10-Q 1 mrtx-20210930.htm 10-Q mrtx-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2021
 
or
 
                 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)
______________________________________________________
Delaware46-2693615
(State of Incorporation)(I.R.S. Employer Identification No.)
3545 Cray Court,San Diego,California92121
(Address of Principal Executive Offices)(Zip Code)
(858) 332-3410
(Registrant’s Telephone Number, Including Area Code)
______________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.001 per shareMRTXThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 November 5, 2021, there were 51,816,462 total shares of common stock outstanding.


MIRATI THERAPEUTICS, INC.
FORM 10-Q
 
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
   
 
 
 
 
   
PART II. OTHER INFORMATION
   
   
SIGNATURES

i

PART I. FINANCIAL INFORMATION
ITEM 1.
Financial Statements
MIRATI THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share amounts)
 September 30,
2021
December 31,
2020
(Unaudited)
ASSETS  
Current assets  
Cash and cash equivalents$242,624 $885,562 
Short-term investments911,794 504,544 
Other current assets17,476 13,537 
Total current assets1,171,894 1,403,643 
Property and equipment, net13,736 7,809 
Long-term investment11,253 15,629 
Right-of-use asset38,172 39,890 
Other long-term assets18,375 9,157 
Total assets$1,253,430 $1,476,128 
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Current liabilities  
Accounts payable$42,923 $18,117 
Accrued liabilities79,156 53,355 
Total current liabilities122,079 71,472 
Lease liability45,520 41,905 
Other liabilities1,806 1,962 
Total liabilities169,405 115,339 
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 September 30, 2021 and December 31, 2020
  
Common stock, $0.001 par value; 100,000,000 shares authorized; 51,767,083 and 50,439,069 issued and outstanding at September 30, 2021 and December 31, 2020, respectively
52 50 
Additional paid-in capital2,586,780 2,481,218 
Accumulated other comprehensive income9,595 9,759 
Accumulated deficit(1,512,402)(1,130,238)
Total shareholders’ equity1,084,025 1,360,789 
Total liabilities and shareholders’ equity$1,253,430 $1,476,128 
See accompanying notes

1

MIRATI THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, in thousands, except for share and per share amounts)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Revenue  
License and collaboration revenues$71,793 $11,424 $71,793 $11,690 
Total revenue71,793 11,424 71,793 11,690 
Expenses    
Research and development116,109 79,853 354,755 216,644 
General and administrative35,183 20,249 93,144 58,074 
Total operating expenses151,292 100,102 447,899 274,718 
Loss from operations(79,499)(88,678)(376,106)(263,028)
Other income (expense), net2,744 1,342 (2,759)6,178 
Loss before income taxes(76,755)(87,336)(378,865)(256,850)
Income tax expense3,299  3,299  
Net loss$(80,054)$(87,336)$(382,164)$(256,850)
Unrealized (loss) gain on available-for-sale investments(6)(827)(164)568 
Comprehensive loss$(80,060)$(88,163)$(382,328)$(256,282)
Net loss per share, basic and diluted$(1.55)$(1.96)$(7.45)$(5.87)
Weighted average common shares outstanding, basic and diluted51,655,25944,614,22651,305,54743,778,607


See accompanying notes

2

MIRATI THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited, in thousands, except share data)
Three Months Ended September 30, 2021
 Common StockAdditional
paid-in
capital
Accumulated
other
comprehensive
income
Accumulated
deficit
Total
shareholders’
equity
 SharesAmount
Balance at June 30, 202151,608,944 $52 $2,551,615 $9,601 $(1,432,348)$1,128,920 
Net loss for the period
— — — — (80,054)(80,054)
Share-based compensation expense
— — 26,933 — — 26,933 
Issuance of common stock under equity incentive plans
158,139 — 8,232 — — 8,232 
Unrealized loss on investments— — — (6)— (6)
Balance at September 30, 202151,767,083 $52 $2,586,780 $9,595 $(1,512,402)$1,084,025 

Three Months Ended September 30, 2020
 Common StockAdditional
paid-in
capital
Accumulated
other
comprehensive
income
Accumulated
deficit
Total
shareholders’
equity
 SharesAmount
Balance at June 30, 202044,482,308 $45 $1,535,490 $11,284 $(941,815)$605,004 
Net loss for the period
— — — — (87,336)(87,336)
Share-based compensation expense
— — 21,751 — — 21,751 
Issuance of common stock under equity incentive plans
272,158 — 12,351 — — 12,351 
Unrealized loss on investments— — — (827)— (827)
Balance at September 30, 202044,754,466 $45 $1,569,592 $10,457 $(1,029,151)$550,943 


See accompanying notes
3

MIRATI THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited, in thousands, except share data)
Nine Months Ended September 30, 2021
 Common StockAdditional
paid-in
capital
Accumulated
other
comprehensive
income
Accumulated
deficit
Total
shareholders’
equity
 SharesAmount
Balance at December 31, 202050,439,069 $50 $2,481,218 $9,759 $(1,130,238)$1,360,789 
Net loss for the period
— — — — (382,164)(382,164)
Share-based compensation expense
— — 79,624 — — 79,624 
Issuance of common stock from ESPP
9,029 — 1,214 — — 1,214 
Issuance of common stock under equity incentive plans
695,171 1 24,725 — — 24,726 
Net exercise of warrants
623,814 1 (1)— —  
Unrealized loss on investments— — — (164)— (164)
Balance at September 30, 202151,767,083 $52 $2,586,780 $9,595 $(1,512,402)$1,084,025 

Nine Months Ended September 30, 2020
 Common StockAdditional
paid-in
capital
Accumulated
other
comprehensive
income
Accumulated
deficit
Total
shareholders'
equity
 SharesAmount
Balance at December 31, 201939,517,329 $40 $1,144,667 $9,889 $(772,301)$382,295 
Net loss for the period
— — — — (256,850)(256,850)
Issuance of common stock, net of issuance costs
3,538,462 4 324,014 — — 324,018 
Share-based compensation expense
— — 64,104 — — 64,104 
Issuance of common stock from ESPP
6,207 — 524 — — 524 
Issuance of common stock under equity incentive plans
1,092,468 1 36,283 — — 36,284 
Net exercise of warrants
600,000 — — — — — 
Unrealized gain on investments
— — — 568 — 568 
Balance at September 30, 202044,754,466 $45 $1,569,592 $10,457 $(1,029,151)$550,943 


See accompanying notes
4

MIRATI THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Nine Months Ended September 30,
 20212020
Operating activities:  
Net loss $(382,164)$(256,850)
Non-cash adjustments reconciling net loss to operating cash flows:  
Non-cash consideration earned from license agreement (11,424)
Change in fair value of long-term investment4,376 24 
Depreciation of property and equipment1,219 435 
Amortization of premium and accretion of discounts on investments3,503 (877)
Share-based compensation expense79,624 64,104 
Changes in operating assets and liabilities:  
Other current assets(3,939)(6,985)
Other long-term assets(9,218)(871)
Right-of-use asset1,718 28 
Lease liability3,927 (98)
Accounts payable, accrued liabilities, deferred revenue and other liabilities50,139 17,404 
Cash flows used in operating activities(250,815)(195,110)
Investing activities:  
Purchases of short-term investments(1,059,140)(456,608)
Sales and maturities of short-term investments648,223 378,952 
Purchases of property and equipment(7,146)(2,861)
Cash flows used in investing activities(418,063)(80,517)
Financing activities:  
Proceeds from issuance of common stock, net of issuance costs 324,018 
Proceeds from issuance of common stock under equity incentive plans24,726 36,283 
Proceeds from stock issuances under employee stock purchase plan1,214 524 
Cash flows provided by financing activities25,940 360,825 
(Decrease) increase in cash, cash equivalents and restricted cash(642,938)85,198 
Cash, cash equivalents and restricted cash, beginning of period886,182 46,856 
Cash, cash equivalents and restricted cash, end of period$243,244 $132,054 
Reconciliation of cash, cash equivalents and restricted cash, end of period:
Cash and cash equivalents$242,624 $131,434 
Restricted cash included in other long-term assets620 620 
Total cash, cash equivalents and restricted cash$243,244 $132,054 
Supplemental disclosures of non-cash investing activities:
Purchases of property and equipment included within accounts payable and accrued liabilities$279 $1,662 

See accompanying notes

5

MIRATI THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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, in each case 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, 2020 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, 2020.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements 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 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
6

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.

Revenue Recognition

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.

Leases

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 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 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 common share is calculated by dividing 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.

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 September 30,Nine Months Ended September 30,
2021202020212020
Common stock options2,244,669 2,415,979 2,445,016 2,262,174 
Common stock warrants7,605,764 9,092,807 7,749,909 9,451,913 
Unvested restricted stock units658,971 398,263 597,542 314,588 
Total10,509,404 11,907,049 10,792,467 12,028,675 
7


Recently Adopted and Recently Issued 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.

3. Investments

The following tables summarize the Company’s short-term investments (in thousands):
As of September 30, 2021
MaturityAmortized costGross unrealized gainsGross unrealized lossesEstimated fair value
Corporate debt securities
2 years or less
$215,349 $18 $(41)$215,326 
Commercial paper
1 year or less
528,373 81 (1)528,453 
U.S. Agency bonds
1 year or less
75,244 9 (1)75,252 
U.S. Treasury bills
2 years or less
83,723 22 (10)83,735 
Sovereign debt securities
1 year or less
9,030  (2)9,028 
$911,719 $130 $(55)$911,794 

As of December 31, 2020
MaturityAmortized costGross unrealized gainsGross unrealized lossesEstimated fair value
Corporate debt securities
2 years or less
$130,814 $160 $(4)$130,970 
Commercial paper
1 year or less
240,725 58 (18)240,765 
U.S. Agency bonds
2 years or less
83,227 37 (1)83,263 
U.S. Treasury bills
2 years or less
49,539 10 (3)49,546 
$504,305 $265 $(26)$504,544 

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, carries these investments at fair value. As of September 30, 2021, and December 31, 2020, aggregated gross unrealized losses of available-for-sale investments were not material, and accordingly, no allowance for credit losses was recorded.

As of September 30, 2021 and December 31, 2020, the Company held 588,235 shares of ORIC Pharmaceuticals, Inc. (“ORIC”) common stock subject to certain transfer restrictions. The shares held by the Company are measured at fair value at each reporting period based on the closing price of ORIC’s common stock on the last trading day of each reporting period, adjusted for a discount for lack of marketability, with any unrealized gains and losses recorded in other income (expense), net on the Company’s condensed consolidated statements of operations and comprehensive loss. 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:
 
8

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):
September 30, 2021
TotalLevel 1Level 2Level 3
Assets
Cash and cash equivalents:
Cash
$65,842 $65,842 $ $ 
Money market funds
176,782 176,782   
Total cash and cash equivalents242,624 242,624   
Short-term investments:
U.S. Treasury bills
83,735 83,735   
Corporate debt securities
215,326  215,326  
Commercial paper
528,453  528,453  
U.S. Agency bonds
75,252  75,252  
Sovereign debt securities9,028  9,028  
Total short-term investments
911,794 83,735 828,059  
Long-term investment:
ORIC Pharmaceuticals, Inc.11,253   11,253 
Total
$1,165,671 $326,359 $828,059 $11,253 


December 31, 2020
TotalLevel 1Level 2Level 3
Assets
Cash and cash equivalents:
Cash
$20,398 $20,398 $ $ 
Money market funds
865,164 865,164   
Total cash and cash equivalents885,562 885,562   
Short-term investments:
U.S. Treasury bills
49,546 49,546   
Corporate debt securities
130,970  130,970  
Commercial paper
240,765  240,765  
U.S. Agency bonds
83,263  83,263  
Total short-term investments504,544 49,546 454,998  
Long-term investment:
ORIC Pharmaceuticals, Inc.15,629   15,629 
Total
$1,405,735 $935,108 $454,998 $15,629 
9

    
The Company’s investments in Level 1 assets are valued based on publicly available quoted market prices for identical securities as of September 30, 2021 and December 31, 2020. 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. As of September 30, 2021, the Level 3 fair value measurement of the Company’s long-term investment in ORIC, which the Company acquired as an investment in 2020, utilizes a combination of the Asian Protective Put Option and Finnerty Put Option fair value techniques with unobservable inputs of 68.0% volatility and an expected term of 0.3 years to determine the discount for lack of marketability of 8.5%. There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2021 or the year ended December 31, 2020.

The following table presents the changes in estimated fair value of the Company’s asset measured using significant unobservable inputs (Level 3) (in thousands):

September 30,
2021
Balance - December 31, 2020$15,629 
Change in fair value(4,376)
Balance - September 30, 2021$11,253 

5. Other Current Assets and Other Long-Term Assets

Other current assets consisted of the following (in thousands):
September 30,
2021
December 31,
2020
Prepaid expenses13,173 8,158 
Deposits and other receivables2,346 3,075 
Interest receivable1,957 2,304 
$17,476 $13,537 

The other long-term assets balance of $18.4 million as of September 30, 2021 consisted of $17.8 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. The other long-term assets balance of $9.2 million as of December 31, 2020 consisted of $8.6 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):
 September 30,
2021
December 31,
2020
Accrued clinical expense18,956 19,221 
Accrued manufacturing expense27,988 13,019 
Accrued development expense9,103 5,439 
Accrued compensation and benefits16,763 13,964 
Other accrued expenses6,346 1,712 
$79,156 $53,355 

The other liabilities balance of $1.8 million as of September 30, 2021, and $2.0 million as of December 31, 2020, consisted primarily of clinical trial-related liabilities.


10

7. License and Collaboration Agreements

BeiGene Agreement

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 to the Company royalties at tiered percentage rates ranging from mid-single digits to 20% 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.

Revenue Recognition
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. The Company recognized $0.1 million as license and collaboration revenues related to this performance obligation for the three months ended September 30, 2021. No revenue was recognized for the three months ended September 30, 2020. The Company recognized $0.1 million and $0.3 million as license and collaboration revenues for this performance obligation for the nine months ended September 30, 2021 and 2020, respectively, consisting of cost-sharing payments due from BeiGene.
11


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. The Company earned a $5.0 million milestone payment related to the initiation of the first pivotal clinical trial in the BeiGene Licensed Territory during the three and nine months ended September 30, 2021. No milestone payments were earned during the three and nine months ended September 30, 2020. 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 and nine months ended September 30, 2021 or 2020.

Pfizer Agreement

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 September 30, 2021.

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.

For the three months ended September 30, 2021, the Company did not incur expenses under these agreements. For the three months ended September 30, 2020, the Company incurred expenses under these agreements with Pfizer of $0.3 million relating to a milestone payment for initiation of the first regulatory toxicology study for MRTX1133. For the nine months ended September 30, 2021, the Company incurred expenses under these agreements of $5.0 million related to initiation of the first Phase 3 trial for adagrasib. For the nine months ended September 30, 2020, the Company incurred expenses of $4.8 million, consisting of a $3.0 million milestone payment for initiation of the first Phase 2 trial for adagrasib, a $0.3 million milestone payment for initiation of the first regulatory toxicology study for MRTX1133, and $1.5 million in research and development services.

12

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 is 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.

Revenue Recognition

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 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) income, net on the condensed consolidated statements of operations and comprehensive loss. The value of the long-term investment is determined by utilizing a Level 3 fair value measurement as further described in Note 4.

Zai Agreement

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
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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.

Revenue Recognition
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, therefore, the Company recognized revenue 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. No revenue related to this performance obligation was recognized for the three and nine months ended September 30, 2021. 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. 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 and nine months ended September 30, 2021.


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8. Warrants

As of September 30, 2021, the following warrants for common stock were issued and outstanding:
Issue dateExpiration dateExercise priceNumber of warrants outstanding
January 11, 2017None$0.001 3,578,036 
November 20, 2017None$0.001 3,669,360 
June 11, 2018None$0.001 358,415 
7,605,811 

During the three months ended September 30, 2021, no warrants were exercised. During the nine months ended September 30, 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. During the three months ended September 30, 2020, no warrants were exercised. During the nine months ended September 30, 2020, 600,006 warrants for shares of the Company’s common stock were exercised via cashless exercise, resulting in the issuance of 600,000 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 new 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 has 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 September 30, 2021, the condensed consolidated balance sheet includes an operating right-of-use asset of $38.2 million and a total operating lease liability of $45.8 million, of which $0.3 million is current lease liability and included in other accrued expenses, and $45.5 million is included in non-current lease liability. As of December 31, 2020, the consolidated balance sheet includes an operating right-of-use asset of $39.9 million and an operating lease liability of $41.9 million. For the three and nine months ended September 30, 2021, the Company recorded $1.9 million and $5.9 million in operating lease expense, respectively.

As of September 30, 2021, the approximate future minimum lease payments under the Amended and Restated Lease are as follows (in thousands):
Operating Lease
2021 - remainder$ 
20221,681 
20237,844 
20248,080 
20258,322 
Thereafter68,257 
Total operating lease payments(†)
94,184 
Less: Amount representing interest(48,353)
Total lease liability$45,831 
____________________
The Company has an early termination right 7 years into the lease term, in which the total contractual obligation would be reduced by $41.1 million.

On June 24, 2014, the Company entered into a lease agreement for completed 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
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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. For the three and nine months ended September 30, 2020, the Company recorded less than $0.1 million and $0.2 million in operating lease cost, respectively. This lease was terminated in July 2021.

10. Shareholders Equity

Sale of Common Stock    

In October 2020, the Company sold 4,585,706 shares of its common stock at a public offering price of $202.00 per share. After deducting underwriter discounts, commissions and estimated offering expenses, the Company received net proceeds from the transaction of $879.6 million.

In January 2020, the Company sold 3,538,462 shares of its common stock at a public offering price of $97.50 per share. After deducting underwriter discounts, commissions and offering expenses, the Company received net proceeds from the transaction of $324.0 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 September 30, 2021, the Company has not offered or sold any shares of common stock pursuant to this sales agreement.

Share-based Compensation

Total share-based compensation expense by statement of operations and comprehensive loss classification is presented below (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Research and development expense$15,701 $12,556 $46,704 $35,861 
General and administrative expense11,232 9,195 32,920 28,243 
$26,933 $21,751 $79,624 $64,104 
    
During the three and nine months ended September 30, 2021, 158,139 and 695,171 shares of common stock were issued under the Company’s equity incentive plans, generating net proceeds of $8.2 million and $24.7 million, respectively. During the three and nine months ended September 30, 2020, 272,158 and 1,092,468 shares of common stock were issued under the Company’s equity incentive plans, generating net proceeds of $12.4 million and $36.3 million, respectively.
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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, 2020 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. 

Overview

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 preclinical 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.
    
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Adagrasib, a selective KRAS G12C inhibitor
    
Adagrasib, our lead KRAS G12C compound, is an investigational, selective, specific, potent and orally available KRAS G12C inhibitor. 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, on January 15, 2019, we announced that we had dosed the first patient in the dose escalation phase of a Phase 1/2 clinical trial in patients with advanced solid tumors that harbor KRAS G12C mutations. Following single agent dose escalation, we have expanded into cohorts that include patients with NSCLC, CRC and those with other tumors that carry the KRAS G12C mutation. On June 24, 2021 we announced that the FDA has granted Breakthrough Therapy Designation to adagrasib as a potential monotherapy treatment for patients with NSCLC who harbor the KRAS G12C mutation following prior systemic therapy. The FDA will review our New Drug Application for adagrasib for the treatment of patients with previously treated KRASG12C-mutated NSCLC who have received prior systemic therapy under the Real-Time Oncology Review pilot program. The Phase 1/2 trial also enables exploratory combination cohorts, including 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 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 a Phase 1/2 clinical trial evaluating the combination of adagrasib and a SOS1 inhibitor (BI 1701963) in patients with advanced NSCLC.

In the fourth quarter of 2021, we announced preliminary results from the Phase 1b cohort of the clinical trial evaluating the combination of adagrasib and a PD-1 inhibitor (pembrolizumab) in 8 patients with KRAS G12C-mutated first-line NSCLC which support moving forward with a 400mg twice daily dose (“BID”) of adagrasib with full dose pembrolizumab, which will be 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 7 patients evaluable for a response as of October 21, 2021, 4 had a confirmed RECIST-defined partial response and 1 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 7 patients exhibiting tumor regression ranging from 37% to 92%. With a median follow up of 9.9 months, 5 of the 7 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 analysis was completed in the intent-to-treat population of the registration enabling cohort of the Phase 1/2 clinical trial evaluating adagrasib at 600mg twice daily dose (“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 fourth quarter of 2021, we amended 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 is evaluating adagrasib as a monotherapy randomized against docetaxel in patients with 2nd line NSCLC. The second clinical trial 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 a cohort of the Phase 1/2 clinical trial evaluating adagrasib at 600 mg 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
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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 Phase 1/2 clinical trial evaluating adagrasib at 600 mg 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 600 mg 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 Novartis Pharmaceuticals Corporation (“Novartis”)

In July 2019, we announced a clinical collaboration agreement with Novartis to evaluate the combination of adagrasib and Novartis’ investigational SHP2 inhibitor, TNO155, in patients with advanced solid tumors that harbor KRAS G12C mutations. Under the terms of the non-exclusive collaboration, we will sponsor the trial and we and Novartis will jointly oversee and share the costs of clinical development activities for the combined therapy. Novartis will provide TNO155 at no cost. This clinical trial is currently active.

Adagrasib Development in Collaboration with Boehringer Ingelheim International GmbH (“BII”)
In September 2020, we announced a clinical collaboration agreement with BII to evaluate the combination of adagrasib and BII’s investigational SOS1 inhibitor, BI 1701963, in patients with advanced solid tumors that harbor KRAS G12C mutations. Under the terms of the non-exclusive collaboration, we will sponsor the trial and we and BII will jointly oversee and share the costs of clinical development activities for the combined therapy. BII will provide BI 1701963 at no cost. The clinical trial is currently active.

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.

Adagrasib Development in Collaboration with Sanofi S.A. (“Sanofi”)

In October 2021, we announced a clinical collaboration agreement with Sanofi to evaluate the combination of adagrasib and Sanofi’s investigational SHP2 inhibitor, SAR442720, in patients with advanced solid tumors that harbor KRAS G12C mutations. Under the terms of the non-exclusive collaboration, Sanofi will sponsor the trial and we and Sanofi will jointly oversee and share the costs of clinical development activities for the combined therapy. Sanofi will provide SAR442720 at no cost.

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. 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.

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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.

Adagrasib and MRTX1133 Discovery Collaboration with Pfizer Inc. (“Pfizer”)

In October 2014, we entered into a drug discovery collaboration and option agreement with Array BioPharma, Inc. (“Array,” acquired by 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 such compounds.

Under the agreements, following the joint discovery periods which have concluded, we executed our options to retain exclusive worldwide licenses to develop, manufacture and commercialize inhibitors of KRAS G12C and KRAS G12D, including but not limited to, adagrasib and MRTX1133. Under each agreement, Pfizer is entitled to potential development milestone payments of up to $9.3 million, 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 September 30, 2021.
    
Sitravatinib

Sitravatinib is a spectrum-selective kinase inhibitor designed to potently inhibit RTKs, 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. 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.

Sitravatinib in Combination with Nivolumab

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. We are enrolling an ongoing 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
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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 PRMT5 inhibitor

MRTX1719, our lead synthetic lethal PRMT5 compound, has been identified as a clinical development candidate and is an investigational, selective, potent and orally available inhibitor targeting the PRMT5/MTA complex in methylthioadenosine phosphorylase (MTAP)-deleted cancers. 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.

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, 2020.

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Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2021 and 2020
The following table summarizes the significant items within our results of operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended
September 30,
IncreaseNine Months Ended
September 30,
Increase
 20212020(Decrease)20212020(Decrease)
License and collaboration revenues$71,793 $11,424 $60,369 $71,793 $11,690 $60,103 
Research and development expenses$116,109 $79,853 $36,256 $354,755 $216,644 $138,111 
General and administrative expenses