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MRTX > SEC Filings for MRTX > Form 10-Q on 13-Aug-2013All Recent SEC Filings

Show all filings for MIRATI THERAPEUTICS, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MIRATI THERAPEUTICS, INC.


13-Aug-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Except for the historical information herein, the following discussion and analysis in this quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future events or conditions. These statements are not guarantees of future performance or events. Our actual results may differ materially from those discussed here. Factors that could cause or contribute to differences in our actual results include those discussed under the caption "Risk Factors," as well as those discussed elsewhere in this quarterly report on Form 10-Q or in our other public disclosures. You should consider carefully those cautionary factors, together with all of the other information included in this quarterly report on Form 10-Q. Each of the cautionary factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock. There may be additional risks that we are not presently aware of or that we currently believe are immaterial which could also impair our business and financial position. We disclaim any obligation to update any forward-looking statements except as required by law.

We were incorporated under the laws of the State of Delaware on April 29, 2013. Our common shares are listed on the NASDAQ Capital Market since July 15, 2013 under the ticker symbol "MRTX". On May 8, 2013, our Board of Directors approved and we entered into an arrangement agreement with MethylGene Inc. ("MethylGene"). Pursuant to the terms and conditions of the arrangement agreement which was consummated on June 28, 2013, the shareholders of MethylGene received one share of our common stock for every 50 common shares of MethylGene , which had the effect of a 50-for-1 reverse split of the common shares pursuant to a court-approved plan of arrangement under Section 192 of the Canada Business Corporations Act. Such transaction is referred to herein as the Arrangement. In addition, all outstanding options and warrants to purchase common shares of MethylGene became exercisable on a 50-for-1 basis for shares of our common stock, and a proportionate adjustment was made to the exercise price. Upon consummation of the Arrangement on June 28, 2013, MethylGene became our wholly-owned subsidiary. As a result, the discussion contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations reflect the consolidated operations of MethylGene .

We are a holding company whose only asset is the stock of MethylGene . We conduct virtually all of our business operations through MethylGene and its wholly owned subsidiary, MethylGene US Inc.

Our historical functional currency was Canadian dollars as of December 31, 2012. Effective January 1, 2013, our functional currency became U.S. dollars. Our reporting currency is U.S. dollars and prior to January 1, 2013, for presentation purposes, assets and liabilities have been translated to U.S. dollars at exchange rates at the reporting date. Income and expenses have been translated to U.S. dollars at the average exchange rate for the period in which the transactions occurred. Equity transactions have been translated at the spot exchange rates on the date the transactions occurred. Exchange rate differences are recognized in a separate component of stockholders' equity titled accumulated other comprehensive income.

Overview

We are a biopharmaceutical company engaged in the development of novel therapeutics for the treatment of patients with cancer. Our common shares have been listed on the NASDAQ Capital Market since July 15, 2013 under the ticker symbol "MRTX". Our compounds result from internal chemistry efforts targeting the active sites of enzymes that are key drivers of tumor growth. Our clinical development programs are focused on targeted cancer patient populations with unmet medical need. Our kinase programs are being developed by treating cancer patients with selected tumor types that express high levels or key driver mutations of these targeted pathways in order to provide the greatest clinical benefit while minimizing side effects.

Our program in clinical development is MGCD265, a multi-targeted small molecule kinase inhibitor for treatment of oncology patients with solid tumors and we are evaluating opportunities for the potential initiation of further clinical development of mocetinostat, a spectrum-selective HDAC inhibitor for the treatment of patients with myelodysplastic syndrome or lymphoma. In addition, MGCD516 is a unique kinase inhibitor with a distinct target profile which is in preclinical development for the treatment of patients with non-small cell lung cancer and other solid tumors.

MGCD265 is in Phase 1 clinical development and we are evaluating opportunities to begin new studies with mocetinostat which is in Phase 2 clinical development. In addition, we have the opportunity to advance the preclinical product candidate MGCD516, into clinical development. We own all rights to MGCD265 and MGCD516. We have certain royalty and licensing arrangements pursuant to a partnership with Taiho Pharmaceutical Co. Ltd. covering mocetinostat in certain Asian territories and we own all rights to mocetinostat outside of those territories. In addition, we have partnerships with Otsuka Pharmaceutical Co. Ltd. and EnVivo Pharmaceuticals, Inc. for other pipeline programs.


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We have not generated any revenues from product sales. To date, we have funded our operations primarily through the sale of our common stock and through up-front payments, research funding and milestone payments from our collaboration arrangements.

We have incurred losses in each year since our inception. Our net losses were $12.2 million for the six months ended June 30, 2013, and $20.3 million and $9.8 million for 2012 and 2011, respectively. As of June 30, 2013 we had an accumulated deficit of $157.8 million. Substantially all of our operating losses resulted from expenses incurred in connection with our drug candidate development programs, our research activities and general and administrative costs associated with our operations.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. In the near term, we anticipate that our expenses will increase as we:

advance the ongoing clinical development of MDCD265 for the treatment of cancer patients with solid tumors;

evaluate opportunities for the potential further clinical development of mocetinostat for the treatment of patients with myelodysplastic syndromes and lymphoma;

evaluate opportunities for the potential clinical development of our preclinical programs, including MGCD516 a novel multi-targeted kinase inhibitor for the treatment of patients with solid tumors, including non small cell lung cancer;

          continue our translational science research efforts;

          maintain, expand and protect our intellectual property portfolio;;

          evaluate opportunities to expand our pipeline through partnerships or
collaborations; and

          provide general and administrative support for our operations.

To fund future operations we will need to raise additional capital. The amount and timing of future funding requirements will depend on several 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 assure you that 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.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's 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, revenues and expenses and related disclosures. On an ongoing basis, our actual results may differ significantly from our estimates.

There were no significant changes in critical accounting policies from those at December 31, 2012. The financial information as of June 30, 2013 should be read in conjunction with the financial statements for the year ended December 31, 2012, contained in our Registration Statement on Form 10 (No. 001-35921), originally filed with the SEC on May 10, 2013, as amended.

For a further discussion of our critical accounting policies, see "Item 2. Financial Information" under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Registration Statement on Form 10 (No. 001-35921), originally filed with the SEC on May 10, 2013, as amended.

Results of Operations



Comparison of the Three Months Ended June 30, 2013 and 2012



The following table summarizes our results of operations for the three months
ended June 30, 2013 and 2012 (in thousands):



                                            Three Months
                                           Ended June 30,       Increase
                                           2013      2012      (Decrease)
Research and development expenses, net   $  4,510   $ 3,652   $        858
General and administrative expenses         2,382     1,082          1,300
Other (loss)/income, net                   (1,079 )      70         (1,149 )


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Research and Development Expenses

Our research and development efforts have been focused on MGCD265 for oncology and MGCD290 for antifungal indications. In future periods, we intend to focus our research and development efforts on oncology, including MGCD265, mocetinostat and MGCD516. The following table summarizes our research and development expenses for the three months ended June 30, 2013 and 2012 (in thousands):

                                                    Three months ended June 30,
                                                     2013                2012
Third-party clinical development costs:
MGCD265                                         $         2,046     $         1,308
MGCD290                                                     166                 639
Mocetinostat                                                532                  18
MGCD516                                                     372                   -
Total third-party clinical development costs:             3,116               1,965
Internal clinical development costs                       1,132               1,107
Total clinical development                                4,248               3,072
Non-clinical research and development                       515                 671
Research and development, gross                           4,763               3,743
Less: Investment tax credits                               (253 )               (91 )
Research and development, net                             4,510     $         3,652

Net research and development expenses were $4.5 million for the three months ended June 30, 2013 compared to $3.7 million for the same period in 2012. The increase primarily reflects increased third-party clinical development costs due to ongoing formulation development for MGCD265 as we work to achieve the maximum tolerated dose as well as costs associated with the preparation for a potential study for mocetinostat in the fourth quarter of 2013, and costs associated with preparation for an Investigational New Drug application for MGCD516, being evaluated and planned for the first quarter of 2014. Partially offsetting these increases were reduced costs for MGCD290 which we are no longer actively pursuing internally and an increase in investment tax credits due to our higher level of investment in research and development activities.

General and Administrative Expenses

General and administrative expenses were $2.4 million for the three months ended June 30, 2013 compared to $1.1 million for the same period in 2012. The increase primarily reflects costs associated with the previously described arrangement agreement and subsequent listing on the NASDAQ Capital Market, which was effective on July 15, 2013.

Other (Expense)/ Income, Net

Other (expense)/income, net was a loss of $1.1 million for the three months ended June 30, 2013 compared to income of $70,000 for the same period in 2012. This increase primarily reflects a foreign exchange loss of $0.8 million as a result of transitioning to the U.S. dollar as the functional currency and a loss of $0.4 million due to the change in fair value of our warrant liability.

Comparison of the Six Months Ended June 30, 2013 and 2012



The following table summarizes the results of our operations for the six months
ended June 30, 2013 and 2012 (in thousands):



                                           Six Months Ended
                                               June 30,
                                            2013       2012      Increase

Research and development expenses, net   $    9,985   $ 5,856   $    4,129
General and administrative expenses           4,906     2,302        2,604
Other income, net                             2,722       138        2,584


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Research and Development Expenses

Our research and development efforts have been focused on MGCD265 for oncology and MGCD290 for antifungal indications. In future periods, we intend to focus our research and development efforts on oncology, including MGCD265. The following table summarizes our research and development expenses for the six months ended June 30, 2013 and 2012 (in thousands):

                                                  Six months ended June 30,
                                                    2013             2012
Third-party clinical development costs:
MGCD265                                         $       3,917    $       2,477
MGCD290                                                   998            1,174
Mocetinostat                                              615               32
MGCD516                                                   457                -
Total third-party clinical development costs:           5,987            3,683
Internal clinical development costs                     2,820            2,194
Total clinical development                              8,807            5,877
Non-clinical research and development                   1,660            1,374
Research and development, gross                        10,467            7,251
Less: Investment tax credits                             (482 )         (1,393 )
Research and development, net                   $       9,985    $       5,858

Net research and development expenses were $10.0 million for the six months ended June 30, 2013 compared to $5.9 million for the same period in 2012. The increase primarily reflects the same factors that influenced similar fluctuations in the three months ended June 30, 2013 discussed above as well as costs associated with management changes implemented in the first and second quarter of 2013 and a reduction in investment tax credits due to the fact the prior year included a favorable adjustment of prior year calculations subsequent to the completion of an audit by the provincial tax authority in Canada.

General and Administrative Expenses

General and administrative expenses were $4.9 million for the six months ended June 30, 2013 compared to $2.3 million for the same period in 2012. The increase primarily reflects the same factors that influenced similar fluctuations in the three months ended June 30, 2013 as well as costs associated with the plan of arrangement and management changes implemented in the first and second quarter of 2013.

Other Income, Net

Other income, net was $2.7 million for the six months ended June 30, 2013 compared to $0.1 million for the same period in 2012. The increase primarily reflects a gain of $4.0 million from the change in fair value of our warrant liability, partially offset by a foreign exchange loss of $1.4 million primarily due to the transition to the U.S. dollar as the functional currency.

Liquidity and Capital Resources

Since our inception, our operations have been primarily financed through public and private sales of our equity and payments received under our collaboration arrangements. Since inception, we have devoted our resources to funding research and development programs, including discovery research, preclinical and clinical development activities.

Going Concern

As of June 30, 2013, substantial doubt exists over our ability to continue as a going concern. We believe that our current cash and cash equivalents, marketable securities and restricted cash equivalents and marketable securities are sufficient to carry out our currently planned clinical development and operating plans into the second quarter of 2014, without considering potential future financing. Our cash and cash equivalents and marketable securities decreased by $16.7 million in the six months ended June 30, 2013, reflecting an average rate of negative cash flow per month of approximately $2.8 million. Excluding non-recurring costs associated with recent management changes and costs associated with the previously described Arrangement and listing on the NASDAQ Capital


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Market of $2.6 million, of which $1.4 million relate to the Arrangement and NASDAQ listing, our cash and cash equivalents, and marketable securities decreased by $14.1 million in the six months ended June 30, 2013 reflecting an average rate of negative cash flow per month of approximately $2.4 million. While our rate of future negative cash flow per month will vary due to the timing of expenses incurred and the programs that are funded, at the current rate of negative cash flow per month we believe that our current cash and cash equivalents and marketable securities will enable us to complete Phase 1 development of MCGD265, which if successful would enable us to enter Phase 2 development. Our future cash requirements could increase if we decide to expand our research and development efforts beyond the currently planned development of MCGD265.

We have incurred operating losses in each year since our inception and we expect to continue to incur operating losses into the foreseeable future as we advance the ongoing development of our lead product candidate MCGD265; evaluate opportunities for the potential initiation of further clinical development of mocetinostat; evaluate opportunities for the potential clinical development of our preclinical programs, including MGCD516, and continue our research efforts. To fund future operations we will 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. Additional financing may not be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our equity securities offerings, we may not be able to do so in the future. If we are not able to secure adequate additional financings we may be forced to make reductions in spending and/or liquidate assets where possible. Any of these actions could harm our business and our results of operations.

At June 30, 2013 we had $20.6 million of cash and cash equivalents, marketable securities, and restricted cash and marketable securities compared to $37.4 million at December 31, 2012.

Cash Flows for the Six Months Ended June 30, 2013 and 2012

Operating Activities

Cash used for operating activities for the six months ended June 30, 2013 was $16.5 million compared to $7.3 million for the same period in 2012. The increase relates primarily to the increased operating costs in the first six months of 2013, including non-recurring costs associated with the previously discussed plan of arrangement, the NASDAQ listing and recent management changes, compared to the same period in 2012 discussed above.

Investing Activities

Investing activities consist primarily of purchases, sales and maturities of marketable securities and purchases of property and equipment. Investing activities provided cash of $7.9 million and $5.4 million for the six months ended June 30, 2013 and 2012, respectively. We acquired $0.2 million of property and equipment in the six months ended June 30, 2013 compared to $0.1 million in the six months ended June 30, 2012. This increase reflects higher capital expenditures for information technology.

Financing Activities

Financing activities consist primarily of net proceeds from the sale of common stock and warrants and proceeds from the exercise of stock options and warrants. There were no financing activities for the six months ended June 30, 2013. We used $16,000 of cash for reorganization costs for the six months ended June 30, 2012.

As of June 30, 2013 and December 31, 2012 we had restricted cash equivalents and marketable securities of $0.4 million. We expect the restricted cash equivalents and marketable securities to reduce to $0.1 million by December 2013 related to letters of credit underlying the Company's corporate credit cards.

Off-Balance Sheet Arrangements

During the six months ended June 30, 2013, we did not have any off-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.


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