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 OverviewMirati Therapeutics, Inc. is a clinical-stage oncology company developing novel therapeutics to address the genetic and immunological promoters of cancer. MRTX849 is an investigational, selective, specific, potent and orally available KRAS G12C inhibitor in clinical development as a monotherapy and in combination with other agents. Adagrasib is the provisionally filed nonproprietary name for MRTX849. MRTX1133 is an investigational, selective, specific and potent KRAS G12D inhibitor in preclinical development. 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. We also have additional preclinical discovery programs which include potentially first-in-class and best-in-class product candidates specifically designed to address mutations and tumors where few treatment options exist. We approach each of our discovery and development 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 the entity expects to receive in exchange for those goods or services. To determine revenue recognition for contracts with customers, we perform the following 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) the entity satisfies 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. We utilize key assumptions to determine a stand-alone selling price for performance obligations, 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. 38 --------------------------------------------------------------------------------
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 future research and development activities, are deferred and
recognized as expense in the period that the related goods are consumed or
services are performed.
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 judgmental 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 granted based on the closing market price of our common stock on the date of grant. 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, 2020 compared to the fiscal year endedDecember 31, 2019 . For the discussion covering the fiscal year endedDecember 31, 2019 compared to the fiscal year endedDecember 31, 2018 , 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, 2019 filed with theSEC onFebruary 26, 2020 .
The following table summarizes our results of operations for the year ended
Year Ended December 31,
2020 2019 Increase
License and collaboration revenues $ 13,398 $
3,335
Research and development expenses 299,349 182,866 116,483
General and administrative expenses 83,412 42,573 40,839
Other income, net 11,426 8,848 2,578
License and collaboration revenues
License and collaboration revenues relate to the BeiGene Agreement under which
BeiGene was granted an exclusive license to develop, manufacture and
commercialize sitravatinib in the Licensed Territory, as well as a license
agreement (the "ORIC License Agreement") with ORIC Pharmaceuticals, Inc.
("ORIC") pursuant to which the Company granted to ORIC an exclusive, worldwide
license to develop and commercialize the Company's allosteric polycomb
repressive complex 2 ("PRC2") inhibitors for all indications. License and
collaboration revenues for the year ended December 31, 2020 were $13.4 million ,
of which $11.4 million related to the transfer of the license and related
know-how to ORIC under the ORIC License Agreement,
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and $2.0 million related to the manufacturing supply services agreement with
BeiGene. License and collaboration revenues for the year ended December 31, 2019
were $3.3 million and relate to the manufacturing supply services agreement with
BeiGene.
Research and Development Expenses
Research and development expenses consist primarily of:
•salaries and related expenses for personnel, including expenses related to stock options, or other share-based compensation granted to personnel in development functions;
•fees paid to external service providers such as CROs and contract manufacturing organizations related to clinical trials, including contractual obligations for clinical development, clinical sites, manufacturing and scale-up, and formulation of clinical drug supplies;
•fees paid to contract services related to drug discovery efforts including chemistry and biology services;
•license fees paid in connection with our early discovery efforts; and
•costs for allocated facilities and depreciation of equipment.
We record research and development expenses as incurred.
Our research and development efforts during the years endedDecember 31, 2020 and 2019 were focused primarily on our clinical development programs and our preclinical programs. The following table summarizes our research and development expenses, (in thousands): Year Ended December 31, Increase 2020 2019 (Decrease)
Third-party research and development expenses:
Clinical development programs: MRTX849$ 121,689 $ 53,778 $ 67,911 Sitravatinib 57,276 60,952 (3,676) Discontinued programs 1,900 2,995 (1,095) Pre-clinical development programs: MRTX1133 10,297 7,540 2,757 Preclinical and early discovery 11,873 3,353 8,520 Total third-party research and development expenses 203,035 128,618 74,417 Salaries and other employee related expense 37,545 19,835 17,710 Share-based compensation expense 48,044 31,024 17,020 Other research and development costs 10,725 3,389 7,336 Research and development expense$ 299,349 $ 182,866 $ 116,483 Research and development expenses for the year endedDecember 31, 2020 were$299.3 million compared to$182.9 million during the year endedDecember 31, 2019 . The increase of$116.4 million during the year endedDecember 31, 2020 relates to an increase in third-party research and development expenses of$74.4 million , an increase in salaries and other employee related expense of$17.7 million , an increase in share-based compensation expense of$17.0 million , and an increase in other research and development costs of$7.3 million . The increase in third-party research and development expense primarily relates to an increase in expenses associated with the development of MRTX849 of$67.9 million . The increase in expenses associated with MRTX849 relates to the Phase 1/2 clinical trial which was initiated in the first quarter of 2019, and a Phase 2 clinical trial which was initiated in the first quarter of 2020, and the costs are comprised largely of manufacturing expenses, CRO fees and other clinical trial-related expenses. The increase in salaries and other employee related expense of$17.7 million is primarily due to an increase in the number of research and development employees during the year endedDecember 31, 2020 compared to the same period in 2019. The increase in share-based compensation of$17.0 million is due to an increase in the fair value of equity awards granted and an increase in headcount during the year endedDecember 31, 2020 40 --------------------------------------------------------------------------------
compared to the same period in 2019. The increase in other research and
development costs of
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 MRTX849 and sitravatinib. 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 MRTX849, sitravatinib and MRTX1133, or any of our other preclinical programs into more advanced stages of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, related to our executive, finance, legal, commercial and support functions. Other general and administrative expenses include professional fees for auditing, tax, consulting and patent-related services, rent and utilities and insurance. General and administrative expenses for the year endedDecember 31, 2020 were$83.4 million compared to$42.6 million for the same period in 2019. The increase of$40.8 million is primarily due to an increase in share-based compensation expense of$13.3 million , an increase in salaries and other employee related expense of$12.8 million , an increase in professional services expense of$11.2 million , and an increase in facilities, insurance and other expense of$3.6 million . The increase in share-based compensation expense is due to an increase in the fair value of equity awards granted and an increase in headcount during the year endedDecember 31, 2020 compared to the same period in 2019. The increase in salaries and other employee related expense is primarily due to an increase in the number of general and administrative employees during the year endedDecember 31, 2020 compared to the same period in 2019, and is largely driven by commercial readiness activities. The increase in professional services expense is primarily due to an increase in commercial costs. The increase in facilities, insurance and other expense is primarily driven by increased software licensing costs and expensed equipment due to increased headcount during the year endedDecember 31, 2020 compared to the same period in 2019, as well as increased director's and officer's liability insurance expense.
Other Income, Net
Other income, net for the year endedDecember 31, 2020 was$11.4 million compared$8.8 million for the same period in 2019. The increase is primarily due to the change in fair value on the long-term investment in ORIC Pharmaceuticals, Inc., which was acquired in 2020 in connection with the ORIC License Agreement, offset by a decrease in interest income primarily due to timing of scheduled maturities.
Liquidity and Capital Resources
AtDecember 31, 2020 , we had$1.4 billion of cash, cash equivalents and short-term investments compared to$415.1 million atDecember 31, 2019 . During 2020, we completed public offerings of our common stock that generated total net proceeds of$1.2 billion: inOctober 2020 , we completed a public offering of our common stock that generated net proceeds of$879.6 million and inJanuary 2020 , we completed a public offering of our common stock that generated net proceeds of$324.0 million . InJuly 2020 , we entered into a sales agreement pursuant to which we may, from time to time, sell shares of our common stock having an aggregate offering price of up to$200.0 million ; no shares have been sold in connection with this sales agreement. In 2019, we completed public offerings of our common stock that generated net proceeds of$327.8 million . Based on our current and anticipated level of operations, we believe that our cash, cash equivalents and short-term investments will be sufficient to meet our anticipated obligations for at least one year from the date this Annual Report on Form 10-K is filed with theSEC . To date, we have funded our operations primarily through the sale of our common stock, pre-funded warrants to purchase our common stock, and to a lesser extent through up-front payments, research funding and milestone payments under collaborative arrangements. Since inception, we have primarily devoted our resources to funding research and development programs, including discovery research, preclinical and clinical development activities. 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 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 41 -------------------------------------------------------------------------------- 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 the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including in 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.
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
2020 2019
Net cash used in operating activities$ (271,531)
Net cash used in investing activities (139,857)
(176,140)
Net cash provided by financing activities 1,250,714
338,028
Increase in cash, cash equivalents, and restricted cash 839,326
14,162
Net cash used in operating activities
Net cash used for operating activities was$271.5 million and$147.7 million for the years endedDecember 31, 2020 and 2019, respectively. Cash used in operating activities during 2020 primarily related to our net loss of$357.9 million , adjusted for non-cash share-based compensation expense of$85.8 million and net cash inflows from a change in our operating assets and liabilities of$16.2 million . Cash used in operating activities during 2019 primarily related to our net loss of$213.3 million , adjusted for non-cash share-based compensation expense of$55.5 million and net cash inflows from a change in our operating assets and liabilities of$13.2 million .
Net cash used in investing activities
Net cash used in investing activities for the years endedDecember 31, 2020 and 2019 was$139.9 million and$176.1 million , respectively, and reflects the purchases of short-term investments and property and equipment, offset by sales and maturities of short-term investments.
Net cash provided by financing activities
Net cash provided by financing activities for the year endedDecember 31, 2020 was$1.3 billion and consisted primarily of proceeds received from the issuance of common stock, exercise of common stock options and stock issuances under the employee stock option plan. Net cash provided by financing activities for the year endedDecember 31, 2019 was$338.0 million and consisted of proceeds from issuance of common stock, exercise of common stock options, and stock issuances under the employee stock option plan.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of
More than 5
Total Less than 1 year 1-3 years 3-5 years years
Operating Lease Obligations(1) $ 94,184 $ -
- (1) OnJune 30, 2020 , the Company entered into an amended and restated lease agreement (the "Amended and Restated Lease") for office and laboratory space located inSan Diego, California , for the Company's new corporate headquarters. The Amended 42 -------------------------------------------------------------------------------- and Restated Lease supersedes in its entirety the original lease agreement for the Company's future corporate headquarters dated as ofAugust 22, 2019 . The Amended and Restated Lease term has a lease term of approximately 12 years. The Company has an early termination right 7 years into the lease term, in which the total contractual obligation would be reduced by$41.1 million . 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 supply manufacturing or other services. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.
Off-Balance Sheet Arrangements
During the years endedDecember 31, 2020 and 2019, we did not have any off-balance sheet arrangements (as defined by applicableSEC regulations) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. 43
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