SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-35921
Mirati Therapeutics, Inc.
(Exact Name of Registrant as Specified in Its Charter)
|(State of Incorporation)||(I.R.S. Employer Identification No.)|
|3545 Cray Court,||San Diego,||California||92121|
|(Address of Principal Executive Offices)||(Zip Code)|
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
|Title of Each Class||Trading Symbol||Name of Each Exchange on Which Registered|
|Common Stock, par value $0.001 per share||MRTX||The Nasdaq Stock Market LLC|
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.
|Large accelerated filer||☒||Accelerated filer||☐|
|Non-accelerated filer||☐||Smaller reporting company||☐|
|Emerging growth company||☐|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financing accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 29, 2022, there were 55,526,877 total shares of common stock outstanding.
MIRATI THERAPEUTICS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
MIRATI THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share amounts)
|March 31,||December 31,|
|ASSETS|| || |
|Current assets|| || |
|Cash and cash equivalents||$||304,696 ||$||413,083 |
|Short-term investments||1,021,778 ||1,078,257 |
|Other current assets||16,643 ||16,643 |
|Total current assets||1,343,117 ||1,507,983 |
|Property and equipment, net||17,177 ||15,824 |
|Long-term investment||3,141 ||8,218 |
|Right-of-use asset||37,229 ||37,680 |
|Other long-term assets||20,635 ||19,049 |
|Total assets||$||1,421,299 ||$||1,588,754 |
|LIABILITIES AND SHAREHOLDERS' EQUITY|| || |
|Current liabilities|| || |
|Accounts payable||$||27,938 ||$||35,163 |
|Accrued liabilities||95,633 ||108,495 |
|Total current liabilities||123,571 ||143,658 |
|Lease liability||45,829 ||45,879 |
|Other liabilities||2,617 ||2,179 |
|Total liabilities||172,017 ||191,716 |
Commitments and contingencies (see Note 9)
|Shareholders' equity|| || |
Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued and outstanding at both March 31, 2022 and December 31, 2021
|— ||— |
Common stock, $0.001 par value; 100,000,000 authorized; 55,511,476 and 55,356,904 issued and outstanding at March 31, 2022 and December 31, 2021, respectively
|56 ||55 |
|Additional paid-in capital||3,145,368 ||3,099,937 |
|Accumulated other comprehensive income||4,266 ||9,068 |
|Total shareholders' equity||1,249,282 ||1,397,038 |
|Total liabilities and shareholders' equity||$||1,421,299 ||$||1,588,754 |
See accompanying notes
MIRATI THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, in thousands, except for share and per share amounts)
Three Months Ended
|Revenue|| || |
|License and collaboration revenues||$||709 ||$||— |
|Total revenue||709 ||— |
|Expenses|| || |
|Research and development||130,976 ||104,071 |
|General and administrative||53,951 ||28,350 |
|Total operating expenses||184,927 ||132,421 |
|Loss from operations||(184,218)||(132,421)|
|Other expense, net||(4,168)||(3,259)|
|Unrealized loss on available-for-sale investments||(4,802)||(303)|
|Net loss per share, basic and diluted||$||(3.40)||$||(2.67)|
|Weighted average common shares outstanding, basic and diluted||55,468,851||50,779,364|
See accompanying notes
MIRATI THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited, in thousands, except share data)
Three Months Ended March 31, 2022
| ||Common Stock||Additional|
Balance at December 31, 2021
|55,356,904 ||$||55 ||$||3,099,937 ||$||9,068 ||$||(1,712,022)||$||1,397,038 |
|Net loss||— ||— ||— ||— ||(188,386)||(188,386)|
|Share-based compensation expense||— ||— ||42,905 ||— ||— ||42,905 |
|Issuance of common stock under equity incentive plans||154,572 ||1 ||2,526 ||— ||— ||2,527 |
|Unrealized loss on investments||— ||— ||— ||(4,802)||— ||(4,802)|
Balance at March 31, 2022
|55,511,476 ||$||56 ||$||3,145,368 ||$||4,266 ||$||(1,900,408)||$||1,249,282 |
Three Months Ended March 31, 2021
| ||Common Stock||Additional|
Balance at December 31, 2020
|50,439,069 ||$||50 ||$||2,481,218 ||$||9,759 ||$||(1,130,238)||$||1,360,789 |
|Net loss||— ||— ||— ||— ||(135,680)||(135,680)|
|Share-based compensation expense||— ||— ||24,722 ||— ||— ||24,722 |
|Issuance of common stock under equity incentive plans||312,903 ||— ||9,885 ||— ||— ||9,885 |
|Net exercise of warrants||623,814 ||1 ||(1)||— ||— ||— |
|Unrealized loss on investments||— ||— ||— ||(303)||— ||(303)|
Balance at March 31, 2021
|51,375,786 ||$||51 ||$||2,515,824 ||$||9,456 ||$||(1,265,918)||$||1,259,413 |
See accompanying notes
MIRATI THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended March 31,
|Operating activities:|| || |
|Non-cash adjustments reconciling net loss to operating cash flows|| || |
|Change in fair value on long-term investment||5,077 ||3,953 |
|Depreciation of property and equipment||629 ||294 |
|Amortization of premium and accretion of discounts on investments||982 ||1,001 |
|Share-based compensation expense||42,905 ||24,722 |
|Changes in operating assets and liabilities:|| || |
|Other current assets||— ||(2,810)|
|Other long-term assets||(1,584)||(8,149)|
|Right-of-use asset||451 ||612 |
|Lease liability||1,431 ||1,270 |
|Accounts payable, accrued liabilities and other liabilities||(21,974)||4,371 |
|Cash flows used in operating activities||(160,469)||(110,416)|
|Investing activities:|| || |
|Purchases of short-term investments||(212,545)||(621,661)|
|Sales and maturities of short-term investments||263,240 ||167,240 |
|Purchases of property and equipment||(1,140)||(1,107)|
|Cash flows provided by (used in) investing activities||49,555 ||(455,528)|
|Financing activities:|| || |
|Proceeds from issuance of common stock under equity incentive plans||2,527 ||9,885 |
|Cash flows provided by financing activities||2,527 ||9,885 |
|Decrease in cash, cash equivalents and restricted cash||(108,387)||(556,059)|
|Cash, cash equivalents and restricted cash, beginning of period||413,703 ||886,182 |
|Cash, cash equivalents and restricted cash, end of period||$||305,316 ||$||330,123 |
|Reconciliation of cash, cash equivalents and restricted cash, end of period:|
|Cash and cash equivalents||$||304,696 ||$||329,503 |
|Restricted cash included in other long-term assets||620 ||620 |
|Total cash, cash equivalents and restricted cash||$||305,316 ||$||330,123 |
|Supplemental disclosures of non-cash investing activities:|
|Accrued capital expenditures||$||842 ||$||439 |
See accompanying notes
MIRATI THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
1. Description of Business
Mirati Therapeutics, Inc. (“Mirati” or the “Company”) is a clinical-stage oncology company developing product candidates to address the genetic and immunological promoters of cancer. The Company was incorporated under the laws of the State of Delaware on April 29, 2013 as Mirati Therapeutics, Inc. and is located in San Diego, California. The Company has a wholly owned subsidiary in Canada, MethylGene, Inc. (“MethylGene”), a wholly owned subsidiary in the Netherlands (“Mirati Therapeutics B.V.”) and operates in one business segment, primarily in the United States. The Company’s common stock has been listed on the Nasdaq Global Select Market since June 5, 2018, and was previously listed on the Nasdaq Capital Market since July 15, 2013, under the ticker symbol “MRTX.”
2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.
In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for the full year. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.
Reported amounts and footnote disclosures reflect the overall economic conditions that are most likely to occur and anticipated measures management intends to take. Actual results could differ materially from those estimates. Estimates and assumptions are reviewed quarterly. Any revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents consist of cash and highly liquid securities with original maturities at the date of acquisition of ninety days or less. Investments with an original maturity of more than ninety days are considered short-term investments and have been classified by management as available-for-sale. These investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current consolidated balance sheet date, which reflects management’s intention to use the proceeds from sales of these securities to fund its operations, as necessary. Such investments are carried at fair value, and the unrealized gains and losses are reported as a component of accumulated other comprehensive income in shareholders’ equity until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis.
Concentration of Credit Risk
The Company invests its excess cash in accordance with its investment policy. The Company’s investments are comprised primarily of commercial paper and debt instruments of financial institutions, corporations, U.S. government-sponsored agencies and the U.S. Treasury. The Company mitigates credit risk by maintaining a diversified portfolio and
limiting the amount of investment exposure as to institution, maturity and investment type. Financial instruments that potentially subject the Company to significant credit risk consist principally of cash equivalents and short-term investments.
The Company recognizes revenue in connection with certain collaboration and license agreements in accordance with the guidance of Revenue From Contracts With Customers, Accounting Standards Codification (“ASC”) Topic 606 (“Topic 606”). Under Topic 606, the Company recognizes revenue when its 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 arrangements the Company determines are within the scope of Topic 606, the Company performs 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 Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company determines if an arrangement is a lease at inception. Lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. For operating leases with an initial term greater than 12 months, the Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of lease payments over the lease term at the commencement date. Operating lease right-of-use assets are comprised of the lease liability plus any lease payments made and excludes lease incentives. Lease terms include options to renew or terminate the lease when the Company is reasonably certain that the renewal option will be exercised or when it is reasonably certain that the termination option will not be exercised. For the Company’s operating leases, if the interest rate used to determine the present value of future lease payments it not readily determinable, the Company estimates its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in similar economic environments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to not separate lease and non-lease components.
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for common share equivalents as they are anti-dilutive. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and common share equivalents outstanding for the period, as well as certain shares that are contingently issuable. Common share equivalents outstanding, determined using the treasury stock method, are comprised of shares that may be issued under the Company’s stock option and warrant agreements, as well as restricted stock units and performance stock units.
The following table presents the weighted-average number of common share equivalents, calculated using the treasury stock method, as well as certain shares that are contingently issuable, not included in the calculation of diluted net loss per share due to the anti-dilutive effect of the securities:
Three Months Ended March 31,
|Common stock options||1,531,327 ||2,758,415 |
|Common stock warrants||7,605,737 ||8,043,004 |
|Unvested restricted stock units and performance stock units||1,066,872 ||526,319 |
|Total||10,203,936 ||11,327,738 |
Recently Issued and Recently Adopted Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. The Company has evaluated recently issued accounting pronouncements and does not believe any will have a material impact on the Company’s condensed consolidated financial statements or related financial statement disclosures.
The following tables summarize the Company’s short-term investments (in thousands):
As of March 31, 2022
|Maturity||Amortized cost||Gross unrealized gains||Gross unrealized losses||Estimated fair value|
|Corporate debt securities|
2 years or less
|$||191,505 ||$||2 ||$||(1,416)||$||190,091 |
1 year or less
|548,407 ||— ||(1,623)||546,784 |
|U.S. Agency bonds|
1 years or less
|21,000 ||— ||(6)||20,994 |
|U.S. Treasury bills|
2 years or less
|266,120 ||— ||(2,211)||263,909 |
|$||1,027,032 ||$||2 ||$||(5,256)||$||1,021,778 |
As of December 31, 2021
|Maturity ||Amortized cost||Gross unrealized gains||Gross unrealized losses||Estimated fair value|
|Corporate debt securities|
2 years or less
|$||236,170 ||$||36 ||$||(248)||$||235,958 |
1 year or less
|621,947 ||127 ||(95)||621,979 |
|U.S. Agency bonds|
1 years or less
|58,092 ||— ||— ||58,092 |
|U.S. Treasury bills|
2 years or less
|162,500 ||— ||(272)||162,228 |
|$||1,078,709 ||$||163 ||$||(615)||$||1,078,257 |
The Company has classified all of its short-term investments as available-for-sale as the sale of such securities may be required prior to maturity to implement management strategies, and accordingly, these investments are carried at fair value. As of March 31, 2022 and December 31, 2021, the unrealized losses for available-for-sale investments were non-credit related, and the Company does not intend to sell the investments before recovery of their amortized cost basis, which may be at the time of maturity. As of March 31, 2022 and December 31, 2021, no allowance for credit losses was recorded. During the three months ended March 31, 2022 and 2021, the Company did not recognize any impairment losses related to investments.
The long-term investment balance of $3.1 million and $8.2 million as of March 31, 2022 and December 31, 2021, respectively, is comprised of 588,235 shares of ORIC Pharmaceuticals, Inc. (“ORIC”) common stock. As of March 31, 2022 the investment is carried at fair value which is based on the closing price of ORIC’s common stock on the last trading day of the reporting period; unrealized gains and losses are recorded in other expense, net on the Company’s condensed consolidated statements of operations and comprehensive loss. As of December 31, 2021, the fair value was based on the last trading day of the reporting period and was adjusted for a discount for lack of marketability due to an eighteen-month lock-up period which expired during the first quarter of 2022. The Company currently does not intend to sell ORIC shares within 12 months from March 31, 2022. See Note 4 - Fair Value Measurements.
4. Fair Value Measurements
The Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.
The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance prioritizes the inputs used in measuring fair value into the following hierarchy:
•Level 1- Quoted prices (unadjusted) in active markets for identical assets or liabilities;
•Level 2- Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
•Level 3- Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
The following tables summarize the assets measured at fair value on a recurring basis (in thousands):
|March 31, 2022|
|Total||Level 1||Level 2||Level 3|
|Cash and cash equivalents:|
|Cash||$||11,279 ||$||11,279 ||$||— ||$||— |
|Money market funds||293,417 ||293,417 ||— ||— |
|Total cash and cash equivalents||304,696 ||304,696 ||— ||— |
|U.S. Treasury bills||263,909 ||263,909 ||— ||— |
|Corporate debt securities||190,091 ||— ||190,091 ||— |
|Commercial paper||546,784 ||— ||546,784 ||— |
|U.S. Agency bonds||20,994 ||— ||20,994 ||— |
|Total short-term investments||1,021,778 ||263,909 ||757,869 ||— |
|ORIC Pharmaceuticals, Inc.||3,141 ||3,141 ||— ||— |
|Total||$||1,329,615 ||$||571,746 ||$||757,869 ||$||— |
|December 31, 2021|
|Total||Level 1||Level 2||Level 3|
|Cash and cash equivalents:|
|Cash||$||19,347 ||$||19,347 ||$||— ||$||— |
|Money market funds||393,736 ||393,736 ||— ||— |
|Total cash and cash equivalents||413,083 ||413,083 ||— ||— |
|U.S. Treasury bills||162,228 ||162,228 ||— ||— |
|Corporate debt securities||235,958 ||— ||235,958 ||— |
|Commercial paper||621,979 ||— ||621,979 ||— |
|U.S. Agency bonds||58,092 ||— ||58,092 ||— |
|Total short-term investments||1,078,257 ||162,228 ||916,029 ||— |
|ORIC Pharmaceuticals, Inc.||8,218 ||— ||— ||8,218 |
|Total||$||1,499,558 ||$||575,311 ||$||916,029 ||$||8,218 |
The Company’s investments in Level 1 assets are valued based on publicly available quoted market prices for identical securities as of March 31, 2022 and December 31, 2021. The Company determines the fair value of Level 2 related securities with the aid of valuations provided by third parties using proprietary valuation models and analytical tools. These valuation
models and analytical tools use market pricing or prices for similar instruments that are both objective and publicly available, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers.
The Company’s long-term investment in ORIC as of December 31, 2021 was considered a Level 3 fair value measurement and utilized a combination of the Asian Protective Put Option and Finnerty Put Option fair value techniques with unobservable inputs of 69% volatility and an expected term of 0.1 years to determine the discount for lack of marketability of 5.0%. During the three months ended March 31, 2022, the eighteen-month lock-up period expired, and because ORIC common stock is quoted in an active market, it meets the criteria of a Level 1 investment. The Company transferred the investment in ORIC from a Level 3 fair value measurement to a Level 1 fair value measurement. There were no transfers between fair value measurement levels during the year ended December 31, 2021.
The following table represents the change in estimated fair value of the Company’s Level 3 investment during the period:
|March 31, 2022|
Fair value of Level 3 investment - December 31, 2021
|Change in fair value||(5,077)|
|Transfer out of Level 3 to Level 1||(3,141)|
Fair value of Level 3 investment - March 31, 2022
5. Other Current Assets and Other Long-Term Assets
Other current assets consisted of the following (in thousands):
|March 31,||December 31,|
|Prepaid expenses||$||11,797 ||$||11,895 |
|Deposits and other receivables||3,036 ||2,235 |
|Interest receivables||1,810 ||2,513 |
|$||16,643 ||$||16,643 |
The other long-term assets balance of $20.6 million as of March 31, 2022 consisted of $20.0 million in deposits paid in connection with the Company's research and development activities, and $0.6 million for a letter of credit secured by restricted cash in connection with the lease of the Company's corporate headquarters. The other long-term assets balance of $19.0 million as of December 31, 2021 consisted of $18.4 million in deposits paid in conjunction with the Company's research and development activities, and $0.6 million for a letter of credit secured by restricted cash in connection with the lease of the Company's corporate headquarters.
6. Accrued Liabilities and Other Liabilities
Accrued liabilities consisted of the following (in thousands):
|March 31,||December 31,|
|Accrued clinical expense||$||30,411 ||$||29,038 |
|Accrued manufacturing expense||33,318 ||34,153 |
|Accrued development expense||7,282 ||10,910 |
|Accrued compensation and benefits||15,559 ||25,845 |
|Other accrued expenses||9,063 ||8,549 |
|$||95,633 ||$||108,495 |
The long-term liabilities balance of $2.6 million as of March 31, 2022, and $2.2 million as of December 31, 2021, consisted primarily of clinical trial-related liabilities.
7. License and Collaboration Agreements
Terms of Agreement
On January 7, 2018, the Company and BeiGene Ltd. (“BeiGene”) entered into a Collaboration and License Agreement (the “BeiGene Agreement”), pursuant to which the Company and BeiGene agreed to collaboratively develop sitravatinib in Asia (excluding Japan and certain other countries), Australia and New Zealand (collectively, the “BeiGene Licensed Territory”). Under the BeiGene Agreement, the Company granted BeiGene an exclusive license to develop, manufacture and commercialize sitravatinib in the BeiGene Licensed Territory, with the Company retaining exclusive rights for the development, manufacture and commercialization of sitravatinib outside the BeiGene Licensed Territory.
As consideration for the rights granted to BeiGene under the BeiGene Agreement, BeiGene paid the Company a non-refundable, non-creditable up-front fee of $10.0 million. BeiGene is also required to make milestone payments to the Company of up to an aggregate of $123.0 million upon the first achievement of specified clinical, regulatory and sales milestones. The BeiGene Agreement additionally provides that BeiGene is obligated to pay the Company royalties at tiered percentage rates ranging from mid-single digits to twenty percent on annual net sales of licensed products in the BeiGene Licensed Territory, subject to reduction under specified circumstances. The BeiGene Agreement also provides that the Company will supply BeiGene with sitravatinib for use in BeiGene’s development activities in the BeiGene Licensed Territory.
The BeiGene Agreement will terminate upon the expiration of the last royalty term for the licensed products, which is the latest of (i) the date of expiration of the last valid patent claim related to the licensed products under the BeiGene Agreement, (ii) ten years after the first commercial sale of a licensed product and (iii) the expiration of any regulatory exclusivity as to a licensed product. BeiGene may terminate the BeiGene Agreement at any time by providing 60 days prior written notice to the Company. Either party may terminate the BeiGene Agreement upon a material breach by the other party that remains uncured following 60 days after the date of written notice of such breach or upon certain bankruptcy events. In addition, the Company may terminate the BeiGene Agreement upon written notice to BeiGene under specified circumstances if BeiGene challenges the licensed patent rights.
The Company evaluated the BeiGene Agreement under Topic 606. At the time it entered into the BeiGene Agreement, the Company determined the transaction price was equal to the up-front fee of $10.0 million. The transaction price was allocated to the performance obligations on the basis of the relative stand-alone selling price estimated for each performance obligation. In estimating the stand-alone selling price for each performance obligation, the Company developed assumptions that require judgment and included forecasted revenues, expected development timelines, discount rates, probabilities of technical and regulatory success and costs for manufacturing clinical supplies. As such, of the up-front fee, the Company allocated $9.5 million to the license to the Company’s intellectual property, bundled with the associated know-how, and the remaining $0.5 million to the initial obligation to supply sitravatinib for clinical development in the BeiGene Licensed Territory.
Licenses of Intellectual Property. The license to the Company’s intellectual property, bundled with the associated know-how, represents a distinct performance obligation. The license and associated know-how was transferred to BeiGene during the three months ended March 31, 2018 and, therefore during 2018, the Company recognized the full revenue amount of $9.5 million related to this performance obligation as license and collaboration revenues in its condensed consolidated statements of operations and comprehensive loss.
Manufacturing Supply Services. The Company’s initial obligation to supply sitravatinib for clinical development in the BeiGene Licensed Territory represents a distinct performance obligation, and the initial obligation was satisfied in 2020 and, therefore, this $0.5 million initial supply obligation was fully recognized as license and collaboration revenues as of December 31, 2020. Although the initial performance obligation was satisfied, BeiGene may request additional sitravatinib in the future for clinical development in the BeiGene Licensed Territory. The Company recognized revenue when BeiGene obtained control of the goods, over the period of the obligation. No revenue related to this performance obligation was recognized for the three months ended March 31, 2022 and March 31, 2021, respectively.
Milestone Payments. The Company is entitled to development milestones under the BeiGene Agreement and certain regulatory milestone payments which are paid upon receipt of regulatory approvals within the BeiGene Licensed Territory. No milestone payments were earned during the three months ended March 31, 2022 and March 31, 2021, respectively. The Company evaluated whether the remaining milestones are considered probable of being reached and determined that their achievement is highly dependent on factors outside of the Company’s control. Therefore, these payments have been fully constrained and are not included in the transaction price. At the end of each subsequent reporting period, the Company will re-evaluate the probability of achievement of each milestone and any related constraint, and if necessary, adjust its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect the reported amount of license and collaboration revenues in the period of adjustment.
Royalties. As the license is deemed to be the predominant item to which sales-based royalties relate, the Company will recognize revenue when the related sales occur. No royalty revenue was recognized during the three months ended March 31, 2022 or 2021.
In October 2014, the Company entered into a drug discovery collaboration and option agreement with Array BioPharma, Inc. (“Array,” acquired by Pfizer Inc. (“Pfizer”) in July 2019) whereby Array provided services to facilitate the discovery, optimization and development of small molecule compounds that bind and specifically inhibit KRAS G12C. In June 2017, the two parties entered into a second, separate discovery collaboration and option agreement whereby Array provided services to facilitate the discovery, optimization and development of small molecule compounds that bind and specifically inhibit KRAS G12D. Both agreements established an option mechanism which enabled the Company to elect an exclusive worldwide license under the technology for the development and commercialization of certain products based on these compounds.
Under these agreements, following the joint discovery periods, which have since concluded, the Company exercised its options to retain exclusive worldwide licenses to develop, manufacture and commercialize inhibitors of KRAS G12C and KRAS G12D, including, but not limited to, MRTX849 (adagrasib is the provisionally filed name for MRTX849) and MRTX1133. Under each agreement, Pfizer is entitled to potential development milestone payments of up to $9.3 million from the Company, and tiered sales milestone payments of up to $337.0 million based upon worldwide net sales, and tiered royalties in the high single digits to mid-teens on worldwide net sales of products arising from the collaborations. Under the agreements, the Company has incurred $9.5 million in development milestone payments from inception through March 31, 2022.
The royalty term for each agreement is payable on a country-by-country and product-by-product basis, and separately will terminate at the later of (i) the date of expiration of the last valid patent claim within the collaboration patent rights or the Pfizer background technology covering such product in the country in which such product is sold at the time of such sale, or (ii) ten years after the first commercial sale of such product in such country. The Company may terminate each agreement at any time by providing 60 days prior written notice to Pfizer. Either party may terminate each agreement upon a material breach by the other party that remains uncured following 60 days after the date of written notice of such breach or upon certain bankruptcy events.
No expenses were incurred under these agreements with Pfizer for the three months ended March 31, 2022 or 2021, respectively.
ORIC Pharmaceuticals Agreement
Terms of Agreement
On August 3, 2020, the Company entered into a 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 (the “ORIC Agreement”). In accordance with the terms of the ORIC Agreement, in exchange for such license, ORIC issued 588,235 shares of its common stock (the “Shares”) to the Company on August 3, 2020. The Shares were issued under a stock issuance agreement entered into between ORIC and the Company, dated August 3, 2020. During the eighteen-month period following the date of the stock issuance agreement, the Company was subject to certain transfer restrictions. ORIC is not obligated to pay the Company milestone payments or royalty payments under the ORIC Agreement.
Unless terminated earlier, the ORIC Agreement will continue in effect on a country-by-country and licensed product-by-licensed product basis until the later (a) the expiration of the last valid claim of a licensed patent covering such licensed product in such country or (b) ten years after the first commercial sale of such licensed product in such country. Following the expiration of the ORIC Agreement, ORIC will retain its licenses under the intellectual property the Company licensed to ORIC on a royalty-free basis. The Company and ORIC may each terminate the ORIC Agreement if the other party materially breaches the terms of such agreement, subject to specified notice and cure provisions, or enters into bankruptcy or insolvency proceedings. The Company may terminate this agreement if ORIC challenges any of the patent rights licensed to ORIC by the Company or if ORIC discontinues development of licensed products for a specified period of time. ORIC also has the right to terminate the ORIC Agreement without cause by providing prior written notice to the Company.
The Company accounted for the ORIC Agreement under Topic 606 and identified the granting of an exclusive, worldwide license to develop and commercialize the Company’s allosteric PRC2 inhibitors for all indications as a distinct performance obligation since ORIC can benefit from the license on its own by developing and commercializing the underlying product using its own resources.
In determining the transaction price, the Company received the Shares as non-cash consideration. The Company allocated the entire transaction price to the distinct performance obligation described above, and the license and related know-how was transferred to ORIC during the third quarter of 2020. Therefore, the Company recognized the entire transaction price of $11.4 million during 2020 and classified the amount as license and collaboration revenues in its condensed consolidated statements of operations and comprehensive loss.
The Shares are carried at fair value and are recorded on the condensed consolidated balance sheet as a long-term investment. Any change in fair value is recorded within other expense, net on the condensed consolidated statements of operations and comprehensive loss.
Terms of Agreement
On May 28, 2021, the Company and Zai Lab Ltd. (“Zai”) entered into a Collaboration and License Agreement (the “Zai Agreement”), pursuant to which the Company and Zai agreed to collaboratively develop adagrasib in China, Hong Kong, Macau and Taiwan (collectively, the “Zai Licensed Territory”). Under the Zai Agreement, the Company granted Zai the rights to research, develop, manufacture and exclusively commercialize adagrasib in all indications in the Zai Licensed Territory, with the Company retaining exclusive rights for the development, manufacture and commercialization of adagrasib outside the Zai Licensed Territory and certain co-commercialization, manufacture, and development rights in the Zai Licensed Territory. Zai is obligated to participate in selected global, registration-enabling clinical trials and enroll patients in the Zai Licensed Territory at Zai’s expense.
As consideration for the rights granted to Zai under the Zai Agreement, Zai agreed to pay the Company a non-refundable, non-creditable up-front fee of $65.0 million. Under the Zai Agreement, the Company is entitled to potential development and regulatory-based milestone payments of up to $93.0 million, and tiered sales milestone payments of up to $180.0 million based on net sales in the Zai Licensed Territory. The Zai Agreement additionally provides that Zai is obligated to pay to the Company royalties at tiered percentage rates ranging from the high-teens to the low-twenties on annual net sales of licensed products in the Zai Licensed Territory, subject to reduction under specified circumstances. The Zai Agreement also provides that the Company will supply Zai with adagrasib for use in Zai’s development activities in the Zai Licensed Territory at Zai's expense.
The Zai Agreement will terminate on a licensed product-by-licensed product basis and on a region-by-region basis in the Zai Licensed Territory, upon the later to occur of (i) the date of expiration of the last valid claim covering such licensed product in such region, (ii) the date that is ten years after the date of the first commercial sale in such region and (iii) the expiration date of any regulatory exclusivity for such licensed product in such region, or for a co-commercialized product on the date the parties agree to terminate such co-commercialization, or in its entirety upon the expiration of all payment obligations under the Zai Agreement. Zai may terminate the Zai Agreement at any time by providing 12 months’ notice to the Company. Either party may terminate the Zai Agreement upon a material breach by the other party that remains uncured or upon certain bankruptcy events. In addition, the Company may terminate the Zai Agreement if Zai challenges the licensed patent rights.
The Company evaluated the Zai Agreement under Topic 606. The Company determined that two performance obligations existed: (1) the license to intellectual property, bundled with the associated know-how and (2) the Company's initial obligation to supply adagrasib for clinical development in the Zai Licensed Territory. At the time it entered into the Zai Agreement, the Company determined the transaction price was equal to $66.6 million, which includes the up-front fee and other incidental amounts. In estimating the stand-alone selling price for each performance obligation, the Company developed assumptions that require judgment and included forecasted revenues, expected development timelines, discount rates, probabilities of technical and regulatory success, forecasted costs for manufacturing clinical supplies and cost savings related to Zai's participation in selected trials. The Company allocated the full transaction price to the license to the Company’s intellectual property, bundled with the associated know-how. The Company concluded the variable payments related to the Company’s initial obligation to supply adagrasib for clinical development in the Zai Licensed Territory relate specifically to the Company’s efforts to satisfy this performance obligation and the obligation to provide the initial clinical supply approximates the stand-alone selling price. Payments under the Zai Agreement are subject to foreign tax withholdings.
Licenses of Intellectual Property. The license to the Company’s intellectual property, bundled with the associated know-how, represents a distinct performance obligation. The license and associated know-how was transferred to Zai during the three months ended September 30, 2021 and, therefore during 2021, the Company recognized the full revenue amount of $66.6 million as license and collaboration revenues and $3.3 million as income tax expense in its condensed consolidated statements of operations and comprehensive loss.
Manufacturing Supply Services. The Company’s initial obligation to supply adagrasib for clinical development in the Zai Licensed Territory represents a distinct performance obligation. As such, the Company will recognize revenue when Zai obtains control of the goods. The Company recognized $0.7 million revenue related to this performance obligation for the three months ended March 31, 2022. The Company may also become responsible for manufacturing adagrasib for commercial supply and will receive reimbursement that approximates stand-alone selling prices.
Milestone Payments. The Company is entitled to development milestone payments and certain regulatory and sales milestone payments which are paid upon achievement of the development milestones, upon receipt of regulatory approvals and annual net sales thresholds within the Zai Licensed Territory under the Zai Agreement. No milestone payments were earned during the three months ended March 31, 2022. The Company evaluated whether or not the milestones are considered probable of being reached and determined that their achievement is highly dependent on factors outside of the Company’s control. These payments have been fully constrained and therefore are not included in the transaction price. At the end of each subsequent reporting period, the Company will re-evaluate the probability of achievement of each milestone and any related constraint and, if necessary, adjust its estimate of the overall transaction price. Any such adjustments will be recorded on a cumulative catch-up basis, which would affect the reported amount of license and collaboration revenues in the period of adjustment.
Royalties. As the license is deemed to be the predominant item to which sales-based royalties relate, the Company will recognize revenue when the related sales occur. No royalty revenue was recognized during the three months ended March 31, 2022.
As of March 31, 2022, the following warrants for common stock were issued and outstanding:
|Issue date||Expiration date||Exercise price ||Number of warrants outstanding|
|January 11, 2017||None||$||0.001 ||3,578,036 |
|November 20, 2017||None||$||0.001 ||3,669,360 |
|June 11, 2018||None||$||0.001 ||358,415 |
During the three months ended March 31, 2022, no warrants were exercised. During the three months ended March 31, 2021, 623,821 warrants for shares of the Company's common stock were exercised via cashless exercise, resulting in the issuance of 623,814 shares of common stock.
9. Commitments and Contingencies
On June 30, 2020, the Company entered into an amended and restated lease agreement (the “Amended and Restated Lease”) for office and laboratory space located in San Diego, California, for the Company’s corporate headquarters. The Amended and Restated Lease supersedes in its entirety the original lease agreement for the Company’s future corporate headquarters dated as of August 22, 2019. The Amended and Restated Lease has a lease term of 12 years (“Lease Term”), unless terminated earlier. The Lease Term has an initial abatement period, and the initial base rent payable will be approximately $0.6 million per month following the abatement period, which amount will increase by 3% per year over the Lease Term. The Company also received incentives from the landlord for tenant improvements. During 2020, the underlying asset was available for use by the Company to construct tenant improvements and therefore, the Lease Term was considered to have commenced.
The Amended and Restated Lease is considered to be an operating lease, and the Amended and Restated Lease indicates the interest rate applicable to the lease is 12% and, therefore, the Company used a discount rate of 12% to calculate the value of its lease payments over the Lease Term. As of March 31, 2022, the condensed consolidated balance sheet includes an operating right-of-use asset of $37.2 million and a total operating lease liability of $48.7 million, of which $2.9 million is considered a current lease liability and included in other accrued expenses, and $45.8 million is included in non-current lease liability. As of December 31, 2021, the consolidated balance sheet includes an operating right-of-use asset of $37.7 million and an operating lease liability of $47.2 million, of which $1.3 million is considered a current lease liability and included in other accrued expenses, and $45.9 million is included in non-current lease liability. For the three months ended March 31, 2022 and 2021, the Company recorded $1.9 million and $2.0 million in operating lease expense, respectively.
As of March 31, 2022, the approximate future minimum lease payments under the Amended and Restated Lease are as follows (in thousands):
2022 - remainder
Total operating lease payments(†)
|Less: Amount representing interest||(45,533)|
|Total lease liability||$||48,651 |
†The Company has an early termination right in 2028 in which the total contractual obligation would be reduced by $41.1 million.
On June 24, 2014, the Company entered into a lease agreement for office and laboratory space located in San Diego, California. The office space under the lease was the Company’s corporate headquarters. The lease commenced in two phases (in July 2014 and March 2015) at a combined total initial monthly rent of $24,100 per month and was subject to a 3% annual rent increase following availability. In addition to such base monthly rent, the Company was obligated to pay certain customary amounts for its share of operating expenses and facility amenities. The original lease provided for expiration on January 31, 2018, and the Company entered into subsequent amendments to the original lease to extend the lease term to July 2021. All other terms and covenants from the original lease agreement remained unchanged.
10. Shareholders’ Equity
Sale of Common Stock
In November 2021, the Company sold 3,448,275 shares of its common stock at a public offering price of $145.00 per share. After deducting underwriter discounts, commissions and estimated offering expenses, the Company received net proceeds from the transaction of $474.7 million.
At the Market Facility
On July 2, 2020, the Company entered into a sales agreement pursuant to which the Company may, from time to time, sell shares of the Company's common stock, par value $0.001 per share, having an aggregate offering price of up to $200.0 million. On July 2, 2021, the Company entered into an amended and restated sales agreement pursuant to which the Company may, from time to time, sell shares of the Company’s common stock, par value $0.001 per share, having an aggregate offering price of up to $500.0 million. As of March 31, 2022, the Company has not offered or sold any shares of common stock pursuant to this sales agreement.
Total share-based compensation expense by statement of operations and comprehensive loss classification is presented below (in thousands):
Three Months Ended March 31,
|Research and development expense||$||26,260 ||$||14,534 |
|General and administrative expense||16,645 ||10,188 |
|$||42,905 ||$||24,722 |
During the three months ended March 31, 2022, 154,572 shares of common stock were issued under the Company’s equity incentive plans, generating net proceeds of $2.5 million. During the three months ended March 31, 2021, 312,903 shares of common stock were issued under the Company’s equity incentive plans, generating net proceeds of $9.9 million.
|ITEM 2.||Management’s Discussion and Analysis of Financial Condition and Results of Operations|
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 1O-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed by us with the Securities and Exchange Commission (“SEC”).
This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward-looking statements, which represent our intent, belief, or current expectations, involve risks and uncertainties. We use words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements may include, but are not limited to, statements concerning projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. As a result of many factors, including without limitation those set forth under “Risk Factors” under Item 1A of Part II below, and elsewhere in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.
References in the following discussion to “we,” “our,” “us,” or “Mirati” refer to Mirati Therapeutics, Inc. and its subsidiaries.
Mirati Therapeutics, Inc. is a clinical-stage oncology company developing novel therapeutics to address the genetic and immunological promoters of cancer.
We have two KRAS inhibitor programs. Adagrasib 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.
MRTX1719 is an internally discovered investigational synthetic lethal PRMT5 inhibitor designed to specifically target the PRMT5/methylthioadensoine (MTA) complex in clinical development.
The Company also has additional preclinical 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.
KRAS Inhibitor Programs
The RAS family of genes is the most commonly mutated oncogene and mutations in this gene family occur in up to approximately 25% of all human cancers. Among the RAS family members, mutations most frequently occur in KRAS (approximately 85% of all RAS family mutations). Tumors characterized by KRAS mutations are commonly associated with poor prognosis and resistance to therapy. Nonclinical studies have demonstrated that cancer cells exhibiting KRAS mutations are highly dependent on KRAS function for cell growth and survival. Our KRAS inhibitor programs are focused on the discovery and development of small molecule compounds that target KRAS G12C and G12D. We are pursuing development of our KRAS G12C and KRAS G12D inhibitor programs in both single agent and rational combination approaches.
Adagrasib, a selective KRAS G12C inhibitor
Adagrasib, our lead KRAS G12C compound, is an investigational, selective, specific, potent and orally available KRAS G12C inhibitor and is in clinical development varying from Phase 1 through Phase 3. Adagrasib is designed to directly inhibit KRAS G12C mutations. KRAS G12C mutations are present in approximately 14% of non-small cell lung cancer (“NSCLC”) adenocarcinoma patients, 3-4% of colorectal cancer (“CRC”) patients, 2% of pancreatic cancer patients, as well as smaller percentages of several other difficult-to-treat cancers.
We received U.S. Food and Drug Administration (“FDA”) authorization of our investigational new drug application (“IND”) for adagrasib in November 2018, and, in January 2019, we initiated the dose escalation phase of KRYSTAL-1, a Phase 1/2 multiple expansion cohort clinical trial evaluating adagrasib in patients with advanced solid tumors that harbor KRAS G12C mutations both in monotherapy and in combination with other anticancer therapies. Following single agent dose escalation, the KRYSTAL-1 trial was expanded into multiple cohorts in which adagrasib is being evaluated both in monotherapy and in combination with other compounds in patients with NSCLC, CRC and those with other tumors that carry the KRAS G12C mutation.
In December 2021, we completed our New Drug Application (“NDA”) submission to the FDA for adagrasib for the treatment of patients with previously treated KRAS G12C-mutated NSCLC who have received prior systemic therapy. In February 2022, the FDA accepted the NDA and assigned a Prescription Drug User Fee Action (“PDUFA”) date of December 14, 2022. The NDA is being reviewed by the FDA for Accelerated Approval (Subpart H), which allows for the approval of drugs that treat serious conditions, and that fill an unmet medical need based on a surrogate endpoint. In addition, this application is being reviewed under the FDA Real-Time Oncology Review pilot program, which aims to explore a more efficient review process that ensures safe and effective treatments are made available to patients as early as possible. Adagrasib has also achieved Breakthrough Therapy Designation as a potential treatment for patients with NSCLC who harbor the KRAS G12C mutation following prior systemic therapy. The Company also has an Expanded Access Program for adagrasib for the treatment of eligible patients with KRAS G12C-mutated cancers regardless of tumor type in the United States.
The KRYSTAL-1 trial is evaluating the combination of adagrasib and a PD-1 inhibitor (pembrolizumab) in patients with NSCLC, the combination of adagrasib and a pan-EGFR inhibitor (afatinib) in patients with advanced NSCLC, and the combination of adagrasib and an anti-EGFR antibody (cetuximab) in patients with CRC. In 2020, we initiated KRYSTAL-2, a Phase 1/2 clinical trial evaluating the combination of adagrasib and a SHP-2 inhibitor (TNO-155) in patients with advanced NSCLC and advanced CRC. In 2021, we initiated KRYSTAL-14, a Phase 1/2 clinical trial evaluating the combination of adagrasib and a SOS1 inhibitor (BI 1701963) in patients with advanced NSCLC, and we initiated KRYSTAL-16, a Phase 1/1b clinical trial evaluating the combination of adagrasib and a CDK4/6 inhibitor (palbociclib) in patients with advanced solid tumors with KRAS G12C mutation. The KRYSTAL-2 and KRYSTAL-14 clinical trials are no longer enrolling patients.
In the fourth quarter of 2021, we announced preliminary results from the Phase 1b cohort of the KRYSTAL-1 trial evaluating the combination of adagrasib and a PD-1 inhibitor (pembrolizumab) in eight patients with KRAS G12C-mutated first-line NSCLC. The preliminary results support moving forward with a 400mg twice daily dose (“BID”) of adagrasib with full dose pembrolizumab, which is being evaluated in an ongoing Phase 2 clinical trial. The Phase 1b data showed adagrasib 400mg BID plus pembrolizumab had a manageable tolerability profile, with no observed Grade 4 or Grade 5 adverse events. Of the seven patients evaluable for a response as of October 21, 2021, four had a confirmed RECIST-defined partial response and one additional patient, who is still on study, experienced 49% tumor regression in the first scan, which allowed for tumor resection prior to achieving a RECIST-defined confirmed response. The disease control rate (“DCR”) was 100%, with all seven patients exhibiting tumor regression ranging from 37% to 92%. With a median follow up of 9.9 months, five of the seven patients remained on treatment, as of the data cutoff date, and had been on treatment for 8 to 11 months.
On September 20, 2021, we announced that we completed an analysis in the intent-to-treat population of the registration enabling cohort of KRYSTAL-1, the Phase 1/2 clinical trial evaluating adagrasib at 600mg BID as a monotherapy treatment for patients in at least 2nd line NSCLC. The analysis showed an objective response rate (“ORR”) of 43% and a DCR of 80%, based on central independent review, as of June 15, 2021.
In the third quarter of 2021, we amended KRYSTAL-7, the Phase 2 clinical trial evaluating the combination of adagrasib at 400mg BID and a PD-1 inhibitor (pembrolizumab) in patients with NSCLC stratified by <1% Tumor Proportion Score (“TPS”) score and ≥1% TPS score.
In the first quarter of 2021, we initiated two registration-enabling Phase 3 clinical trials. The first clinical trial, KRYSTAL-12, is evaluating adagrasib as a monotherapy randomized against docetaxel in patients with 2nd line NSCLC. The
second clinical trial, KRYSTAL-10, is evaluating the combination of adagrasib and an anti-EGFR antibody (cetuximab) randomized against chemotherapy in patients with 2nd line CRC.
On September 19, 2021, at the European Society for Medical Oncology Congress 2021, we presented preliminary results from the cohort of the KRYSTAL-1 Phase 1/2 clinical trial evaluating adagrasib at 600mg BID as both a monotherapy treatment and in combination with cetuximab for patients with heavily pretreated colorectal cancer harboring a KRAS G12C mutation.
•As of May 25, 2021, the adagrasib monotherapy arm (n=46) had a median follow up of 8.9 months. Of the evaluable patients (n=45), preliminary results showed an investigator assessed response rate (“RR”) of 22%, including one unconfirmed partial response (“PR”), and a DCR of 87%; the median duration of response (“DOR”) was 4.2 months. In all enrolled patients, the median progression free survival (“PFS”) was 5.6 months (95% confidence interval (“CI”): 4.1,8.3).
•As of July 9, 2021, the adagrasib plus cetuximab arm (n=32) had a median follow up of 7 months. Of the evaluable patients (n=28), preliminary results showed an investigator assessed RR of 43%, including two unconfirmed PRs and a DCR of 100%. After the data cutoff date, of the two unconfirmed PRs, follow up scans showed one patient had a confirmed PR, and the second patient progressed.
•Adagrasib monotherapy and in combination with cetuximab was well-tolerated in this study, with a manageable safety profile. Grade 3/4 treatment related adverse events (“TRAEs”) were observed in 30% of patients treated with adagrasib alone, and in 16% of patients treated with the combination. Treatment related adverse events led to treatment discontinuation in 6% of patients who received combination therapy and in none (0%) of those who received adagrasib monotherapy. No Grade 5 TRAEs were observed in either treatment arm.
On October 9, 2021, at the 33rd EORTC-NCI-AACR Symposium on Molecular Targets and Therapeutics, we presented preliminary results from a cohort of the KRYSTAL-1 clinical trial evaluating adagrasib at 600mg BID as monotherapy for patients with pancreatic ductal adenocarcinoma harboring a KRAS G12C mutation. arm (n=12). Of the evaluable patients (n=10), preliminary results showed an investigator assessed RR of 50%, including an unconfirmed PR, and a DCR of 100%.
Preliminary efficacy data was assessed as of August 30, 2020 in six patients with advanced solid tumors, other than NSCLC and CRC, treated with adagrasib as a monotherapy at 600mg BID dose from a Phase 1/1b cohort. One patient each with pancreatic, ovarian, endometrial and cholangiocarcinoma tumors were treated and had a confirmed PR to therapy. Two appendiceal cancer patients had stable disease and all six eligible patients remained on treatment.
Adagrasib Development in Collaboration with Zai Lab Ltd. (“Zai”)
In May 2021, we entered into a Collaboration and License Agreement with Zai (the “Zai Agreement”). Under the Zai Agreement, we granted Zai the right to research, develop, manufacture and exclusively commercialize adagrasib in all indications in China, Macau, Hong Kong and Taiwan (collectively, the “Zai Licensed Territory”), with Mirati retaining exclusive rights for the development, manufacture and commercialization of adagrasib outside the Zai Territory and certain co-commercialization, manufacture, and development rights in the Zai Licensed Territory.
MRTX1133, a selective KRAS G12D inhibitor
MRTX1133, our lead KRAS G12D compound, has been identified as a clinical development candidate and is an investigational, selective, specific and potent inhibitor of KRAS G12D, and is currently in preclinical development. KRAS G12D mutations have been detected in over 25 different types of cancer, including pancreatic, colon, lung and endometrial adenocarcinoma. The prevalence of cancers harboring KRAS G12D mutations exceeds the prevalence of KRAS G12C positive cancers by greater than two-fold and is an area of significant unmet medical need.
On October 25, 2020 we announced initial preclinical in vivo data from MRTX1133. Based on preclinical analyses, MRTX1133 has a projected human half-life of approximately 50 hours and exhibits a low propensity for drug interactions or off-target pharmacology. MRTX1133 demonstrated tumor regression in multiple in vivo tumor models, including pancreatic and colorectal cancers. MRTX1133 has a low predicted target plasma concentration, based on its potency and high unbound fraction, and our goal is to achieve near complete and sustained target inhibition and maximal anti-tumor activity. We have prioritized a long-acting IV injectable drug product strategy, including liposome-based formulations, that are designed to
optimize and extend the duration of KRAS G12D target inhibition as we progress towards IND-enabling studies. We are also continuing to evaluate strategies to enhance oral absorption to potentially enable development of a solid oral dose form.
Sitravatinib is a spectrum-selective kinase inhibitor in Phase 3 clinical development and is designed to potently inhibit receptor tyrosine kinases (“RTK”s), including TAM family receptors (TYRO3, Axl, Mer), split family receptors (VEGFR2, KIT) and RET. Sitravatinib’s potent inhibition of TAM and split family RTKs may overcome resistance to checkpoint inhibitor therapy through targeted reversal of an immunosuppressive tumor microenvironment, enhancing antigen-specific T cell response and expanding dendritic cell-dependent antigen presentation. There are over 100,000 2nd or 3rd line NSCLC patients in the United States and Europe, who have derived prior clinical benefit following treatment with a PD-(L)1 inhibitor, with approximately 70,000 of these patients being of the non-squamous histology.
Sitravatinib in Combination with Nivolumab
As an immuno-oncology agent, sitravatinib is being evaluated in combination with nivolumab (OPDIVO®), Bristol-Myers Squibb Company’s (“BMS”) anti-PD-1 checkpoint inhibitor, in patients with NSCLC who have experienced documented disease progression following treatment with a checkpoint inhibitor. Sitravatinib is also being developed in certain Asian territories in collaboration with BeiGene, Ltd. (“BeiGene”) which is evaluating sitravatinib in combination with tislelizumab, BeiGene’s anti-PD-1 checkpoint inhibitor, in a number of advanced solid tumors.
In April, we completed enrollment in a Phase 3 clinical trial in 2nd line non-squamous NSCLC patients whose tumors have progressed on prior therapy with platinum-chemotherapy in combination with a checkpoint inhibitor or 3rd line non-squamous NSCLC patients who have received chemotherapy followed by a checkpoint inhibitor. The Phase 3 clinical trial is comparing the combination of sitravatinib plus nivolumab randomized to docetaxel. The statistical design of the Phase 3 clinical trial includes an interim analysis of overall survival that we believe, if positive, could support an NDA submission seeking full approval.
In January 2019, we announced a clinical trial collaboration with BMS in connection with the aforementioned Phase 3 clinical trial. Under the terms of the collaboration, we are sponsoring and funding the clinical trial and BMS is providing nivolumab at no cost. We maintain global development and commercial rights to sitravatinib outside of certain Asian territories and Australia and New Zealand, where we have partnered with BeiGene, and we are free to develop the program in combination with other agents.
We also have several Phase 2 clinical trials in which we are evaluating sitravatinib in combination with nivolumab in patients with NSCLC, urothelial carcinoma or other cancers who have experienced documented disease progression following prior treatment with chemotherapy and/or a checkpoint inhibitor. On September 20, 2021, we announced results from a post hoc exploratory analysis of the Phase 2 study, MRTX-500, in patients with nonsquamous NSCLC with prior clinical benefit from checkpoint inhibitor therapy and where anti-PD-(L)1 was the most recent line of therapy (n=68) and a median follow-up of 33.6 months. The median overall survival was 14.9 months (95% CI: 9.3, 21.1), with 56% and 32% of these patients alive at one year and two years, respectively. The ORR was 18%, with 3% of patients achieving a complete response and 15% of patients achieving a PR. The median DOR was 12.8 months.
Sitravatinib Development in Collaboration with BeiGene
In January 2018, we entered into a Collaboration and License Agreement with BeiGene (the “BeiGene Agreement”). Under the BeiGene Agreement, we granted BeiGene an exclusive license to develop, manufacture and commercialize sitravatinib in Asia (excluding Japan and certain other countries), Australia and New Zealand (the “BeiGene Licensed Territory”), and we retained exclusive rights for the development, manufacturing and commercialization of sitravatinib outside the BeiGene Licensed Territory.
In November 2018, we dosed the first patient under the BeiGene Agreement to assess the safety and tolerability, pharmacokinetics and preliminary anti-tumor activity of sitravatinib in combination with BeiGene’s investigational anti-PD-1 antibody, tislelizumab, in patients with advanced solid tumors. BeiGene’s clinical trials will evaluate the combination of sitravatinib and tislelizumab in patients with solid tumors including NSCLC, renal cell carcinoma, hepatocellular cancer, gastric cancer and ovarian cancer.
MRTX1719, a synthetic lethal MTA cooperative PRMT5 inhibitor
MRTX1719, our lead synthetic lethal MTA cooperative PRMT5 inhibitor is an investigational, selective, potent and orally available inhibitor targeting the PRMT5/MTA complex in methylthioadenosine phosphorylase (MTAP)-deleted cancers and is in Phase 1/2 clinical development. The MTAP deletion is present in approximately 10 percent of all cancers and is the most frequently observed gene deletion event (MTAP/CDKN2A) across several cancer types. Cancers with an MTAP deletion, such as pancreatic, lung, and bladder cancers, are associated with a poor prognosis, representing a significant unmet medical need.
In preclinical studies, MRTX1719 has demonstrated a greater than 70-fold selectivity for MTAP-deleted cells relative to normal cells and demonstrated near complete and sustained inhibition of PRMT5 in tumor xenografts resulting in significant tumor growth inhibition or tumor regression in MTAP-deleted tumor models. The ability to target the PRMT5/MTA complex provides an opportunity to selectively target tumor cells harboring the MTAP gene deletion which exhibit an abnormally high level of MTA (methylthioadenosine) compared with normal cells. This is anticipated to provide an increased therapeutic index relative to first generation PRMT5 inhibitors that do not specifically target the PRMT5/MTA complex. In the first quarter of 2022, we initiated a Phase 1/2 multiple expansion cohort trial to evaluate MRTX1719 in patients with advanced, unresectable or metastatic solid tumor malignancy with homozygous deletion of the MTAP gene.
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 with U.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.
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The following table summarizes the significant items within our results of operations for the three months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended
|License and collaboration revenues||$||709 ||$||— ||$||709 |
|Research and development expenses||$||130,976 ||$||104,071 ||$||26,905 |
|General and administrative expenses||53,951 ||28,350 ||25,601 |
|Other expense, net||(4,168)||(3,259)||(909)|
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.
The Company earned $0.7 million revenue during the three months ended March 31, 2022, related to clinical supply revenue under the Zai Agreement. No license or collaboration revenues were recognized during the three months ended March 31, 2021.
Research and development expenses
Research and development expenses consist primarily of:
•salaries and related expenses for personnel, including expenses related to stock options or other share-based compensation granted to personnel in research and development functions;
•fees paid to external service providers such as Clinical Research Organizations ("CROs") and contract manufacturing organizations related to clinical trials, including contractual obligations for clinical development, clinical sites, manufacturing and scale-up, and formulation of clinical drug supplies;
•fees paid to contract services related to drug discovery efforts including chemistry and biology services;
•license fees paid in connection with our early discovery efforts; and
•costs for allocated facilities and depreciation of equipment.
We record research and development expenses as incurred.
Our research and development efforts during the three months ended March 31, 2022 and 2021 were focused primarily on our clinical development programs and our preclinical programs. The following table summarizes our research and development expenses (in thousands):
Three Months Ended
|Third-party research and development expenses:|
|Clinical development programs:|
|Adagrasib||$||44,991 ||$||43,407 ||$||1,584 |
|Sitravatinib||16,236 ||15,577 ||659 |
|MRTX1719||1,726 ||— ||1,726 |
|Pre-clinical development programs:|
|MRTX1133||279 ||2,242 ||(1,963)|
|Preclinical and early discovery||7,745 ||6,153 ||1,592 |
|Total third-party research and development expenses||70,977 ||67,379 ||3,598 |
|Salaries and other employee related expense||24,308 ||15,043 ||9,265 |
|Share-based compensation expense ||26,260 ||14,534 ||11,726 |
|Other research and development costs ||9,431 ||7,115 ||2,316 |
|Research and development expense||$||130,976 ||$||104,071 ||$||26,905 |
Research and development expenses for the three months ended March 31, 2022 were $131.0 million compared to $104.1 million for the three months ended March 31, 2021. The increase of $26.9 million primarily relates to increases in share-based compensation expense of $11.7 million, salaries and other employee related expense of $9.3 million, third-party research and development expense of $3.6 million, and other research and development expense of $2.3 million. The increase in share-based compensation of $11.7 million, and salaries and other employee related expense of $9.3 million is primarily due to an increase in the number of research and development employees during the three months ended March 31, 2022, compared to the same period in 2021. The increase in third-party research and development expense primarily relates to an increase in expenses associated with development of adagrasib of $1.6 million, MRTX1719 of $1.7 million, preclinical and early discovery program of $1.6 million and sitravatinib of $0.7 million, offset by a decrease in MRTX1133 of $2.0 million. The increase in expenses associated with adagrasib relates to the ongoing clinical trials, which include Phase 1/2, Phase 2 and Phase 3 clinical trials. The costs are comprised largely of manufacturing expenses, including manufacturing costs related to registrational manufacturing batches, CRO fees and other clinical trial-related expenses. The increase in expenses associated with MRTX1719 is because the compound entered the clinic during the three months ended March 31, 2022; the costs are comprised largely of manufacturing expenses and CRO fees. MRTX1719 was designated as a clinical candidate during the second quarter of 2021; prior to this designation, the costs were classified as preclinical and early discovery costs. The increase in preclinical and early discovery costs is primarily due to increased contracted research and development services to support our early discovery efforts. The increase in expenses associated with the development of sitravatinib relates to increased investigator payment expenses and CRO fees to support the expansion of existing sitravatinib clinical trials. The decrease in expense associated with MRTX1133 is primarily due to lower manufacturing expenses, toxicology and contract research and development services. The increase in other research and development costs of $2.3 million is primarily due to increases in professional services expenses, medical communications, travel and software license.
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 adagrasib and sitravatinib, MRTX1719, MRTX1133 and any of our other preclinical and early 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 adagrasib, sitravatinib, MRTX1719 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 three months ended March 31, 2022 and 2021 were $54.0 million and $28.4 million, respectively, representing an increase of $25.6 million. The increase in expense for the three months ended March 31, 2022 is primarily due to an increase in salaries and other employee related expense of $10.0 million, an increase in professional services expense of $9.6 million, an increase in share-based compensation expense of $6.5 million, and an increase in insurance, rent and other facilities-related costs and other expense of $2.5 million. The increase in salaries and other employee related expense, and share-based compensation expense is primarily due to an increase in the number of general and administrative employees during the three months ended March 31, 2022 compared to the same period in 2021, and is largely driven by commercial readiness activities. The increase in professional services expense is primarily due to an increase in commercial costs as we prepare for a potential product launch and includes market research and professional consulting fees. The increase in facilities, insurance and other expense is primarily due to increased software licensing costs and expensed equipment due to increased headcount, as well as increased director and officer liability insurance expense.
Other Expense, Net
Other expense, net for the three months ended March 31, 2022 was expense of $4.2 million, compared to expense of $3.3 million for the same period in 2021. The increase in expense is due to a decline in the fair value of our long-term investment in ORIC which was acquired in 2020 in connection with the ORIC Agreement.
Liquidity and Capital Resources
As of March 31, 2022, we had $1.3 billion of cash, cash equivalents and short-term investments compared to $1.5 billion as of December 31, 2021. In November 2021, we completed a public offering of our common stock that generated net proceeds of $474.7 million. In July 2021, we received net proceeds of $63.4 million for the up-front fee in connection with the Zai Agreement. In July 2021, we entered into an amended and restated 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 $500.0 million; as of March 31, 2022, no shares have been sold in connection with this amended and restated sales agreement. 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 that this Quarterly Report on Form 10-Q is filed with the SEC.
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. 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 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 Three Months Ended March 31, 2022 and 2021
The following table provides a summary of the net cash flow activity for each of the periods set forth below (in thousands):
Three Months Ended
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
|2,527 ||9,885 |
Decrease in cash, cash equivalents and restricted cash
Net cash used in operating activities
Net cash used in operating activities for the three months ended March 31, 2022 was $160.5 million, compared to $110.4 million for the same period in 2021, an increase of $50.1 million. Cash used in operating activities during 2022 primarily related to our net loss of $188.4 million, adjusted for non-cash items such as share-based compensation of $42.9 million and net cash outflow from a change in our operating assets and liabilities of $21.7 million. Cash used in operating activities during 2021 primarily related to our net loss of $135.7 million, adjusted for non-cash items such as share-based compensation expense of $24.7 million and net cash outflow from a change in our operating assets and liabilities of $4.7 million.
Net cash provided by (used in) investing activities
For the three months ended March 31, 2022 and 2021, cash provided by or used in investing activities was an inflow of $49.6 million and an outflow of $455.5 million, respectively, due to 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 three months ended March 31, 2022 and 2021 was $2.5 million and $9.9 million, respectively, and consisted primarily of proceeds from issuance of common stock under equity incentive plans.
Contractual Obligations and Commitments
There were no material changes outside of the ordinary course of business to our specific contractual obligations during the three months ended March 31, 2022.
|Quantitative and Qualitative Disclosures about Market Risk|
Interest Rate Risk
Some of our short-term investments have market risk in that a change in prevailing interest rates may cause the fair value of the principal amount of the investment to fluctuate. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. We invest our excess cash primarily in commercial paper and debt instruments of financial institutions, corporations, U.S. government-sponsored agencies and the U.S. Treasury. We mitigate credit risk by maintaining a well-diversified portfolio and limiting the amount of investment exposure as to institution, maturity and investment type. We invest our excess cash in accordance with our investment policy.
Because of the short-term maturities of our cash equivalents and short-term investments, we do not believe that an increase in market rates would have any significant impact on the realized value of our investments. If a 10% change in interest rates were to have occurred on March 31, 2022, this change would not have had a material effect on the fair value of our investment portfolio as of that date.
Effects of Inflation
We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.
|Controls and Procedures|
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based on that evaluation, management has concluded that as of March 31, 2022, the Company’s disclosure controls and procedures were effective at the reasonable assurance level and we believe the condensed consolidated financial statements included in this Form 10-Q for the three months ended March 31, 2022 present, in all material respects, our financial position, results of operations, comprehensive loss and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded that there were no changes in our internal controls over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Item 1A. Risk Factors
You should carefully consider the following information about the risks described below, together with the other information contained in this Quarterly Report and in our other public filings in evaluating our business. The risk factors set forth below with an asterisk (*) next to the title contain changes to the description of the risk factors associated with our business previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. Additional risks and uncertainties that we are unaware of may also become important factors that affect us. If any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock would likely decline.
Summary of Risk Factors
We face a number of risks and uncertainties related to our business and our securities, many of which are beyond our control. Some of our principal risks related to our business include the following:
•Risks Relating to our Business and Industry
◦Our research and development programs and product candidates are in development. As a result, we are unable to predict if or when we will successfully develop or commercialize our product candidates.
◦All of our product candidates are subject to extensive regulation, which can be costly and time consuming, cause delays or prevent approval of such product candidates for commercialization
◦The successful commercialization of our product candidates, if approved, will depend on achieving market acceptance and we may not be able to gain sufficient acceptance to generate significant revenue.
◦The COVID-19 pandemic could adversely impact our business including our ongoing and planned clinical trials and preclinical research.
◦We rely upon third-party contractors and service providers for the execution of some aspects of our development programs. Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of our development programs.
◦Competition in our targeted market area is intense and this field is characterized by rapid technological change. Therefore, developments by competitors may substantially alter the predicted market or render our product candidates uncompetitive
◦Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved product label, or result in significant negative consequences following marketing approval, if any.
◦We are subject to competition for our skilled personnel and may experience challenges in identifying and retaining key personnel that could impair our ability to conduct our operations effectively.
•Risks Related to our Financial Position and Capital Requirements
◦We will require additional financing and may be unable to raise sufficient capital, which could lead us to delay, reduce or abandon development programs or commercialization.
•Risks Related to our Intellectual Property
◦We may not obtain adequate protection for our product candidates through patents and other intellectual property rights and as such, our competitive advantage in the marketplace may be compromised.
•Other factors set forth herein.
Risks Related to Our Business and Industry
Our research and development programs and product candidates are in development. As a result, we are unable to predict if or when we will successfully develop or commercialize our product candidates.
Our clinical-stage product candidates as well as our other pipeline assets will require significant further investment and regulatory approvals prior to commercialization. Adagrasib is in Phase 3 and Phase 1/2 clinical trials, sitravatinib is in a Phase 3
clinical trial, and Phase 1/2 clinical trials, MRTX1719 is in a Phase 1 clinical trial, and MRTX1133 is in preclinical development. We recently submitted an NDA to the FDA to adagrasib. Each of our product candidates will require the selection of suitable patients for our clinical trials and additional clinical development, management of clinical, preclinical and manufacturing activities, obtaining regulatory approval, obtaining manufacturing supply, continued build out of a commercial organization, substantial investment and significant marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. The treatment of cancer is a rapidly evolving field and will continue to evolve. By such time, if ever, as we may receive necessary regulatory approvals for our product candidates, the standard of care for the treatment of cancers may have evolved such that it would be necessary to modify our plans for full approval and commercial acceptance of our products may be limited by a change in the standard of care. In addition, some of our product development programs contemplate the development of companion diagnostics. Companion diagnostics are subject to regulation as medical devices and we or our collaborators may be required to obtain marketing approval for accompanying companion diagnostics before we may commercialize our product candidates.
Even if we obtain the required financing or establish a collaboration to enable us to conduct late-stage clinical development of our product candidates and pipeline assets, we cannot be certain that such clinical development would be successful, or that we will obtain regulatory approval or be able to successfully commercialize any of our product candidates and generate revenue. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the clinical trial process may fail to demonstrate that our product candidates are safe and effective for their proposed uses. Any such failure could cause us to abandon further development of any one or more of our product candidates and may delay development of other product candidates. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Any delay in, or termination of, our clinical trials will delay and possibly preclude the submission of any new drug applications (“NDA”) with the FDA and, ultimately, our ability to commercialize our product candidates and generate product revenue.
We recently submitted an NDA to the FDA. We, however, have not previously submitted an NDA to the FDA, or similar drug approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that any of our product candidates will receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent, in part, upon our current collaborators’ and future collaborators’ ability to obtain regulatory approval for the companion diagnostics to be used with our product candidates, if required, and upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.
Further, even if any product candidate we develop was to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to bear the risks that the FDA or similar foreign regulatory authorities could revoke approval of the therapy used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with these existing therapies.
All of our product candidates are subject to extensive regulation, which can be costly and time consuming, cause delays or prevent approval of such product candidates for commercialization.
The clinical development of product candidates is subject to extensive regulation by the FDA in the United States and by comparable regulatory authorities in foreign markets. Product development is a very lengthy and expensive process, and its outcome is inherently uncertain. The product development timeline can vary significantly based upon the product candidate’s novelty and complexity, and the applicable regulatory authority. For example, we are pursuing an expansion strategy to bring our leading product candidate to countries within the European Economic Area (“EEA”) and the United Kingdom (“UK”). The regulatory approval in other countries may include all the risks associated with FDA approval as well as additional, presently unanticipated, risks. Regulations are subject to change and regulatory agencies have significant discretion in the approval process.
Numerous statutes and regulations govern human testing and the manufacture and sale of human therapeutic products in the United States, Europe and other countries and regions where we intend to market our products. Such legislation and regulation bears upon, among other things, the approval of trial protocols and human testing, the approval of manufacturing facilities, safety of the product candidates, testing procedures and controlled research, review and approval of manufacturing,
preclinical and clinical data prior to marketing approval including adherence to good manufacturing practices (“GMP”) during production and storage as well as regulation of marketing activities including advertising and labeling.
In order to obtain regulatory approval, including an NDA or marketing authorization application, for the commercial sale of any of our product candidates in the United States, EEA and other foreign market, we must demonstrate through preclinical studies and clinical trials, as well as extensive information regarding chemistry, manufacturing and controls (“CMC”), that the potential product is safe and effective for use in humans for each target indication. The failure to adequately demonstrate the safety and efficacy of a product under development could delay or prevent regulatory approval of our product candidates. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.
No assurance can be given that current regulations relating to regulatory approval will not change or become more stringent in the United States or foreign markets. Regulatory agencies may also require that additional trials be run in order to provide additional information regarding the safety or efficacy of any drug candidates for which we seek regulatory approval or require additional administrative review periods, including obtaining reimbursement and pricing approval in select markets. Moreover, any regulatory approval of a drug which is eventually obtained may entail limitations on the indicated uses for which that drug may be marketed. Furthermore, product approvals may be withdrawn or limited in some way if problems occur following initial marketing or if compliance with regulatory standards is not maintained. Regulatory agencies could become more risk averse to any side effects or set higher standards of safety and efficacy prior to reviewing or approving a product. This could result in a product not being approved. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.
The successful commercialization of our product candidates, if approved, will depend on achieving market acceptance and we may not be able to gain sufficient acceptance to generate significant revenue.
Even if our product candidates are successfully developed and receive regulatory approval, they may not gain market acceptance among physicians, patients, healthcare payors such as private insurers or governments and other funding parties and the medical community. The degree of market acceptance for any of our products will depend on a number of factors, including:
•demonstration of the clinical efficacy and safety of our products;
•the prevalence and severity of any adverse side effects;
•limitations or warnings contained in the product’s approved labeling;
•cost-effectiveness and availability of acceptable pricing;
•competitive product profile versus alternative treatment methods and the superiority of alternative treatment or therapeutics;
•the effectiveness of marketing and distribution methods and support for the products; and
•the availability of coverage and adequate reimbursement from third-party payors to the extent that our products receive regulatory approval.
Disease indications may be small subsets of a disease that could be parsed into smaller and smaller indications as different subsets of diseases are defined. This increasingly fine characterization of diseases could have negative consequences; including creating an approved indication that is so small as not to have a viable market for us. If future technology allows characterization of a disease in a way that is different from the characterization used for large pivotal studies, it may make those studies invalid or reduce their usefulness, and may require repeating all or a portion of the studies. Future technology may supply better prognostic ability which could reduce the portion of patients projected to need a new therapy. Even after being cleared by regulatory authorities, a product may later be shown to be unsafe or not to have its purported effect, thereby preventing its widespread use or requiring withdrawal from the market.
We may not be successful in establishing development and commercialization collaborations which could adversely affect, and potentially prohibit, our ability to develop our product candidates.
Developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing approved products is expensive, and therefore we may seek to enter into additional collaborations with companies that have more resources and experience in order to continue to develop and commercialize our product candidates. We also may be required due to financial or scientific constraints to enter into additional collaboration agreements to research and/or to develop and commercialize our product candidates. The establishment and realization of such collaborations may not be possible or may be problematic. There can be no assurance that we will be able to establish such additional collaborations on favorable terms, if at all, or that our current or future collaborative arrangements will be successful or maintained for any specific product candidate or indication. If we are unable to reach successful agreements with suitable collaboration partners for the ongoing development and commercialization of our product candidates, we may face increased costs, we may be forced to limit the scope and number of our product candidates we can commercially develop or the territories in which we commercialize such product candidates, and we may be unable to commercialize products or programs for which a suitable collaboration partner cannot be found. If we fail to achieve successful collaborations, our operating results and financial condition will be materially and adversely affected.
In addition, the terms of any collaboration agreements may place restrictions on our activities with respect to other products, including by limiting our ability to grant licenses or develop products with other third parties, or in different indications, diseases or geographical locations, or may place additional obligations on us with respect to development or commercialization of our product candidates. If we fail to comply with or breach any provision of a collaboration agreement, a collaborator may have the right to terminate, in whole or in part, such agreement or to seek damages.
Some of our collaboration agreements, including the BeiGene Agreement and Zai Agreement, are complex and involve sharing or division of ownership of certain data, know-how and intellectual property rights among the various parties. Accordingly, our collaborators could interpret certain provisions differently than we or our other collaborators which could lead to unexpected or inadvertent disputes with collaborators. In addition, these agreements might make additional collaborations, partnering or mergers and acquisitions difficult.
There is no assurance that a collaborator who is acquired by a third party would not attempt to change certain contract provisions that could negatively affect our collaboration. The acquiring company may also not accept the terms or assignment of our contracts and may seek to terminate the agreements. Any one of our collaborators could breach covenants, restrictions and/or sub-license agreement provisions leading us into disputes and potential breaches of our agreements with other partners.
*We have no experience in clinical or commercial manufacturing and depend on others for the production of our product candidates at suitable levels of quality and quantity. Any problems or delays in the manufacture of our products would have a negative impact on our ability to successfully execute our development and commercialization strategies.
We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug supplies for use in the conduct of our clinical trials, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We rely on collaborators and/or third parties for development, scale-up, formulation, optimization, management of clinical trial and commercial scale manufacturing and commercialization. There are no assurances we can scale-up, formulate or manufacture any product candidate in sufficient quantities with acceptable specifications for the conduct of our clinical trials or for the regulatory agencies to grant approval of such product candidate. We have not yet commercialized any products and have no commercial manufacturing experience. To be successful, our products must be properly formulated, scalable, stable and safely manufactured in clinical trial and commercial quantities in compliance with GMP and other regulatory requirements and at acceptable costs. Should any of our suppliers or our collaborators be unable to supply or be delayed in supplying us with sufficient supplies, no assurance can be given that we will be able to find alternative means of supply in a short period of time. Should such parties’ operations suffer a material adverse effect, the manufacturing of our products would also be adversely affected. Furthermore, key raw materials could become scarce or unavailable. There may be a limited number of third parties who can manufacture our products. We may not be able to meet specifications previously established for product candidates during scale-up and manufacturing. In conjunction with the review of our NDA for adagrasib, FDA may be unable to conduct necessary inspections due to pandemic restrictions, and even if they are able to conduct such inspections, may find conditions that prevent approval of our NDA.
Our reliance on third parties to manufacture our product candidates will expose us and our partners to risks including the following, any of which could delay or prevent the commercialization of our products, result in higher costs, or deprive us of potential product revenue:
•Contract manufacturers can encounter difficulties in achieving the scale-up, optimization, formulation, or volume production of a compound as well as maintaining quality control with appropriate quality assurance. They may also experience shortages of qualified personnel. Contract manufacturers are required to undergo a satisfactory GMP
inspection prior to regulatory approval and are obliged to operate in accordance with FDA, International Council for Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (“ICH”), European and other nationally mandated GMP regulations and/or guidelines governing manufacturing processes, stability testing, record keeping and quality standards. A failure of these contract manufacturers to follow GMP and to document their adherence to such practices or failure of an inspection by a regulatory agency may lead to significant delays in the availability of our product candidate materials for clinical study, leading to delays in our trials.
•For each of our current product candidates we will initially rely on a limited number of contract manufacturers. Changing these or identifying future manufacturers may be difficult. Changing manufacturers requires re-validation of the manufacturing processes and procedures in accordance with FDA, ICH, European and other mandated GMP regulations and/or guidelines. Such re-validation may be costly and time-consuming. It may be difficult or impossible for us to quickly find replacement manufacturers on acceptable terms.
•Our contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to produce, store and distribute our products successfully.
A variety of risks associated with operating our business internationally could adversely affect our business.
In addition to our operations in the United States, we have operations in the Netherlands, and are pursuing further European expansion to support the planned commercialization of our product candidates in the EEA and UK. We face risks associated with our international operations, including possible unfavorable political, tax and labor conditions, which could harm our business. We are subject to numerous risks associated with international business activities, including:
•difficulties in staffing and managing foreign operations;
•foreign government taxes, regulations and permit requirements;
•United States and foreign government tariffs, trade restrictions, price and exchange controls and other regulatory requirements;
•anti-corruption laws, including the Foreign Corrupt Practices Act (“FCPA”);
•economic weakness, including inflation, natural disasters, war, events of terrorism or political instability in particular foreign countries;
•fluctuations in currency exchange rates, which could result in increased operating expenses and reduced revenues, and other obligations related to doing business in another country;
•compliance with tax, employment, immigration and labor laws, regulations and restrictions for employees living or traveling abroad;
•workforce uncertainty in countries where labor unrest is more common than in the United States;
•production shortages resulting from any events affecting raw material supply or manufacturing capabilities aboard; and
•changes in diplomatic and trade relationships.
Our business activities outside of the United States are subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA and similar anti-corruption laws generally prohibit offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to non-U.S. government officials in order to improperly influence any act or decision, secure any other improper advantage, or obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the company and to devise and maintain an adequate system of internal accounting controls. As described above, our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the health care providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, any dealings with these prescribers and purchasers may be subject to regulation under the FCPA. Recently the Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) have increased their FCPA enforcement activities with respect to pharmaceutical companies. In addition, under the Dodd–Frank Wall Street Reform and Consumer Protection Act, private individuals who
report to the SEC original information that leads to successful enforcement actions may be eligible for a monetary award. We are engaged in ongoing efforts that are designed to ensure our compliance with these laws, including due diligence, training, policies, procedures and internal controls. However, there is no certainty that all employees and third-party business partners (including our distributors, wholesalers, agents, contractors, and other partners) will comply with anti-bribery laws. In particular, we do not control the actions of manufacturers and other third-party agents, although we may be liable for their actions. Violation of these laws may result in civil or criminal sanctions, which could include monetary fines, criminal penalties, and disgorgement of past profits, which could have a material adverse impact on our business and financial condition.
We are or may become subject to tax audits in the Netherlands or other countries into which we expand our operations, and such jurisdictions may assess additional income tax against us. The final determination of tax audits could be materially different from our recorded income tax provisions and accruals. The ultimate results of an audit could have a material adverse effect on our operating results or cash flows in the period or periods for which that determination is made and could result in increases to our overall tax expense in subsequent periods.
These and other risks associated with our international operations may materially adversely affect our business, financial condition and results of operations.
The COVID-19 pandemic could adversely impact our business including our ongoing and planned clinical trials and preclinical research.
Our business could be materially adversely affected by the effects of health epidemics. For example, since December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, has spread worldwide. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. government-imposed travel restrictions on travel between the U.S., Europe and certain other countries. In addition, the Governor of the State of California issued a number of stay at home orders and health directives. As a result of such orders, we implemented work-from-home policies for most of our employees and generally suspended business-related travel. Although many of these orders and directives have since been lifted, in response to the spread of various variants of COVID-19 and to protect the health and welfare of our employees, we continue to maintain flexible work-from-home policies for most of our employees. The effects of these work-from-home and travel policies have thus far had a limited impact on our business.
Our business could be materially adversely affected by health epidemics in regions where we or our partners have concentrations of clinical trial sites or other business operations and could cause significant disruption in the operations of third-party manufacturers and contract research organizations upon whom we rely.
Quarantines, shelter-in-place, executive and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, could impact personnel at third-party manufacturing facilities in the U.S. and other countries, or the availability or cost of materials, which would disrupt our supply chain. We have experienced impacts to our clinical trial operations due to the COVID-19 pandemic. Some examples of these impacts include:
•we have experienced impact on clinical site initiation and patient enrollment due to restrictions imposed as a result of the COVID-19 pandemic;
•some patients have not been able to comply with clinical trial protocols as quarantines have impeded patient movement and interrupted healthcare services;
•we have experienced some impact on our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19; and
•we have experienced some delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government or contractor personnel.
The global COVID-19 pandemic continues to rapidly evolve. While we have not yet experienced material adverse effects to our business as a result of the COVID-19 pandemic, the ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and could have negative impact our business, financial condition and operating results.
*We rely upon third-party contractors and service providers for the execution of some aspects of our development programs. Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of our development programs.
We outsource certain functions, tests and services to CROs, medical institutions and collaborators and outsource manufacturing to collaborators and/or contract manufacturers, and we rely on third parties for quality assurance, clinical monitoring, clinical data management and regulatory expertise. In particular, we rely on CROs to run our clinical trials on our behalf and contract manufacturers to manufacture our product candidates. There is no assurance that such individuals or organizations will be able to provide the functions, tests, drug supply or services as agreed upon or to acceptable quality standards, and we could suffer significant delays in the development of our products or processes. In particular, certain third party service providers may be unable to comply with their contractual obligations to us due to disruptions caused by the COVID-19 pandemic, including reduced operations or headcount reductions, or otherwise, and in certain cases we may have limited recourse if the non-compliance is due to factors outside of the service provider’s control.
In some cases, there may be only one or few providers of such services, including manufacturing services. In addition, the cost of such services could increase significantly over time. We rely on third parties as mentioned above to enroll qualified patients and conduct, supervise and monitor our clinical trials. Our reliance on these third parties and collaborators for clinical development activities reduces our control over these activities, but does not relieve us of our regulatory responsibilities, including ensuring that our clinical trials are conducted in accordance with good clinical practices (“GCP”) regulations and the investigational plan and protocols contained in the regulatory agency applications. In conjunction with their review of our NDA for adagrasib, FDA will inspect certain of our clinical trial sites for GCP compliance, and any significant GCP violations or data integrity concerns could prevent the approval of our NDA. In addition, these third parties may not complete activities on schedule or may not manufacture compounds under GMP conditions. Preclinical studies may not be performed or completed in accordance with good laboratory practices, regulatory requirements or our trial design. If we or our CROs fail to comply with GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the European Medicines Agency (“EMA”) or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving any marketing applications. If these third parties or collaborators do not successfully carry out their contractual duties or meet expected deadlines, obtaining regulatory approval for manufacturing and commercialization of our product candidates may be delayed or prevented. We rely substantially on third-party data managers for our clinical trial data. There is no assurance that these third parties will not make errors in the design, management or retention of our data or data systems. There is no assurance that these third parties will pass FDA or regulatory audits, which could delay or prohibit regulatory approval.
Our CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product development activities, which could harm our competitive position. If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. Further, switching or adding additional CROs involves additional cost and requires management time and attention. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.
Competition in our targeted market area is intense and this field is characterized by rapid technological change. Therefore, developments by competitors may substantially alter the predicted market or render our product candidates uncompetitive.
We are aware of at least six companies who currently have competing commercial or clinical-stage direct KRAS G12C inhibitor programs: Amgen, Inc., F. Hoffman-LaRoche Ltd., Eli Lilly and Company, Merck & Co., Inc, Novartis AG and Boehringer Ingelheim International GmbH.
There are several immune checkpoint inhibitors currently approved for use as single agents to treat multiple tumor types, including NSCLC. To augment the efficacy of these agents, combination studies are being conducted with a variety of potentially synergistic mechanisms, including inhibitors of CTLA-4, LAG3, TIM-3, TIGIT and CSF-1R, among others. Most of these combination studies are being conducted in patients who are naïve to immune checkpoint inhibitor therapy. Direct mechanistic competitors to sitravatinib in combination with checkpoint inhibitors in NSCLC patients who had previously failed checkpoint inhibitor therapy include CABOMETYX® (Exelixis, Inc.) and LENVIMA® (Eisai Co., Ltd.), both anti-VEGF agents that also inhibit other receptor tyrosine kinases. Additionally, there are numerous other potential competitors with kinase inhibitors that are being evaluated in combination with checkpoint inhibitors in NSCLC patients who had previously failed checkpoint inhibitor therapy in earlier lines of treatment.
In addition to companies that have inhibitors addressing our targets of interest, our competition also includes hundreds of private and publicly traded companies that operate in the area of oncology but have therapeutics with different mechanisms of action. The oncology market in general is highly competitive with over 1,000 molecules currently in clinical development. Other important competitors, in addition to those mentioned above, are small and large biotechnology companies, specialty and regional pharmaceutical companies and multinational pharmaceutical companies, including but not limited to AbbVie Inc., AstraZeneca plc, Bristol-Myers Squibb Company, Gilead Sciences, Inc., GlaxoSmithKline plc, Johnson & Johnson, Pfizer Inc., Sanofi S.A., and Takeda Pharmaceutical Co.
Developments by others may render our products or technologies non-competitive or we may not be able to keep pace with technological developments. Our competitors may have developed or may be developing technologies which may be the basis for competitive products. Some of these products may prove to be more effective and less costly than the products developed or being developed by us. Our competitors may obtain regulatory approval for their products more rapidly than we do which may change the standard of care in the indications we are targeting, rendering our technology or products non-competitive. For example, with the recent approval of immunotherapy agents for the treatment of NSCLC and other cancers, the standard of care for the treatment of cancer is evolving and will continue to evolve which could require us to change the design and timelines for our registration trials and may limit the commercial acceptance of our products in the future. Others may develop treatments or cures superior to any therapy we are developing or will develop. Moreover, alternate, less toxic forms of medical treatment may be developed which may be competitive with our products.
Many of the organizations which could be considered to be our competitors have substantially more financial and technical resources, more extensive discovery research, preclinical research and development capabilities and greater manufacturing, marketing, distribution, production and human resources than we do. Many of our current or potential competitors have more experience than we do in research, preclinical testing and clinical trials, drug commercialization, manufacturing and marketing, and in obtaining domestic and foreign regulatory approvals. In addition, failure, unacceptable toxicity, lack of sales or disappointing sales or other issues regarding competitors’ products or processes could have a material adverse effect on our product candidates, including our clinical candidates or our lead compounds. Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and brand recognition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA, EMA, or other regulatory approval or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved product label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial, or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:
•regulatory authorities may withdraw approvals of such product;
•regulatory authorities may require additional warnings on the product label;
•we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
•we could be sued and held liable for harm caused to patients; and
•our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of any product candidate, if approved, and could significantly harm our business, results of operations and prospects.
We are subject to competition for our skilled personnel and may experience challenges in identifying and retaining key personnel that could impair our ability to conduct our operations effectively.
Our future success depends on our ability to retain our executive officers and to attract, retain and motivate qualified personnel. If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy. Although we have not experienced problems attracting and retaining highly qualified personnel in the recent past, our industry has experienced a high rate of turnover of management personnel in recent years. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, whose services are critical to the successful implementation of our product candidates, development and regulatory strategies, as well as the management of our financial operations. We are not aware of any present intention of any of these personnel to leave our Company. In order to induce valuable employees to continue their employment with us, we have provided equity awards that vest over time. The value to employees of equity awards that vest over time is significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.
Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could harm our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel.
We will continue to experience growth in the number of our employees and the scope of our operations. This growth will place a significant strain on our management, operations and financial resources and we may have difficulty managing this future potential growth. No assurance can be provided that we will be able to attract new employees to assist in our growth. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. We also may employ consultants or part-time and contract employees. There can be no assurance that these individuals are retainable. While we have been able to attract and retain skilled and experienced personnel and consultants in the past, no assurance can be given that we will be able to do so in the future.
*We have attempted, and may in the future attempt, to obtain FDA approval of adagrasib, sitravatinib or other product candidates through the use of the accelerated approval pathway. If we are unable to obtain such approval, we may be required to await the completion of planned or ongoing clinical trials or conduct additional clinical trials, which could increase the expense of obtaining, and delay the receipt of, necessary approval. Even if we receive accelerated approval from the FDA, if our confirmatory trials do not verify clinical benefit, or if we do not comply with rigorous post-marketing requirements, the FDA may seek to withdraw accelerated approval.
Our NDA for adagrasib for the treatment of previously-treated KRASG12C-mutated NSCLC is being reviewed by FDA for accelerated approval. We may in the future seek accelerated approval for our one or more of our product candidates. Under the accelerated approval program, the FDA may grant accelerated approval to a product candidate designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. If such post-approval studies fail to confirm the drug’s clinical benefit, the FDA may withdraw its approval of the drug.
Prior to seeking accelerated approval for any of our product candidates, we intend to seek feedback from the FDA and will otherwise evaluate our ability to seek and receive accelerated approval. There can be no assurance that after our evaluation of the feedback and other factors we will decide to pursue or submit an NDA for accelerated approval. If we decide to submit an application for accelerated approval for our product candidates, there can be no assurance that such submission or application will be accepted or that review or approval will be granted on a timely basis, or at all. A failure to obtain accelerated approval would result in a longer time period to commercialization of such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.
If we or third parties are unable to successfully develop companion diagnostics for our product candidates, or experience significant delays in doing so, we may not achieve marketing approval or realize the full commercial potential of such product candidates.
A key part of our development strategy for our product candidates is to identify subsets of patients with specific types of tumors that express specific genetic markers. Identification of these patients will require the use and development of companion diagnostics. The FDA generally will either require approval or clearance of the diagnostic at the same time the FDA approves the therapeutic product, or as a post-marketing commitment at the time of the therapeutic product’s approval. We do not have experience or capabilities in developing or commercializing diagnostics and plan to rely in large part on third parties to perform these functions.
Companion diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as medical devices and will likely require separate regulatory approval prior to commercialization. If we or third parties are unable to successfully develop companion diagnostics for our product candidates, or experience delays in doing so:
•the development of these product candidates may be delayed because it may be difficult to identify patients for enrollment in our clinical trials in a timely manner;
•these product candidates may not receive marketing approval if their safe and effective use depends on a companion diagnostic; and
•we may not realize the full commercial potential of these product candidates that receive marketing approval if, among other reasons, we are unable to appropriately identify patients or types of tumors with the specific genetic alterations targeted by these product candidates.
Even if our product candidates and any associated companion diagnostics are approved for marketing, the need for companion diagnostics may slow or limit adoption of our product candidates. Although we believe genetic testing is becoming more prevalent in the diagnosis and treatment of cancer, our product candidates may be perceived negatively compared to alternative treatments that do not require the use of companion diagnostics, either due to the additional cost of the companion diagnostic or the need to complete additional procedures to identify genetic markers prior to administering our product candidates.
If any of these events were to occur, our business and growth prospects would be harmed, possibly materially.
Interim, topline and preliminary data from our clinical trials may change as more patient data become available, and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary, interim or topline data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change as patient enrollment and treatment continues and more patient data become available. Adverse differences between previous preliminary or interim data and future interim or final data could significantly harm our business prospects. We may also announce topline data following the completion of a preclinical study or clinical trial, which may be subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Preliminary, interim, or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the data we previously published. As a result, preliminary, interim, and topline data should be viewed with caution until the final data are available.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine to be material or otherwise appropriate information to include in our disclosure.
The timelines of our clinical trials may be impacted by numerous factors and any delays may adversely affect our ability to execute our current business strategy.
Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. We may experience delays in clinical trials at any stage of development and testing of our product candidates. Our planned clinical trials may not begin on time, have an effective design, enroll a sufficient number of subjects, or be completed on schedule, if at all.
Events which may result in a delay or unsuccessful completion of clinical trials include:
•inability to raise funding necessary to initiate or continue a trial;
•delays in obtaining regulatory approval to commence a trial;
•delays in reaching agreement with the FDA or other regulatory authorities on final trial design;
•imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;
•delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
•delays in obtaining required institutional review board approval at each site;
•delays in having subjects complete participation in a trial or return for post-treatment follow-up;
•delays caused by subjects dropping out of a trial due to side effects or otherwise;
•delays caused by or relating to the COVID-19 pandemic;
•clinical sites dropping out of a trial to the detriment of enrollment;
•time required to add new clinical sites; and
•delays by our contract manufacturers to produce and deliver a sufficient supply of clinical trial materials.
Furthermore, enrollment may depend on the availability of suitable companion diagnostics to identify genetic markers we are targeting and the capability and willingness of clinical sites to conduct genetic screening of potential patients.
If initiation or completion of any of our clinical trials for our product candidates are delayed for any of the above reasons or for other reasons, our development costs may increase, our approval process could be delayed, any periods after commercial launch and before expiration of patent protection may be reduced and our competitors may have more time to bring products to market before we do. Any of these events could impair the commercial potential of our product candidates and could have a material adverse effect on our business.
If we experience delays or difficulties in the enrollment of patients in clinical trials, those clinical trials could take longer than expected to complete and our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or complete clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials. In particular, because we are focused on patients with specific genetic alterations in some of our trials, our pool of suitable patients may be smaller and more selective and our ability to enroll a sufficient number of suitable patients may be limited or take longer than anticipated. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications, including NSCLC, where we are
studying adagrasib in monotherapy and in combination with other anticancer therapies, and sitravatinib in combination with checkpoint inhibitors, or target the same genetic alterations as our product candidates. Therefore, patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.
Patient enrollment for any of our clinical trials may also be affected by other factors, including without limitation:
•the severity of the disease under investigation
•the frequency of the genetic alteration we are seeking to target in the applicable trial, and the ability to effectively identify such alteration;
•the willingness of clinical sites and principal investigators to subject candidate patients to genetic screening;
•the eligibility criteria for the study in question;
•the perceived risks and benefits of the product candidate under study;
•the availability, effectiveness and safety of other treatment options;
•the patient referral practices of physicians;
•the ability to monitor patients adequately during and after treatment; and
•the proximity and availability of a sufficient number of clinical trial sites that are willing to comply with the requirements of our clinical protocols.
For example, due to the targeted indications and patient populations we intend to focus on for development of our product candidates, the number of study sites and patient populations available to us may be limited, and therefore enrollment of suitable patients to participate in clinical trials for these product candidates may take longer than would be the case if we were pursuing broader indications or patient populations.
We are and continue to be subject to stringent government regulations concerning the clinical testing of our products. We will also continue to be subject to government regulation of any product that receives regulatory approval.
Numerous statutes and regulations govern human testing and the manufacture and sale of human therapeutic products in the United States, EEA, UK and other countries where we intend to market our products. Such legislation and regulation bears upon, among other things, the approval of trial protocols and human testing, the approval of manufacturing facilities, testing procedures, CMC and controlled research, the review and approval of manufacturing, preclinical and clinical data prior to marketing approval, including adherence to GMP during production and storage, and marketing activities including advertising and labeling.
Clinical trials may be delayed or suspended at any time by us or by the FDA or other similar regulatory authorities if it is determined at any time that patients may be or are being exposed to unacceptable health risks, including the risk of death, or if compounds are not manufactured under acceptable GMP conditions or with acceptable quality. Current regulations relating to regulatory approval may change or become more stringent. The agencies may also require additional trials be run in order to provide additional information regarding the safety, efficacy or equivalency of any product candidate for which we seek regulatory approval.
Moreover, any regulatory approval of a drug which is eventually obtained may entail limitations on the indicated uses for which that drug may be marketed or on the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with GMPs and GCPs for any clinical trials that we conduct post-approval. In addition, if the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. For example, prescription drugs may be promoted only for the approved indications in accordance with the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. However, physicians may, in their independent medical judgment, prescribe legally
available products for off-label uses. The FDA does not regulate the behavior of physicians in their choice of treatments, but the FDA does restrict manufacturer’s communications on the subject of off-label use of their products. Furthermore, product approvals may be withdrawn or limited in some way if problems occur following initial marketing or if compliance with regulatory standards is not maintained. Similar restrictions are imposed in foreign markets. Regulatory agencies could become more risk averse to any side effects or set higher standards of safety and efficacy prior to reviewing or approving a product. This could result in a product not being approved.
If we, or any future marketing collaborators or contract manufacturers, fail to comply with applicable regulatory requirements, we may be subject to sanctions including fines, product recalls or seizures and related publicity requirements, injunctions, total or partial suspension of production, civil penalties, suspension or withdrawals of previously granted regulatory approvals, warning or untitled letters, refusal to approve pending applications for marketing approval of new products or of supplements to approved applications, import or export bans or restrictions, and criminal prosecution and penalties. Any of these penalties could delay or prevent the promotion, marketing or sale of our products and product candidates.
The FDA’s policies, and policies of comparable foreign regulatory authorities, may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or to adopt new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
Breakthrough therapy designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive marketing approval.
We received breakthrough therapy designation for adagrasib for the treatment of patients with NSCLC with the KRAS G12C mutation following prior systemic therapy, and we may seek breakthrough therapy designation for future product candidates. A breakthrough therapy is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug, or biologic, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, sponsors may obtain more frequent interaction with and communication with the FDA to help to identify the most efficient path for clinical development.
The receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval and does not change the approval standards or assure ultimate approval by the FDA. In addition, the FDA may later decide that the product no longer meets the conditions for qualification. As such, there can be no assurance that even if we do receive breakthrough therapy designation, that such designation will have a material impact on our development program.
The failure to (i) maintain the BeiGene Agreement or the failure of BeiGene to perform its obligations under the BeiGene Agreement and/or (ii) maintain the Zai Agreement or the failure of Zai to perform its obligations under the Zai Agreement, could, in each case, negatively impact our business.
Pursuant to the terms of the BeiGene Agreement, we granted to BeiGene an exclusive license to develop, manufacture and commercialize sitravatinib in the BeiGene Licensed Territory. Consequently, our ability to generate any revenues from sitravatinib in the BeiGene Licensed Territory depends on our ability to maintain our collaboration with BeiGene. We have limited control over the amount and timing of resources that BeiGene will dedicate to these efforts.
Pursuant to the terms of the Zai Agreement, we granted Zai the right to research, develop, manufacture and exclusively commercialize adagrasib in the Zai Licensed Territory. Consequently, our ability to generate any revenues from adagrasib in the Zai Licensed Territory depends on our ability to maintain our collaboration with Zai. We have limited control over the amount and timing of resources that Zai will dedicate to these efforts.
We are subject to a number of other risks associated with our dependence on the BeiGene Agreement with respect to sitravatinib in the BeiGene Licensed Territory and the Zai Agreement with respect to adagrasib in the Zai Licensed Territory, including:
•BeiGene or Zai may not comply with applicable regulatory guidelines with respect to developing, manufacturing or commercializing sitravatinib or adagrasib, respectively, which could adversely impact sales or future development of
sitravatinib in or outside of the BeiGene Licensed Territory or adagrasib in or outside of the Zai Licensed Territory, respectively;
•There may be disputes between us and BeiGene or Zai, including disagreements regarding the BeiGene Agreement or the Zai Agreement, respectively; and
•BeiGene or Zai may not properly defend our intellectual property rights, or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential litigation.
Each of the BeiGene Agreement and Zai Agreement are also subject to early termination, including through BeiGene’s and Zai’s (as applicable) right to terminate without cause upon advance notice to us. If the agreement is terminated early, we may not be able to find another collaborator for the further development and commercialization of (i) with respect to BeiGene, sitravatinib in the BeiGene Licensed Territory and/or (ii) with respect to Zai, adagrasib in the Zai Licensed Territory, in each case on acceptable