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MRTX > SEC Filings for MRTX > Form 10-K on 9-Mar-2017All Recent SEC Filings

Show all filings for MIRATI THERAPEUTICS, INC.

Form 10-K for MIRATI THERAPEUTICS, INC.


9-Mar-2017

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

References in the following discussion to "we", "our", "us", "Mirati" or "the Company" refer to Mirati Therapeutics, Inc. and its subsidiaries.

Company Overview

We are a clinical-stage biopharmaceutical company focused on developing a pipeline of oncology products including candidates intended to treat specific genetic and epigenetic drivers of cancer in selected subsets of cancer patients with unmet needs. Additionally, we are evaluating our product candidates in combination with checkpoint inhibitors (anti-PD-1 and PD-L1) to determine whether they will enhance the efficacy of those agents in patients with non-small cell lung cancer ("NSCLC") and other solid tumors. We believe that an increased understanding of the genomic factors that drive tumor cell growth can lead to the development of cancer drugs that target these genomic factors, resulting in increased efficacy while reducing side effects.

Our clinical pipeline consists of three product candidates: glesatinib, sitravatinib and mocetinostat. Both glesatinib and sitravatinib are orally-bioavailable, spectrum-selective kinase inhibitors with distinct target profiles that are in development for the treatment of patients with NSCLC and other solid tumors. Glesatinib is in Phase 2 clinical development, and targets the MET and Axl receptor tyrosine kinase families ("RTKs"). Sitravatinib is in Phase 1b clinical development and targets genetic alterations in RET gene rearrangements, CHR4q12 amplifications, CBL mutations and AXL alterations. We are also evaluating sitravatinib in a multi-arm Phase 2 clinical trial to determine their ability to enhance the clinical efficacy of nivolumab, a checkpoint inhibitor approved for the treatment of patients with a variety of solid tumors including NSCLC and metastatic Renal Cell Carcinoma ("RCC"). Our third candidate is mocetinostat, an orally-bioavailable, Class 1 selective histone deacetylase ("HDAC") inhibitor. Mocetinostat is in Phase 1b/2 clinical development in combination with durvalumab, MedImmune Limited's ("MedImmune") anti-PD-L1 immune checkpoint inhibitor, for the treatment of patients with NSCLC.

Our novel kinase inhibitors, glesatinib and sitravatinib, are intended to treat specific mutations that drive the growth of cancer or are implicated in cancer drug resistance or pathogenic processes such as tumor angiogenesis. Sitravatinib is a potent inhibitor of the Tyro, Axl, Mer ("TAM") family of kinases which we believe may lead to enhanced anti-tumor immunity in combination with immune checkpoint inhibitors by changing the tumor microenvironment from a tolerogenic to an immunogenic state and increasing anti-tumor immune response by reducing T-cell and macrophage suppressor effects. Our HDAC inhibitor, mocetinostat, acts through important epigenetic mechanisms, the effects of which could potentially enhance the efficacy of immune checkpoint inhibitors when used in combination.

Two candidates are in pre-clinical development. The first is a highly-potent and potentially best-in-class LSD1 inhibitor with potential for rapid clinical proof-of-concept in small cell lung cancer ("SCLC") or acute myeloid leukemia ("AML"). An investigational new drug ("IND") submission is planned for this compound in late 2017. Additionally, a mutant-selective KRAS inhibitor program is advancing to candidate selection phase and prototype inhibitors have demonstrated marked tumor regression in KRAS mutant tumor models, with an IND candidate selection anticipated by the end of 2017. We plan to identify additional drug development opportunities by leveraging our deep scientific understanding of molecular drug targets and mechanisms of resistance and potentially in-licensing or internally discovering promising, early-stage novel drug candidates.

We were incorporated under the laws of the State of Delaware on April 29, 2013 as Mirati Therapeutics, Inc. and our corporate headquarters are located in San Diego, California.

Program Updates

Glesatinib

We presently have two ongoing clinical trials of glesatinib: a single-arm Phase 2 clinical trial for the treatment of NSCLC patients with genetic alterations of MET and a Phase 1b clinical trial in patients with genetic alterations of MET and Axl in NSCLC and other solid tumors.


On January 5, 2017, we provided a clinical update focused on our experience with a spray dried dispersion ("SDD") formulation of glesatinib that was implemented in the ongoing Phase 1b and Phase 2 clinical trials in May 2016. As more fully described under "Item 1. Business" section, we reported the following (all data as of a cut-off date of December 2, 2016):

Adverse-event related (AE-related) dose reductions occurred in 17% of patients treated with the SDD formulation versus 46% of patients treated with the prior soft gel formulation.

In 13 evaluable patients with Met Exon 14 deletion across both the Phase 1b and Phase 2 clinical trials, 4 patients achieved a confirmed response and two patients achieved an unconfirmed response (one of which remained on study) reflecting an objective response rate ("ORR") of 46% including confirmed and unconfirmed responses. Tumor reductions were observed in 11 of 13 patients, the longest duration of a patient on study was more than 55 weeks and the patient remained on study.

In 8 evaluable patients with MET amplification, two patients achieved an unconfirmed response (neither remained on study). Tumor reductions were observed in six of the eight evaluable patients, the longest duration of a patient on study was more than 24 weeks and the patient remained on study.

The Company expects to provide an additional update on the glesatinib program in the second half of 2017.

Sitravatinib

Sitravatinib is being evaluated in a Phase 1b expansion clinical trial designed to evaluate its safety and efficacy in multiple pre-specified cohorts of cancer patients with RET gene rearrangements, CHR4q12 amplifications, CBL mutations and AXL alterations.

As more fully described under "Item 1. Business" section, on January 5, 2017 we provided a clinical update of the ongoing Phase 1b clinical trial as follows (all data as of a cut-off date of December 9, 2016):

A total of six NSCLC patients with RET gene rearrangements had been enrolled, four of whom were evaluable.

Of the four evaluable patients, one patient achieved a confirmed PR and one patient achieved an unconfirmed PR on initial scan, representing a 50% ORR, including confirmed and unconfirmed responses. Both patients remained on study. Tumor reductions were observed in all four evaluable patients and the longest duration of a patient on study was more than 46 weeks and the patient remained on study.

The Phase 1b trial is also enrolling NSCLC patients with CBL mutations, CHR4q12 amplification and AXL alterations. As of the data cut-off date, no patients with these genetic mutations were evaluable.

Sitravatinib is also being evaluated in combination with nivolumab, a checkpoint inhibitor approved for the treatment of patients with a variety of solid tumors including NSCLC and metastatic RCC. Pre-clinical data indicate sitravatinib is an exceptionally potent inhibitor of the TAM and split (KDR, KIT, PDGFRA) family tyrosine kinases which regulate multiple stages in the cancer immunity cycle and are thought to enhance anti-tumor immunity by improving the efficacy of checkpoint inhibitors (anti PD-1/PD-L1). Enrollment of this multicenter Phase 2 clinical trial in patients with NSCLC commenced in November 2016.

The Company expects to provide an additional update on the sitravatinib program in the third quarter of 2017.

Mocetinostat

A Phase 1b/2 clinical trial combining mocetinostat and durvalumab, MedImmune's monoclonal antibody inhibiting PD-L1, continues to enroll patients with advanced solid tumors and NSCLC. The Company expects to provide an additional update on the mocetinostat program mid-year 2017.


Liquidity Overview

At December 31, 2016, we had $56.7 million of cash, cash equivalents and short-term investments compared to $122.3 million at December 31, 2015. In January 2017, we completed a public offering of our common stock and pre-funded common stock warrants that generated net proceeds of $66.8 million. We have not generated any revenue 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 under previous collaborative arrangements. To fund future operations, we will likely need to raise additional capital as discussed more fully below under the heading "Liquidity and Capital Resources."

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.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Accrued Research and Development Expenses

We accrue and expense clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the life of the individual clinical trial and patient enrollment rates in accordance with agreements established with Clinical Research Organizations ("CROs") and clinical trial sites. We determine the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan.

We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.

Share-Based Compensation

We measure and recognize compensation expense for share-based payments based on estimated fair value. We estimate the fair value of stock options granted using the Black-Scholes option-pricing model. The Black-Scholes option- pricing model requires the use of certain estimates and highly judgmental assumptions that affect the amount of share-based compensation expense recognized in our consolidated financial statements. These assumptions include the historical volatility of our stock price, expected term of the options, the risk-free interest rate and expected dividend yields. Share-based compensation is recognized using the graded accelerated vesting method. If any of the assumptions used in our calculation change significantly, share-based compensation expense may differ materially from what we have recorded in the current period.

Financial Operations Overview

Research and Development Expenses

Research and development expenses consist primarily of:

            salaries and related expenses for personnel, including expenses
             related to stock options or other share-based compensation granted
             to personnel in development functions;


            fees paid to external service providers such as CROs and contract
             manufacturing organizations related to clinical trials;


            contractual obligations for clinical development, clinical sites,
             manufacturing and scale-up, and formulation of clinical drug
             supplies; and

costs for allocated facilities and depreciation of equipment.

We record research and development expenses as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expense when the services have been performed or when the goods have been received. At this time, due to the risks inherent in the clinical development process and the early stage of our product development programs we are unable to estimate with any certainty the costs we will incur in the continued development of glesatinib, sitravatinib and mocetinostat. The process of conducting clinical trials necessary to obtain regulatory approval and manufacturing scale-up to support expanded development and potential future commercialization is costly and time consuming. Any failure by us or delay in completing clinical trials, manufacturing scale up or in obtaining regulatory approvals could lead to increased research and development expense and, in turn, have a material adverse effect on our results of operations. We expect that our research and development expenses may increase if we are successful in advancing glesatinib, sitravatinib, mocetinostat or any of our preclinical programs into more advanced stages of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, related to our executive, finance, business development, legal and support functions. Other general and administrative expenses include professional fees for auditing and tax services, rent and utilities and insurance.

Results of Operations

Comparison of the Years Ended December 31, 2016 and 2015

The following table summarizes our results of operations for the year ended
December 31, 2016 and 2015 (in thousands):
                                         Year Ended December 31,           Increase
                                             2016              2015       (Decrease)
Research and development expenses   $      68,487            $ 48,959    $    19,528
General and administrative expenses        15,292              15,755           (463 )
Other income, net                             661                 170            491

Research and Development Expenses

Our research and development efforts during the years ended December 31, 2016
and 2015 were focused primarily on our oncology programs, including our two lead
kinase programs, glesatinib and sitravatinib, and our HDAC inhibitor program,
mocetinostat. The following table summarizes our research and development
expenses, in thousands:
                                                       Year Ended December 31,        Increase
                                                         2016            2015        (Decrease)
Third-party research and development expenses:
Glesatinib                                          $      29,974     $  21,699     $     8,275
Sitravatinib                                                7,346         3,250           4,096
Mocetinostat                                                4,613         5,371            (758 )
Preclinical and early discovery                             9,492         6,830           2,662
Total third-party research and development expenses        51,425        37,150          14,275
Salaries and other employee related expense                 8,963         6,579           2,384
Share-based compensation expense                            5,461         3,669           1,792
Other research & development costs                          2,638         1,561           1,077
Research and development expense                    $      68,487     $  48,959     $    19,528

Research and development expenses for the year ended December 31, 2016 were $68.5 million compared to $49.0 million during the year ended December 31, 2015. The increase of $19.5 million during the year ended December 31, 2016 primarily relates to an increase in third-party research and development expense of $14.3 million. The increase in third-party research and


development expense relates to an increase in expenses associated with development expenses for glesatinib of $8.3 million and sitravatinib of $4.1 million and an increase in our ongoing expenses associated with our preclinical and early discovery expenses of $2.7 million. The increase in glesatinib expenses is due to our ongoing Phase 2 clinical trial, which began in late 2015, and include increased expenses associated with identifying eligible patients and investigator payments. Sitravatinib expenses increased in connection with our ongoing Phase 1b clinical trial and include increased manufacturing expenses, CRO service fees and expenses associated with identifying eligible patients. The increase in early discovery expenses is due to a one-time license fee of $2.5 million related to an early stage discovery project.

The increase in salaries and related expense and share-based compensation resulted from an increase in the number of research and development employees during the twelve months ended December 31, 2016 compared to the same period of 2015. Based upon our current development plans we expect our research and development expenses to continue to increase as we advance the clinical development of our current and future drug candidates.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2016 were $15.3 million compared to $15.8 million for the same period in 2015. The comparable level of expenses for the years ended December 31, 2016 and 2015 reflect a consistent level of general and administrative activities in both years.

Other Income, Net

Other income, net consisted primarily of interest income of $0.7 million for the year ended December 31, 2016 and $0.2 million for the year ended December 31, 2015.

Comparison of the Years Ended December 31, 2015 and 2014

The following table summarizes the results of our operations for the years ended
December 31, 2015 and 2014 (in thousands):
                                                     Year Ended December 31,         Increase
                                                        2015           2014         (Decrease)
Research and development, net                      $     48,959     $  26,071     $     22,888
General and administrative                               15,755        12,699            3,056
Restructuring costs                                           -           334             (334 )
Other income (expense), net                                 170           (77 )            247
Change in fair value of warrant liability                     -        (4,517 )          4,517


Research and Development Expenses

Our research and development efforts during the years ended December 31, 2015
and 2014 were focused primarily on our oncology programs, including our two lead
kinase programs, glesatinib and sitravatinib, and our HDAC inhibitor program,
mocetinostat. The following table summarizes our research and development
expenses, in thousands:
                                                       Year Ended December 31,         Increase
                                                         2015            2014         (Decrease)
Third-party research and development expenses:
Glesatinib                                          $      21,699     $   7,273     $     14,426
Sitravatinib                                                3,250         2,932              318
Mocetinostat                                                5,371         4,507              864
Preclinical and early discovery                             6,830         2,946            3,884
Total third-party research and development expenses        37,150        17,658           19,492
Salaries and other employee related expense                 6,579         4,459            2,120
Share-based compensation expense                            3,669         2,565            1,104
Other research & development costs                          1,561         1,389              172
Research and development expense                    $      48,959     $  26,071     $     22,888

Research and development expenses for the year ended December 31, 2015 were $49.0 million compared to $26.1 million during the year ended December 31, 2014. The increase of $22.9 million for the year ended December 31, 2015 primarily relates to an increase in third-party expenses of $19.5 million and to a lesser extent an increase in salaries and other employee related expenses. The increase in third-party development expenses primarily relates to an increase in expenses associated with our ongoing clinical trials including an increase in related manufacturing expenses, primarily for glesatinib which is currently in Phase 2, and to a lesser extent mocetinostat. Additionally, our preclinical and early discovery costs increased for the year ended December 31, 2015 compared to the same period of 2014 due to increased chemistry synthesis costs associated with our early stage discovery projects, as well as increased data management costs. The increase in salaries and related expense and share-based compensation expense, is driven by an increase in the number of research and development employees during the year ended December 31, 2015 compared to the same period of 2014.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2015 were $15.8 million compared to $12.7 million for the same period in 2014. The increase of $3.1 million for the year ended December 31, 2015 is primarily the result of increased share-based compensation expenses and increased salaries and related expenses due to an increase in the number of general and administrative employees during the twelve months ended December 31, 2015 compared to the same period of 2014.

Other Income (Expense), Net

Other income (expense), net for the year ended December 31, 2015 consisted primarily of interest income of $0.2 million. Other income (expense), net for the year ended December 31, 2014 was expense of $0.1 million primarily due to the impact of foreign exchange losses partially offset by interest income.

Change in Fair Value of Warrant Liability

The change in fair value of warrant liability represents expense or income associated with fair value adjustments to the warrant liability recorded during the period. During the year ended December 31, 2014, we recorded expense of $4.5 million associated with the change in fair value of warrant liability. During the second half of 2014, we amended all of the outstanding warrant agreements to allow for the warrants to be denominated in U.S. Dollars. As a result of this amendment, the warrants qualified for equity classification, were reclassified into stockholders' equity at their fair value as of the amendment dates and revaluations of fair value are no longer required.

Liquidity and Capital Resources


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 under previous collaborative arrangements. Since inception, we have primarily devoted our resources to funding research and development programs, including discovery research, preclinical and clinical development activities.

At December 31, 2016, we had $56.7 million of cash, cash equivalents and short-term investments compared to $122.3 million at December 31, 2015. In January 2017 we completed a public offering of our common stock and pre-funded common stock warrants that generated net proceeds of $66.8 million and in 2015 we completed two public offerings of our common stock that generated net proceeds of $143.3 million.

We have incurred losses in each year since our inception. Our net losses were $83.1 million, $64.5 million and $43.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, we had an accumulated deficit of $389.8 million. Substantially all of our operating losses resulted from expenses incurred in connection with our product development programs, our research activities and general and administrative costs associated with our operations.

Based on our current and anticipated level of operations, we believe that our cash, cash equivalents and short-term investments, together with the $66.8 million of net proceeds from the public offering of our common stock and pre-funded common stock warrants in January 2017, will be sufficient to meet our anticipated obligations for at least one year from the date this annual report on Form 10-K is filed with the SEC. To fund future operations, we will likely need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot make assurances that anticipated additional financing will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our equity securities offerings, there can be no assurance that we will be able to do so in the future.

The following table provides a summary of the net cash flow activity for each of the periods set forth below (in thousands): . . .

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