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MRTX > SEC Filings for MRTX > Form 10-Q on 12-Nov-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.


12-Nov-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.


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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

Company Overview

We are a clinical-stage biopharmaceutical company focused on developing a pipeline of targeted oncology products. We focus our development programs on drugs intended to treat specific subsets of cancer patients with unmet needs. Our pipeline consists of three product candidates: MGCD265, MGCD516 and mocetinostat. MGCD265 and MGCD516 are orally-bioavailable, multi-targeted kinase inhibitors with distinct target profiles that are in development to treat patients with non-small cell lung cancer, or NSCLC, and other solid tumors. MGCD265 is in Phase 1/2 clinical development and MGCD516 is in advanced preclinical development, with Phase 1 clinical development anticipated to begin in the first half of 2014. Mocetinostat is an orally-bioavailable, spectrum-selective histone deacetylase, or HDAC, inhibitor for the first line treatment of patients with myelodysplastic syndromes, or MDS, and potentially other indications. We are planning to initiate a Phase 3 clinical trial of mocetinostat in the second half of 2014 after obtaining a special protocol assessment, or SPA, from the FDA and subject to available funding or a partnership.

We believe that an increased understanding of the genomic factors that drive tumor cell growth can lead to the development of cancer drugs with increased efficacy while reducing side effects. We are leveraging this knowledge to develop targeted cancer therapies to address unmet needs in selected cancer patient populations. Our novel kinase inhibitors target specific mutations present only in cancer cells, and mocetinostat acts through epigenetic mechanisms important in treating certain cancers. We plan to identify additional opportunities by leveraging our deep scientific understanding of molecular drug targets and mechanisms of resistance and potentially in-licensing promising, early-stage novel drug candidates.

The following table summarizes key information about our three product candidates:

PRODUCT                                      COMMERCIAL        STAGE OF DEVELOPMENT AND
CANDIDATE       INDICATION      TARGETS        RIGHTS           ANTICIPATED MILESTONES
MGCD265        Solid Tumors    Met, Axl,       Mirati:           Initiate expansion       
                                 VEGFRs        Global      cohorts Q1 2014
                                                                  Initiate Phase 2 Q4 2014
MGCD516        Solid Tumors    RET, TRK,       Mirati:           Planned IND submission   
                              DDR, EphRs,      Global      and initiate Phase 1 1H 2014
                               Met, Axl,                          Initiate expansion
                                 VEGFRs                    cohorts Q4 2014
Mocetinostat       MDS           HDACs         Taiho:            Initiate dose            
                              1, 2, 3, 11      Certain     confirmation trial Q4 2013
                                                Asian             Obtain SPA for Phase 3
                                             Territories   1H 2014
                                             Mirati: All          Initiate Phase 3 2H 2014
                                                Other
                                             Territories

MGCD265 is an orally-bioavailable, potent, small molecule multi-targeted kinase inhibitor of Met, Axl and VEGFRs. MGCD265 is in development for the treatment of solid tumors, with an initial focus on NSCLC and squamous cell carcinoma of the head and neck, or HNSCC. We have conducted single agent and combination dose escalation trials in 252 patients, with acceptable tolerability and promising early signs of clinical efficacy in patients with advanced solid tumors who have failed standard therapies. Our preclinical studies, in a variety of in vivo tumor models, have suggested that MGCD265 has relatively low toxicity and appears more potent than some of the leading approved kinase inhibitors, including Nexavar, Sutent and Xalkori. We have developed new formulations of MGCD265 designed to increase plasma exposure, improve the degree of target inhibition and increase the likelihood of seeing single agent clinical activity. Assuming one or more of the new formulations achieve sufficient patient exposure in ongoing studies, we intend to select one of the new formulations for introduction into ongoing dose escalation trials with the goal of identifying the maximum tolerated dose, or MTD, by early 2014. Following identification of the MTD, we plan to initiate dose expansion cohorts in patients selected for certain biomarkers.


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MGCD516 is an orally-bioavailable, potent, small molecule multi-targeted kinase inhibitor of RET, TRK, DDR and EphRs, as well as Met, Axl and VEGFRs, in development for the treatment of solid tumors. We plan to focus on solid tumors expressing RET, TRK and DDR, initially in NSCLC, and we plan to evaluate other tumor types where the profile of MGCD516 would suggest activity. MGCD516 is in advanced preclinical development. We plan to file an investigational new drug application, or IND, with the U.S. Food and Drug Administration, or FDA, and initiate a Phase 1 clinical trial of this product candidate in the first half of 2014, and identify the MTD and initiate expansion cohorts in patients selected for certain biomarkers by the end of 2014.

Mocetinostat is an orally-bioavailable, spectrum-selective HDAC inhibitor for which we plan to conduct a dose confirmation trial starting in the fourth quarter of 2013, with the goal of initiating a Phase 3 clinical trial in the second half of 2014. We have completed 13 clinical trials which enrolled 437 patients with a variety of hematologic malignancies and solid tumors. We intend to seek a Special Protocol Assessment, or SPA, from the FDA prior to the initiation of our planned Phase 3 trial. This trial will evaluate mocetinostat for the first line treatment of patients with MDS in combination with Vidaza, a hypomethylating agent, or HMA. We believe that mocetinostat has the potential to be the first HDAC inhibitor to market for this indication.

Recent Developments

On October 1, 2013, we announced that we expect to terminate approximately 27 employees, or approximately 75% of our total workforce, in connection with the closure of our Montreal, Quebec and Princeton, New Jersey offices. The offices are being closed due to the consolidation of our operations to our San Diego facility. We plan to partially offset this reduction in force by hiring additional personnel in the San Diego facility and by engaging third-party services providers to perform certain functions. We expect the terminations and office closures to be substantially completed by March 31, 2014. We estimate that we will incur pre-tax charges of approximately $1.1 million relating to the office closures, consisting of approximately $0.9 million in one-time cash severance payments and related benefits, approximately $0.1 million in office closing costs, and approximately $0.1 million in asset impairment charges. We expect to recognize substantially all of the pre-tax charges by the first quarter of 2014. Approximately $1.1 million of these charges are expected to result in future cash expenditures. The numbers set forth above are estimates and may change as a result of a number of factors, including the timing of the terminations and office closures.

On October 29, 2013, we completed a public offering, or the Offering, of common stock for net proceeds of $53.0 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. We sold a total of 3,250,000 shares of common stock in the Offering at a purchase price to the public of $17.50 per share. The underwriters were granted an option, exercisable for 30 days, to purchase up to 487,500 additional shares of common stock. We expect that our current cash, cash equivalents and marketable securities, together with the net proceeds from the Offering, will sustain our operations through the end of 2015.


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Liquidity Overview

We have incurred losses in each year since our inception. Our net losses were $41.6 million for the nine months ended September 30, 2013, and $20.3 million and $9.8 million for the years ended December 31, 2012 and 2011, respectively. As of September 30, 2013 we had an accumulated deficit of $187.2 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.

To fund future operations we may need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot assure you that anticipated additional financing will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our equity securities offerings, there can be no assurance that we will be able to do so in the future.

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 September 30, 2013 should be read in conjunction with the financial statements for the year ended December 31, 2012, and the related notes thereto, 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 September 30, 2013 and 2012



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



                                              Three Months
                                           Ended September 30,      Increase
                                            2013          2012     (Decrease)
Research and development expenses, net   $     5,492    $  4,249   $     1,243
General and administrative expenses            3,710       1,717         1,993
Other (expense)/income, net                  (20,141 )        34       (20,175 )

Research and Development Expenses

Our research and development efforts have been focused on oncology, including MGCD265, MGCD516 and mocetinostat. The following table summarizes our research and development expenses for the three months ended September 30, 2013 and 2012 (in thousands):

                                                    Three months ended September 30,
                                                       2013                  2012
Third-party clinical development costs:
MGCD265                                          $           1,158                 1,911
MGCD290                                                        469                   796
Mocetinostat                                                   972                     7
MGCD516                                                        881                     -
Total third-party clinical development costs:                3,480                 2,714
Internal clinical development costs                            822                   632
Total clinical development                                   4,302                 3,346
Non-clinical research and development                        1,386                 1,039
Research and development, gross                              5,688                 4,385
Less: Investment tax credits                                  (196 )                (136 )

Research and development, net 5,492 $ 4,249


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Net research and development expenses were $5.5 million for the three months ended September 30, 2013 compared to $4.2 million for the same period in 2012. The increase primarily reflects increased costs associated with a dose confirmation clinical trial for mocetinostat planned to commence in the fourth quarter of 2013, and costs associated with preparation for an Investigational New Drug, or IND, application for MGCD516, planned for the first half of 2014. Partially offsetting these increases were reduced costs for MGCD265 due to decreased clinical drug product manufacturing activities during the third quarter of 2013 compared to the same period of 2012, 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 $3.7 million for the three months ended September 30, 2013 compared to $1.7 million for the same period in 2012. The increase primarily reflects the increase of share-based compensation costs related to the reclassification of stock options denominated in the Canadian dollar under the 1997 Equity Plan that were granted to U.S.- based employees and directors effective July 26, 2013 (refer to Note 3 of the consolidated financial statements for more details), establishing a new management team in San Diego and costs associated with listing on The NASDAQ Capital Market, which was effective on July 15, 2013.

Other (expense) income, net

Other (expense) income, net was net expense of $20.1 million for the three months ended September 30, 2013 compared to net income of $34,000 for the same period in 2012. The increase primarily reflects a loss of $20.6 million from the change in fair value of our warrant liability(refer to Note 3 of the accompanying consolidated financial statements for more details), partially offset by a foreign exchange gain of $411,000 primarily due to the transition to the U.S. dollar as the functional currency and net financial income of $43,000.

Comparison of the Nine Months Ended September 30, 2013 and 2012



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



                                                    Nine Months Ended September 30,
                                                      2013                  2012             Increase

Research and development expenses, net          $          15,477     $          10,105    $      5,372
General and administrative expenses                         8,616                 4,019           4,597
Other (expense) income, net                               (17,418 )                 172         (17,590 )

Research and Development Expenses

Our research and development efforts during the nine months ended September 30, 2013 were focused on oncology, including MGCD265, MGCD516 and mocetinostat . During the nine months ended September 30, 2012 we were focused on MGCD265 for oncology and MGCD290 for antifungal indications. The following table summarizes our research and development expenses for the nine months ended September 30, 2013 and 2012 (in thousands):

                                                     Nine months ended September 30,
                                                       2013                  2012
Third-party clinical development costs:
MGCD265                                          $           5,075                4, 387
MGCD290                                                      1,467                 1,970
Mocetinostat                                                 1,587                    39
MGCD516                                                      1,339                     -
Total third-party clinical development costs:                9,468                 6,396
Internal clinical development costs                          2,802                 2,826
Total clinical development                                  12,270                 9,222
Non-clinical research and development                        3,885                 2,413
Research and development, gross                             16,155                11,635
Less: Investment tax credits                                  (678 )              (1,530 )
Research and development, net                    $          15,477     $          10,105


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Net research and development expenses were $15.5 million for the nine months ended September 30, 2013 compared to $10.1 million for the same period in 2012. The increase primarily reflects the same factors that influenced similar fluctuations in the three months ended September 30, 2013 discussed above as well as costs associated with ongoing formulation development for MGCD265 and costs associated with management changes implemented in the first nine months of 2013. The investment tax credits for the nine months ended September 30, 2013 declined compared to the same period in 2012 because the prior year included a favorable adjustment associated with the completion of an audit by the provincial tax authority in Canada.

General and Administrative Expenses

General and administrative expenses were $8.6 million for the nine months ended September 30, 2013 compared to $4.0 million for the same period in 2012. The increase primarily reflects the same factors that influenced similar fluctuations in the three months ended September 30, 2013 as well as costs associated with the Arrangement.

Other (Expense) Income, Net

Other expense, net was $ 17.4 million for the nine months ended September 30, 2013 compared to other income, net of $172,000 for the same period in 2012. The increased net expense primarily reflects a loss of $16.6 million from the change in fair value of our warrant liability (refer to Note 3 of the accompanying consolidated financial statements for further details) and a foreign exchange loss of $0.9 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. We have devoted our resources to funding research and development programs, including discovery research, preclinical and clinical development activities.

We have incurred losses in each year since our inception. Our net losses were $41.6 million for the nine months ended September 30, 2013, and $20.3 million and $9.8 million for the years ended December 31, 2012 and 2011, respectively. As of September 30, 2013 we had an accumulated deficit of $187.2 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 our two lead kinase programs, MGCD265 and MGCD516 in development for the treatment of solid tumors;

advance mocetinostat, our later stage drug candidate in development for the treatment of hematologic malignancies;

evaluate opportunities for the expansion of our oncology portfolio, including evaluating and possibly executing in-licensing and partnering transactions;

continue our translational science research efforts;

maintain, expand and protect our intellectual property portfolio; and

provide general and administrative support for our operations.

At September 30, 2013 we had $15.4 million of cash and cash equivalents, marketable securities, and restricted cash and marketable securities compared to $37.4 million at December 31, 2012. On October 29, 2013, we completed a public offering of common stock, or the Offering, for net proceeds of $53.0 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. We sold a total of 3,250,000 shares of our common stock in the Offering at a purchase price to the public of $17.50 per share. The underwriters were granted an option, exercisable for 30 days, to purchase up to 487,500 additional shares of common stock. We expect that our current cash, cash equivalents and marketable securities, together with the net proceeds from the Offering, will sustain our operations through the end of 2015.

To fund future operations we may need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot assure you that anticipated additional financing will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our equity securities offerings, there can be no assurance that we will be able to do so in the future.

Cash Flows for the Nine Months Ended September 30, 2013 and 2012

Operating Activities

Cash used for operating activities for the nine months ended September 30, 2013 was $21.7 million compared to $11.5 million for the same period in 2012. The increase relates primarily to the increased operating costs in the first nine months of 2013, including non-recurring costs associated with the previously discussed Arrangement, the NASDAQ listing and ongoing management changes, compared to the same period in 2012.

Investing Activities

Investing activities provided cash of $10.9 million and $6.9 million for the nine months ended September 30, 2013 and 2012, respectively. Investing activities consist primarily of purchases, sales and maturities of marketable securities and purchases of property and equipment. The increase in cash flows provided by investing activities is largely due to an increase in maturities of marketable securities, offset by an increase in purchases of marketable securities.


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Financing Activities

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