging doing under the scope of the recently authorized IND in the U.S. would be designed to inform picking an indication and development path for this asset.

Well, number one, we got to keep watching the competitive landscape and think about as data rolls in from the market that we're always thinking fluidly about that and how -- what value prop our asset has over the competition. So that's key. But we're looking both at respiratory and derm. We're starting the SAD/MAD work this quarter with the bispecific. We're really excited about that. We should have that data by the end of the year. And then as we've messaged in our press release, we'll be going into respiratory and derm indications. What we have in our base budget, we haven't fully disclosed or mapped all this out. But what we have in the base budget, just to be conservative, is that we would look at Ib studies in both respiratory and derm because obviously, those are 2 areas where DUPI and teze have excelled. And now we have a bispecific that targets the same targets that both of them do. And we've shown in our work anywhere between 4x and 5x greater potency than those 2 combined. So I think we have to be open to doing 2/1b programs there and then keep thinking about how that TPP stacks up against the competitive set in those indications.

Might Bosakitug and ATI-052 have overlapping areas of clinical utility? I mean, the obvious example would be within derm and within atopic. But maybe give us a sense of how broad that overlap might be? And if so, what the most compelling potential arenas are as you see it right now for possible combinatorial regimens involving synergistic deployment of those 2?

Yes. No, and I kind of alluded to this before. And so in both respiratory and derm, we've obviously seen positive results with teze and DUPI. So really, to me, becomes a discussion about the relative efficacy and safety with the bispecific approach in those indications versus the mAbs. And we know that there's so much heterogeneity in these diseases. And now in the real world, patients respond a little differently than in clinical studies. And sometimes based on the severity and sometimes based on the phenotype, you need to be thinking in a different box. And so like I mentioned before, perhaps those who are low moderates would do -- and I'm just hypothesizing, but perhaps the low moderates would do really well and be fine on a TSLP, but then the more severe need that extra boost where you need to add a different mechanism in there. And that's just the way I think about it intuitively. And remember, like just using psoriasis versus AD as a comp, we know in psoriasis that after biologics kind of felt like they had as much penetration as they could in the moderate to severe set, you see what naturally happens. They migrate into mild to moderate for those patients who don't necessarily want to manage their disease with topicals. And it's intriguing to me that 2 years ago, people called the ball on psoriasis and said, oh, there's no more opportunities in psoriasis. And yet you've seen folks at J&J and Protagonist be very successful with their oral approaches to IL-23 and showing biologic like efficacy in a pill. And so I think we all have to like step back and think about these markets more dynamically and that it's not a winner take all. It almost never is. And again, I've just seen that thematically in my discussion with the Street. And it's -- I think it's an approach we have to think about more fluidly.

Absolutely. Turning now to the small molecule side of the equation. Perhaps you could give our audience a taste of historically how Aclaris has built expertise specifically in the domain of kinase inhibition with the KINect platform. Maybe explain to us a little bit about how that works, the secret sauce there, so to speak, and how you folks are looking at the kinome. And then maybe talk a little bit about ATI-2138, which is your ITK inhibitor.

Sure. So full credit to Joe Monahan, Wally Smith and all the ex-Pfizer guys who came up with the KINect platform. They -- basically, it's leveraging the tremendous 20, 30 years of experience at a major pharmaceutical company developing drugs. I mean these guys were the co-inventors of tofacitinib, and they worked on everything under the sun over the years. And so they took that expertise and developed this drug discovery engine. They have a proprietary chemical library. They know where to start, where to kind of not go, which is just as important, so you don't waste time. And importantly, it's a multidisciplinary team. So one of the things that I count as our secret sauce is these guys have been doing all the assays, all the kind of big pharma type of work that is usually the territory of big pharma within this small company. And so we have the ability to look at any asset and do the right assays, whether it's enzymatic or cell-based and figure out how we stack up against the competition and do so in our own hands. So it's a very -- it's a great resource to have, and it's something that is not just relevant to kinase inhibitors, but we've done -- as you see in our deck, we did a lot of that spade work when we're assessing assets like the Biosion assets. And so 2138, our soft topical, many other assets. This team has already had 3 different assets come through the pipe and get into the clinic and 2138 was the latest. For AD, I think we're going to focus more in atopic with our ITK selective where we engineered out the JAK3 component. And that's just because it's a better profile. If I can get JAK-like efficacy but get the safety of a biologic in an oral small molecule, that would be a very big drug in atopic and really reinvent the landscape. So with 2138, we've been very consistent that we are looking with that molecule in an AD study to basically demonstrate 3 big things. One is safety. This is the first time we dosed it over 12 weeks. in patients with disease. And we wanted to understand has JAK3 and it has ITK. Those are known active agents in AD. So never worried that it wasn't going to work, but also get -- understand the PD component where we tease out the ITK effect as a bridge for the reason to believe in ITK. So that was kind of the strategy behind that study that we embarked on last year and is due to read out this quarter. But for 2138 itself, post that announcement in the second quarter, we'll be moving into alopecia areata and vitiligo. And I just think that those are much more fertile ground for something with JAK as part of its mechanism. We know it works. We've seen that out in the marketplace, and I think there's a high probability of success there.

So yes, just to clarify, ATI-2138 is both an ITK inhibitor as well as a JAK3 inhibitor. The next-gen ITK inhibitors that you're working on are going to be more selective without JAK inhibition features. Is that correct?

Yes, that's correct.

And so you mentioned earlier that the Phase II study of 2138 in atopic has important implications for not only the future development of this asset, but how you ultimately position the ITK selective inhibitors in your portfolio. But I was wondering also about how predictive the efficacy signal that you might see in the context of AD within this trial could have predictive value for diseases like alopecia areata and vitiligo. And you mentioned earlier, alopecia areata is a very severe form of autoimmune-driven hair loss. Vitiligo is a very disfiguring disease where large sections of the patient's skin effectively wind up lacking pigment. So they have this very patchy appearance, which is obviously very discomforting. But these are very different indications ostensibly to atopic dermatitis, which is this basically skin rash-driven focused dermatological I&I condition. So I was just kind of wondering how the efficacy signals that you might pick up with 2138 in atopic dermatitis might inform the odds of success and potential clinical trial design parameter considerations in AA and vitiligo.

Yes. No, it's a very good question. I'd say a couple of things here. One is it's a very similar mechanism. We're working on the T cell compartment, which we know is involved in these disorders. We've done quite a bit of preclinical work. It's well characterized that JAK3 works in alopecia areata preclinical models and obviously, in the clinic with ritlecitinib. We also know the same of ITK, same with vitiligo. So we know JAK inhibitors work in AA. We know ritlecitinib is similar. It's a JAK3 TEC kinase inhibitor. Ours is a little bit unique in that we're more focused on JAK3 and the ITK component of that TEC kinase family. But we know ritlecitinib is approved. It's launched in AA. It's doing well. We also know they demonstrated efficacy in vitiligo. So there's very good reason to believe on that front for a multitude of reasons. And we've also shown this in our head-to-head work that we did in our own labs versus ritlecitinib that we're about 5x more potent on JAK3 than ritlecitinib and 40x more potent on ITK. So feel pretty good about that. And I like alopecia as an indication because it just -- the only games in town there are the JAK inhibitors, and we have a little bit of a different approach with the JAK3 and ITK component. So our main goal in this study was to demonstrate the safety profile and also to kind of map the contribution of ITK, which we can do in our PD studies, you can tease that effect out. And so it was kind of a dual purpose, if you will, a little bit complex, but it paints the picture for 2138 into alopecia, but also paints the picture for us that ITK is a great target in AD, which it's -- it's been a new discussion topic. But just as a reminder for folks in the audience, ITK has been a target that was historically exceedingly difficult to drug. It was worked on for like the last 20 years by a variety of pharmaceutical companies, and it just wasn't able to be drugged until just recently. The literature is very clear. This is unequivocal biology on the Th2 side of the house. It inhibits IL-17. It promotes Tregs. There's a lot of great things about this approach, and we're just beginning to understand more of that. And so from a clinical perspective, our job in this first study was to paint that picture in the clinic with patients that this was a great target. And hopefully, we'll be able to show you at the end of June that we did that.

And when we move to looking at the specific indications where 2138 might be deployed quite apart from atopic dermatitis, I just wanted to discuss briefly one aspect of the competitive landscape in AA. Because 2138 has JAK inhibitory activity and because there's been kind of a sea change in the AA landscape with the emergence of earlier generation JAK inhibitors, most notably OLUMIANT or baricitinib. I was wondering whether you see 2138 as a competitor to baricitinib or a potential paradigm change in and of itself because of its more targeted activity within the context of the JAK pathway and also because of the fact that it is not just a JAK inhibitor. It has ITK inhibitory activity and frankly, was designed with that as its primary calling card from what I understand. So maybe just give us a sense of how you think about 2138 within the AA competitive landscape, particularly as this relates to OLUMIANT.

Yes. It's a very good question. And we think that given that mechanism that you just mentioned, we certainly have some theoretical safety advantages that have to be proven out in the clinic. But also, I think we have some different -- again, all these diseases are heterogeneous. I think different approaches are warranted. Some people have started to look at biologics for alopecia areata, and that hasn't really panned out just yet. But as we know, bari hits JAK1 and 2, which are ubiquitously expressed versus JAK3, which really only affects or is expressed in the myeloid and lymphoid cells. So we should see that manifest in the safety profile over time, and that just takes time to prove that. But we also know that ITK has its own mechanism and certainly doesn't have the liabilities that we've seen over time with the JAK. So I do think that there's a theoretical, and I just say theoretical because we have to all prove it out in the clinic, safety advantage. And this is one of the reasons that we want to jump on this AD study last year was to show that with our own data, with our own molecule and with our own approach. And so I'm really optimistic about that. And so far to date, we've had -- obviously, tofa has shown great efficacy in alopecia. We've had baricitinib. We've had deuterated ruxolitinib compound out of Sun. From what I understand, Rinvoq has Phase III data coming in alopecia. And all those are more JAK1, JAK2 targeted. So I think we would be more directly competing with ritlecitinib, which has a JAK3 mechanism.

That's very helpful. And just for the edification of our audience, the JAK inhibitors, broadly speaking, at least among the earlier generation marketed drugs, all have a black box warning for cardiovascular side effect risk. I assume that it probably isn't a stretch to say that a JAK3 specific inhibitor compound is probably well positioned to eliminate those types of risks. Is that correct?

I would think so. And I always go into this assuming the burden is on us to remove the -- to not get a black box and that I think the FDA over time has shown, if you recall SOTYKTU with TYK2 approval and a lot of people call that the JAK4, they were through a data-driven approach able to avoid the black box. So it's always possible. I think you have to assume that the burden is on you to do that. But I think the FDA has shown an open data-driven approach in that regard.

You had mentioned before some of the ways in which you are looking to potentially deploy the company's next-gen ITK-specific inhibitor compounds. But maybe give us a sense of what target indications might be possible fertile hunting grounds for those assets beyond atopic dermatitis.

Yes. I would look at all the indications that DUPI has gone after, quite frankly, because affecting ITK effectively hits the same targets downstream that drugs like DUPI do. And so asthma, COPD, CRS, a lot of the respiratory indications, I think there are other even derm indications, CSU, et cetera. There's just anything with the Th2 abnormality as part of its pathophysiology is fertile ground. And I think that's the really exciting thing about -- it's to me, one of the most exciting assets we have in our portfolio because we don't have a lot of competitive intensity there, kind of figured out how to craft a potent molecule. And when you think about getting that biologic-like efficacy in a pill that has a much better safety profile, I think it should get everybody excited. And it's really a hidden gem in our portfolio. And I say that because we'll be at IND in '26. And so we just have to be patient until we get there. But it is, to me, one of the key reasons to get into the name.

Absolutely. I think it would be helpful also at this point to touch upon 2 other aspects. One is how you see the dovetailing of the small molecule portfolio and the macro molecule portfolio, especially as this pertains to what you want to do kind of as the next wave of bispecific construct development internally. And if you see kind of similar levels of applicability across both the respiratory and derm I&I disease indications coming from these 2 sides of the same coin?

Yes, I do. And I think we've been very clear that we feel like we have a best-in-class potential with our TSLP. And so it makes sense for us to look at other constructs on the bispecific side. We know that there's quite a bit of strategic interest in the bispecifics. And I don't think it's going to be a winner take all there either, like it never is in any other space. So I think we have to be fluid in our thinking there. The good news is when you're doing early-stage bispecific work, and we already have the TSLP part of that construct, you can think of a variety of other constructs that would be great for the indications that you were talking about before. And the spend is just very light in the early days on that. So I think it makes a lot of sense. When we saw going back and talking about all the things that we put out in our latest press release, it just made us more bullish to keep investigating how to leverage that TSLP into additional constructs. So we're excited about that. And I think it's healthy as a company to have -- there's always a cadence to the spend. The biggest spend you have is usually in Phase II, Phase III, et cetera. And so you can marry that up on a yearly basis to just be mindful of your burn with earlier-stage next-gen opportunities because, again, we have to be mindful of how this competitive landscape will evolve. And that's what we're doing.

So just 2 aspects as a follow-on to that. I was wondering if you could just qualitatively characterize for us how -- what Aclaris is doing internally with respect to bispecific construct design is different from what Biosion was doing that ultimately yielded the 052 asset? And secondly, when you think about early-stage development and business development-related activities, how are you thinking about potentially utilizing the strengths of Aclaris' internal preclinical drug design and development efforts to potentially feed into what you do on the business development side? And maybe you could characterize, since we do have a few minutes, some of the most noteworthy recent successes on the business development front for Aclaris that have kind of brought in additional non-dilutive capital. Obviously, you highlighted in previous press releases, the recent monetizability as it were of Aclaris' rights within the context of Sun Pharma's deuterated ruxolitinib. So maybe just give us a flavor for how all of that fits together.

Yes. In terms of the constructs, we're not going to be disclosing any specifics about what we're looking at. But suffice to say, we have the -- it is really -- it's interesting. We have this small molecule capability, but a lot of the assays and a lot of the preclinical work that one would do are relevant to large molecules as well. And so it's been very synergistic bringing the Biosion team. Hugh Davis said like 20, 25 years at J&J leading that effort on biologics. And so to marry him and his team up with Joe and his team has been fantastic. And we just have the ability to cycle quickly through these different constructs and figure out what makes sense in the context of the current competitive landscape and also based on what we're hearing from strategics because that's also important. In terms of -- so I'm excited about all that. And again, the spend is pretty efficient in the early days on that front. In terms of BD, we're active all the time there. And we're always having discussions with potential partners. We have already activated discussions on the respiratory front with the TSLP mAb. We have dialogue on our ITK. And as you mentioned, the method of use IP that we had acquired way back in 2015 from our friends at Columbia and all the beautiful work that Angela Christiano had done discovering that JAK inhibitors were almost curative for patients with alopecia areata and just the impact that she had on that patient population, particularly young patients is just tremendous. But obviously, we had blocking IP with our friends from Lilly and Sun and structured deals there where we would have royalty and milestones. And the beauty of that is that at different times in our history, it's always great to be able to generate non-dilutive cash, especially if you're not trading where you want to. And we did that deal last year, brought in $26 million. Now the Sun won on the injunction with Incyte on appeal. They'll be launching that. And so I think we have the ability now to put that back into play if we so choose. So just give us another bite at the apple in the near term, should we need additional capital. But I would say we are very well capitalized at the moment. That was part of our press release. We were able to extend our runway into and through first half of 2028. And in doing so, we still deliver -- we have over $190 million on our balance sheet. We're able to deliver all the catalysts that we previously mentioned in 2025, we get the 2138 and AD. We also paint the path towards the ITK. We initiate the AD study with TSLP mAb this quarter, very cost-efficient study readouts next year. We initiate SAD/MAD with the bispecific this quarter. We get readouts on the Ib work in respiratory and derm next year. So 2026 is a very important year. We get the ITK next-gen IND, which opens up a whole another value chain for us. And we deliver that all with 18 months runway post all of that activity. And that's not considering that we still have the opportunity to extend our runway with monetizing more of our JAK alopecia IP estate. So I'm really excited. And '25 has been a tough year, I think, for a lot of us in the SMID cap space. I can tell you we're very well positioned. We have multiple ways to win. And at the end of the day, we have always been resilient, and we will always be good stewards of the capital.

So I think that's a good segue into one of my final questions for you today, Neal, which is the current clinical development prospects for the company's legacy assets, ATI-450, zunsemetinib and ATI-1777, which is Lepzacitinib, the topical soft-JAK inhibitor. So those 2 assets have kind of had circuitous pads. But at this juncture, they're certainly not down and out for the count. There are new areas of applicability on both of those fronts. And certainly, you're looking to potentially do business development work to monetize those assets. So maybe just kind of give us an overview of where things stand on those fronts.

Yes. So throughout the time since the last development update with both assets, we certainly have had active dialogue here and there. 450 at the moment is the subject of oncology study that is backed by Wash U. So that's not on our balance sheet. They had gotten a pretty sizable grant to study that molecule in metastatic breast and pancreatic cancer. So we'll see how that evolves, but we aren't spending against that at the moment. We do get occasional inbound interest on that. So we'll see. We -- like I said, a lot of what we do is keep our ear to the street and have dialogues with folks and you just -- you never know. On the 1777 front, I think similar situation. I really like that asset. And obviously, it rolled out of a IIb that was positive and validated the IIa. And as a soft JAK, I think it's got a great profile, and we continue to have some dialogue there. So I think if we had more money on the balance sheet, I would probably invest more on the soft topical, but we got to allocate our capital appropriately and be very mindful of keeping a healthy cash balance at all times.

Absolutely. And I think that segues well into how I think I would like to wrap up this fireside with you for our audience's benefit. I think, first and foremost, you mentioned earlier that Aclaris closed the first quarter with $191 million in cash. You've publicly indicated that this moves you well into 2028 in terms of the operational runway. But just give us a sense of specifically how far your operational runway extends both from a temporal perspective as well as with regard to covering some of the key value inflection points, the key catalysts that you anticipate accruing over the course of that period?

Yes. So essentially, the best way to think about it is by the end of '26, we will have delivered POC work in -- with the bispecific. We will have delivered 2138 in AD. We will have delivered the TSLP mAb in a Phase IIa or Phase II study in atopic derm. We have delivered an IND in ITK and get it going with our initial Phase I clinical work. And that's how we'll roll out to '26 with another 18 months of cash on the balance sheet. So we'll learn a lot from here to there in the next 18 months and still have plenty of runway.

And I would remind our audience that, of course, at this point, it's a great time to go bargain hunting in the space. Aclaris, we think, is one of the most underrated and underappreciated companies out there at this point in time. You look at the examples of companies like Prometheus and Protagonist that had their own ups and downs, but subsequently rewarded investors very richly. And we see definitely a lot of the same potential here in Aclaris. So Neal, thank you so much for taking the time to speak with us today, and we look forward to much, much more from Aclaris [indiscernible].

Thank you for hosting us. I really appreciate the opportunity.

Thank you so much.