MIRATI THERAPEUTICS You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
References in the following discussion to "we," "our," "us," "Mirati" or "the
Company" refer to
Company Overview
We have multiple KRAS inhibitor programs. KRAZATI is our first commercial product. KRAZATI was approved by theU.S. Food and Drug Administration ("FDA") inDecember 2022 and we commenced commercial sales in theU.S. at that time. KRAZATI is an oral targeted treatment option for adult patients with KRAS G12C-mutated locally advanced or metastatic NSCLC, as determined by an FDA-approved test, who have received at least one prior systemic therapy. Adagrasib (KRAZATI™) is in clinical development as a monotherapy and in combination with other agents. MRTX1133 is an investigational, selective, specific and potent KRAS G12D inhibitor. InJanuary 2023 , the FDA cleared our investigational new drug application ("IND") for MRTX1133 for clinical evaluation.
Sitravatinib is an investigational spectrum-selective kinase inhibitor designed to potently inhibit receptor tyrosine kinases ("RTK"s) and enhance immune responses through the inhibition of immunosuppressive signaling and is in clinical development.
MRTX1719 is an investigational synthetic lethal PRMT5 inhibitor designed to specifically target the PRMT5/methylthioadensoine (MTA) complex and is in clinical development.
MRTX0902 is a potent, selective SOS1 inhibitor, designed to improve anti-tumor efficacy in combination with targeted mitogen-activated protein kinase (MAPK)-pathway inhibitors, and is in clinical development.
The Company also has additional discovery programs of potentially first-in-class and best-in-class product candidates specifically designed to address mutations and tumors where few treatment options exist. We approach all of our programs with a singular focus: to translate our deep understanding of the molecular drivers of cancer into better therapies and better outcomes for patients.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. On an ongoing basis, our actual results may differ significantly from our estimates. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition Under Accounting Standards Codification ("ASC") Topic 606 ("Topic 606"), we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. To determine revenue recognition for contracts with customers, we perform the following 47 -------------------------------------------------------------------------------- Table of Contents five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract, determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Product revenue, net The transaction price for product sales includes estimates of variable consideration related to certain adjustments, including chargebacks, government and commercial rebates, incentives, product returns, trade discounts and other allowances, which are estimated using the expected value method. The estimated variable consideration may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur. The amount of variable consideration is determined based on estimates and assumptions that reflect our payor and channel mix, contractual and statutory provisions, industry data specific to specialty pharmaceutical distribution and forecasts developed using historical experience and patterns. These estimates and assumptions are reviewed and updated each reporting period and, if necessary, we adjust our estimate of the overall transaction price as additional information becomes known. Any such adjustments are recorded on a cumulative catch-up basis, which would affect the reported amount of product revenue in the period of adjustment.
License and collaboration revenues
Our license and collaboration revenues have been generated primarily through collaborative research, development, manufacture and commercialization agreements. The terms of these agreements generally include the license of intellectual property and associated know-how and the provision of other goods and services. Payments to us under these arrangements typically include one or more of the following: non-refundable, upfront license fees; manufacturing supply services; milestone payments; and royalties on future product sales. We utilize key assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract, which may include revenue forecasts, expected development timelines, discount rates, probabilities of technical and regulatory success and costs for manufacturing clinical supplies. Because the amount of revenue recognized for each performance obligation is determined based upon its relative stand-alone selling price, an increase or decrease of 10% in the estimated fair value of each performance obligation would not have a significant impact on the amount of revenue recognized.
Inventory
Inventory is recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Inventory costs include third-party contract manufacturing, packaging, freight-in and overhead. We primarily use actual costs to determine the cost basis for our inventory. The determination of whether inventory costs will be realizable requires the use of significant estimates. We review our inventories each reporting period based on an analysis of forecasted demand compared to quantities on hand and any firm purchase orders, as well as product shelf life, to identify any excess, obsolete, slow moving, or otherwise unsaleable items.
We accrue and expense clinical trial activities performed by third parties based
upon estimates of the proportion of work completed over the life of the
individual clinical trial and patient enrollment rates in accordance with
agreements established with clinical research organizations ("CROs") and
clinical trial sites. We determine the estimates by reviewing contracts, vendor
agreements and purchase orders, and through discussions with internal clinical
personnel and external service providers as to the progress or stage of
completion of trials or services and the agreed-upon fee to be paid for such
services. However, actual costs and timing of clinical trials are highly
uncertain, subject to risks and may change depending upon a number of factors,
including our clinical development plan.
We make estimates of our accrued expenses as of each balance sheet date in our
consolidated financial statements based on facts and circumstances known to us
at that time. If the actual timing of the performance of services or the level
of effort varies from the estimate, we will adjust the accrual accordingly.
Nonrefundable advance payments for goods and services, including fees for
process development or manufacturing and distribution of clinical supplies that
will be used in
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Share-Based Compensation Expense
We measure and recognize compensation expense for share-based payments based on estimated fair value. We estimate the fair value of stock options granted using the Black-Scholes option-pricing model. The Black-Scholes option- pricing model requires the use of certain estimates and assumptions that affect the amount of share-based compensation expense recognized in our consolidated financial statements. These assumptions include the expected volatility of our stock price, expected term of the options, the risk-free interest rate and expected dividend yields. We estimate the fair value of restricted stock units using the intrinsic value method. We estimate the fair value of performance stock units, which vest based on the achievement of pre-established performance goals, using the intrinsic value method and the probability that the specified performance criteria will be met. Share-based compensation is recognized using the graded accelerated vesting method. If any of the assumptions used in our calculation change significantly, share-based compensation expense may differ materially from what we have recorded in the current period.
Results of Operations
Comparison of the Years Ended
This section provides an analysis of our financial results for the fiscal year endedDecember 31, 2022 compared to the fiscal year endedDecember 31, 2021 . For the discussion covering the fiscal year endedDecember 31, 2021 compared to the fiscal year endedDecember 31, 2020 , please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 filed with theSEC onFebruary 28, 2022 .
The following table summarizes our results of operations for the year ended
Year Ended December 31, Increase
2022 2021 (Decrease)
Product revenue, net $ 713 $ - $ 713
License and collaboration revenues 11,723 72,092 (60,369)
Cost of product revenue 600 - 600
Research and development expenses 531,627 508,594 23,033
Selling, general and administrative expenses 239,798 136,679 103,119
Other income (expense), net 19,230 (5,304) 24,534
Income tax expense 508 3,299 (2,791)
Product revenue, net
Product revenue, net relates to sales of KRAZATI, which received approval by the
FDA and launched commercially in the U.S. in December 2022 . Product revenue, net
for the year ended December 31, 2022 was $0.7 million . There was no product
revenue for the year ended December 31, 2021 .
License and collaboration revenues
License and collaboration revenues relate to the Zai Agreement under which Zai was granted an exclusive license to develop, manufacture and commercialize adagrasib in the Zai Licensed Territory, and the BeiGene Agreement under which BeiGene was granted an exclusive license to develop, manufacture and commercialize sitravatinib in the BeiGene Licensed Territory. License and collaboration revenues for the year endedDecember 31, 2022 were$11.7 million , and are primarily comprised of$10.0 million of milestone payments earned, including$5.0 million related to the initiation of the first pivotal clinical trial of adagrasib for the first indication inChina and$5.0 million related to the initiation of the first pivotal clinical trial of adagrasib for the second indication inChina , and$1.5 million of revenue related to clinical supply revenue under the Zai Agreement. License and collaboration revenues for the year endedDecember 31, 2021 were$72.1 million , comprised of$66.6 million of license and collaboration revenues under the Zai Agreement related to the transfer of the license and related know- 49
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how to Zai,
Cost of product revenue
Cost of product revenue for the year endedDecember 31, 2022 was$0.6 million and was primarily due to non-recurring, launch-related product distribution costs for KRAZATI following FDA approval inDecember 2022 . KRAZATI was approved inDecember 2022 , therefore there was no cost of product revenue for the year endedDecember 31, 2021 .
Research and Development Expenses
Research and development expenses consist primarily of:
•salaries and related expenses for personnel, including share-based compensation;
•fees paid to external service providers such as CROs and contract manufacturing organizations related to clinical trials, including contractual obligations for clinical development, clinical sites, manufacturing and scale-up, formulation of clinical drug supplies and manufacturing costs of commercial inventory prior to the approval of KRAZATI;
•fees paid to contract service providers related to drug discovery efforts including chemistry and biology services;
•license fees paid in connection with our early discovery efforts; and
•costs for allocated facilities and depreciation of equipment.
We record research and development expenses as incurred.
Our research and development efforts during the years endedDecember 31, 2022 and 2021 were focused on our clinical development programs and our preclinical programs. The following table summarizes our research and development expenses, (in thousands): Year Ended December 31, Increase 2022 2021 (Decrease) Third-party research and development expenses: Clinical development programs: Adagrasib$ 174,823 $ 224,440 $ (49,617) Sitravatinib 60,966 68,799 (7,833) MRTX1719 7,546 4,730 2,816 MRTX0902 1,798 - 1,798 Pre-clinical development programs 33,104 34,027 (923) Total third-party research and development expenses 278,237 331,996 (53,759) Salaries and other employee related expense 102,767 74,125 28,642 Share-based compensation expense 113,544 68,496 45,048 Other research and development costs 37,079 33,977 3,102 Research and development expense$ 531,627 $ 508,594 $ 23,033 Research and development expenses for the year endedDecember 31, 2022 were$531.6 million compared to$508.6 million during the year endedDecember 31, 2021 . The increase of$23.0 million was primarily related to an increase in development costs to advance our preclinical and clinical development programs, and an increase in headcount-related costs, including share-based compensation and salaries, due to the growth of our headcount to support our growing portfolio, offset primarily by a reduction in manufacturing costs for adagrasib to support our NDA and commercial launch. At this time, due to the risks inherent in the clinical development process and product development programs, we are unable to estimate with any certainty the costs we will incur in the continued development of our clinical programs and early 50 -------------------------------------------------------------------------------- Table of Contents discovery programs. The process of conducting clinical trials necessary to obtain regulatory approval and manufacturing scale-up to support expanded development and potential future commercialization is costly and time consuming. Any failure by us or delay in completing clinical trials, manufacturing scale up or in obtaining regulatory approvals could lead to increased research and development expense and, in turn, have a material adverse effect on our results of operations. We expect that our research and development expenses may increase if we are successful in advancing our clinical programs or our other preclinical programs into more advanced stages of clinical development.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of salaries and related benefits, including share-based compensation, related to our executive, finance, legal, commercial and support functions. Other selling, general and administrative expenses include commercial activities such as marketing, professional fees, rent and utilities and insurance. Selling, general and administrative expenses for the year endedDecember 31, 2022 were$239.8 million compared to$136.7 million for the same period in 2021. The increase of$103.1 million was primarily due to an increase in headcount-related costs, including share-based compensation and salaries, and commercial readiness costs, as we prepared for the commercial launch of KRAZATI.
Other Income (Expense), Net
Other income (expense), net for the year endedDecember 31, 2022 was income of$19.2 million compared to an expense of$5.3 million for the same period in 2021. The increase of$24.5 million was primarily due to a gain recognized on the dissolution of one of our subsidiaries,MethylGene, Inc. , of$9.5 million , which represented a cumulative foreign currency translation gain within accumulated other comprehensive income, an increase of$12.7 million in interest income mainly due to higher interest rates, and a favorable impact of$2.7 million from the change in fair value of the long-term investment in ORIC Pharmaceuticals, Inc., which was acquired in 2020 in connection with the ORIC Agreement. Income Tax Expense Income tax expense for the year endedDecember 31, 2022 was$0.5 million and related to foreign withholding taxes related to the milestone payments received from Zai in connection with the initiation of pivotal clinical trials of adagrasib for the first and second indications inChina during 2022. Income tax expense for the year endedDecember 31, 2021 was$3.3 million and related to foreign withholding taxes as a result of the upfront payment received from Zai inJuly 2021 . A summary of our Results of Operations for the year endedDecember 31, 2020 may be found in our Annual Reports on Form 10-K, filed with theSEC onFebruary 28, 2022 andFebruary 25, 2021 .
Liquidity and Capital Resources
We regularly evaluate our liquidity and capital resources, including our access to external capital, to ensure we can adequately meet our principal cash requirements, which include funding research and development programs, including discovery research, preclinical and clinical development activities, commercial operating costs and commitments.
Sources of Liquidity
To date, we have funded our operations primarily through the sale of our common stock, pre-funded warrants to purchase our common stock, and, through up-front payments, research funding and milestone payments under collaborative arrangements.
As of
In 2022, we received net proceeds of$155.0 million from issuances and sales of 1,880,097 shares of our common stock under theJuly 2021 amended and restated sales agreement withCowen and Company, LLC (the "Sales Agreement"). Pursuant to the Sales Agreement, we may, from time to time, sell shares of our common stock having an aggregate offering price of up to$500.0 million . As ofDecember 31, 2022 , approximately$345.0 million remained available for issuance under the Sales Agreement. 51 -------------------------------------------------------------------------------- Table of Contents In 2021, we received net proceeds of$474.7 million from public offerings of our common stock and$68.4 million relating to upfront license and milestone payments in connection with collaboration agreements. During 2020, we completed public offerings of our common stock that generated total net proceeds of$1.2 billion . Based on our current and anticipated level of operations, we believe that our cash, cash equivalents and short-term investments will provide us with sufficient liquidity to finance our cash requirements for at least one year from the date this Annual Report on Form 10-K is filed with theSEC . Since inception, we have primarily devoted our resources to funding research and development programs, including discovery research, preclinical and clinical development activities and the commercial launch of KRAZATI. To fund future operations, we will likely need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related selling, general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot make assurances that anticipated additional financing will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our equity securities offerings, there can be no assurance that we will be able to do so in the future. As a result of adverse geopolitical and macroeconomic developments, such as the COVID-19 pandemic, actions taken to slow its spread, the ongoing military conflict betweenUkraine andRussia and related sanctions, actual and anticipated changes in interest rates, economic inflation and the responses by central banking authorities to control such inflation, the global credit and financial markets have experienced volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that deterioration in credit and financial markets and confidence in economic conditions will not occur. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive.
Uses of Liquidity
We utilize our capital to fund research and development activities as well as commercialization activities associated with our approved drug. We invest a significant amount of capital in preclinical and clinical development costs, including the cost of manufacturing our product candidates and commercially available drug. It can take a significant amount of time and capital resources to successfully complete all stages of research and development and commercialization of a product candidate. The length of time and funding required cannot be accurately estimated as it varies substantially according to the type, complexity, novelty and intended use of a product candidate. The funding necessary to execute product development and commercialization is uncertain and we are unable to accurately predict when or if we will be able to achieve or maintain profitability. The funding necessary to execute our business strategies is subject to numerous uncertainties and we may be required to make substantial expenditures if unforeseen difficulties arise in certain areas of our business. In particular, our future capital requirements will depend on many factors, including: •the success of our commercialization efforts and market acceptance of KRAZATI (approved by the FDA and launched commercially in theU.S. inDecember 2022 ) and other drug product candidates;
•the timing and outcome of regulatory review of KRAZATI and other drug product candidates;
•continued progress in our research and development and clinical development programs;
•the cost of manufacturing clinical supply for our clinical trials and commercial manufacturing; and
•addition and retention of key research, development and commercial personnel, including sales and marketing.
Contractual Obligations
Our principal commitments as of
Operating Lease
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We have a non-cancelable operating lease agreement where we are contractually
obligated for certain lease payment amounts. For more information regarding our
operating lease obligations, refer to Note 15 in our accompanying consolidated
financial statements.
Pfizer Agreement
In addition to a $15.0 million milestone payment due under our license and
collaboration agreement with Array BioPharma, Inc. ("Array," acquired by Pfizer
Inc. ("Pfizer")) incurred in December 2022 relating to the first commercial sale
of KRAZATI in the U.S. , the agreement also includes potential future sales
milestone payments and royalties arising from the collaboration. For more
information, refer to Note 10 in our accompanying consolidated financial
statements.
Other
We enter into contracts in the normal course of business with clinical sites for the conduct of clinical trials, CROs for clinical research studies, professional consultants for expert advice and other vendors for clinical and commercial manufacturing or other services. These contracts generally provide for termination on notice, and therefore are cancelable contracts.
Historical Cash Flows
Cash Flows for the Years Ended
The following table provides a summary of the net cash flow activity for each of the periods set forth below (in thousands):
Year Ended
2022 2021
Net cash used in operating activities$ (570,570)
Net cash provided by (used in) investing activities 225,803
(588,901)
Net cash provided by financing activities 166,944
505,222
Decrease in cash, cash equivalents, and restricted cash
Net cash used in operating activities
Net cash used in operating activities was$570.6 million and$388.8 million for the years endedDecember 31, 2022 and 2021, respectively. Cash used in operating activities during 2022 primarily related to our net loss of$740.9 million , adjusted for non-cash share-based compensation expense of$186.2 million and net cash outflows from a change in our operating assets and liabilities of$10.1 million . Cash used in operating activities during 2021 primarily related to our net loss of$581.8 million , adjusted for non-cash share-based compensation expense of$113.5 million and net cash inflows from a change in our operating assets and liabilities of$65.6 million .
Net cash provided by (used in) investing activities
Net cash provided by (used in) investing activities for the years ended
Net cash provided by financing activities
Net cash provided by financing activities for the year endedDecember 31, 2022 was$166.9 million and consisted primarily of net proceeds received from the issuance and sale of our common stock under the Sales Agreement, exercise of common stock options, and stock issuances under the employee stock purchase plan. Net cash provided by financing activities for the year endedDecember 31, 2021 was$505.2 million and consisted of proceeds from issuance and sale of common stock in public offerings, exercise of common stock options, and stock issuances under the employee stock purchase plan. 53
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