oric-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-39269

 

ORIC PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-1787157

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

240 E. Grand Ave, 2nd Floor

South San Francisco, CA

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 388-5600

 

Not applicable

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

ORIC

 

The Nasdaq Stock Market LLC

(The Nasdaq Global Select Market)

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 for 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 (§232.405 of this chapter) 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial 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  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  ☒    No  

As of May 1, 2020, the registrant had 29,903,039 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Balance Sheets

1

 

Statements of Operations and Comprehensive Loss

2

 

Statements of Convertible Preferred Stock and Stockholders’ Deficit

3

 

Statements of Cash Flows

4

 

Notes to Unaudited Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

Item 4.

Controls and Procedures

18

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

20

Item 1A.

Risk Factors

20

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 3.

Defaults Upon Senior Securities

67

Item 4.

Mine Safety Disclosures

67

Item 5.

Other Information

67

Item 6.

Exhibits

68

SIGNATURES

69

 

 

 

ii


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this quarterly report on Form10-Q, including statements regarding our future results of operations and financial position, business strategy, development plans, planned preclinical studies and clinical trials, future results of clinical trials, expected research and development costs, regulatory strategy, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this quarterly report on Form 10-Q include, but are not limited to, statements about:

 

the ability of our clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results;

 

the timing, progress and results of preclinical studies and clinical trials for ORIC-101, ORIC-533 and other product candidates we may develop, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;

 

the timing, scope and likelihood of regulatory filings and approvals, including timing of Investigational New Drug applications and final FDA approval of ORIC-101, ORIC-533 and any other future product candidates;

 

the timing, scope or likelihood of foreign regulatory filings and approvals;

 

our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical studies;

 

our manufacturing, commercialization, and marketing capabilities and strategy;

 

our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and sales strategy;

 

the need to hire additional personnel and our ability to attract and retain such personnel;

 

our expectations regarding the impact of the COVID-19 pandemic on our business;

 

the size of the market opportunity for our product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting;

 

our expectations regarding the approval and use of our product candidates in combination with other drugs;

 

our competitive position and the success of competing therapies that are or may become available;

 

our estimates of the number of patients that we will enroll in our clinical trials;

 

the beneficial characteristics, safety, efficacy and therapeutic effects of our product candidates;

 

our ability to obtain and maintain regulatory approval of our product candidates;

 

our plans relating to the further development of our product candidates, including additional indications we may pursue;

 

existing regulations and regulatory developments in the United States, Europe and other jurisdictions;

 

our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering ORIC-101, ORIC-533 and other product candidates we may develop, including the extensions of existing patent terms where available, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;

 

our continued reliance on third parties to conduct additional clinical trials of our product candidates, and for the manufacture of our product candidates for preclinical studies and clinical trials;

 

our ability to obtain, and negotiate favorable terms of, any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize our product candidates;

 

the pricing and reimbursement of ORIC-101, ORIC-533 and other product candidates we may develop, if approved;

 

the rate and degree of market acceptance and clinical utility of ORIC-101, ORIC-533 and other product candidates we may develop;

 

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

 

our financial performance;

iii


 

the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements;

 

the impact of laws and regulations;

 

our expectations regarding the period during which we will qualify as an emerging growth company under the JOBS Act; and

 

our anticipated use of our existing resources.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this quarterly report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk factors” and elsewhere in this quarterly report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this quarterly report on Form 10-Q, whether as a result of any new information, future events or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this quarterly report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

 

 

 

iv


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ORIC PHARMACEUTICALS, INC.

BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

March 31, 2020

 

 

December 31, 2019

 

 

(unaudited)

 

 

 

 

 

Assets

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

79,442

 

 

$

89,159

 

Prepaid expenses and other current assets

 

788

 

 

 

840

 

Total current assets

 

80,230

 

 

 

89,999

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

2,096

 

 

 

2,241

 

Deferred offering costs

 

2,413

 

 

 

1,343

 

Other assets

 

317

 

 

 

510

 

Total assets

$

85,056

 

 

$

94,093

 

 

 

 

 

 

 

 

 

Liabilities, Convertible Preferred Stock and Stockholders' Deficit

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

770

 

 

$

152

 

Accrued other liabilities

 

4,010

 

 

 

5,202

 

Total current liabilities

 

4,780

 

 

 

5,354

 

 

 

 

 

 

 

 

 

Deferred rent - long term

 

635

 

 

 

765

 

Total liabilities

$

5,415

 

 

$

6,119

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

Convertible preferred stock:

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.0001 par value; 3,862,500 authorized, issued

   and outstanding at March 31, 2020 and December 31, 2019; aggregate liquidation

   preference of $15,450 at March 31, 2020 and December 31, 2019

 

15,431

 

 

 

15,431

 

Series B convertible preferred stock, $0.0001 par value; 6,750,000 shares authorized,

   6,749,999 issued and outstanding at March 31, 2020 and December 31, 2019;

   aggregate liquidation preference of $54,000 at March 31, 2019 and December 31,

   2019

 

53,906

 

 

 

53,906

 

Series C convertible preferred stock, $0.0001 par value; 4,448,788 shares authorized,

   4,448,780 issued and outstanding at March 31, 2020 and December 31, 2019;

   aggregate liquidation preference of $53,385 at March 31, 2020 and December 31,

   2019

 

53,172

 

 

 

53,172

 

Series D convertible preferred stock, $0.0001 par value; 5,287,500 shares authorized,

   4,217,327 issued and outstanding at March 31, 2020 and December 31, 2019;

   aggregate liquidation preference of $55,669 at March 31, 2020 and December 31,

   2019

 

55,549

 

 

 

55,549

 

Stockholders' deficit:

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 26,750,000 shares authorized at March 31, 2020 and

   December 31, 2019; 1,997,655 and 1,984,222 shares issued and outstanding at March

   31, 2020 and December 31, 2019, respectively

 

-

 

 

 

-

 

Additional paid-in capital

 

3,145

 

 

 

2,606

 

Accumulated deficit

 

(101,562

)

 

 

(92,690

)

Total stockholders' deficit

 

(98,417

)

 

 

(90,084

)

Total liabilities and stockholders' deficit

$

85,056

 

 

$

94,093

 

See accompanying notes to unaudited financial statements.

1


ORIC PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except share and per share amounts)

 

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

7,254

 

 

$

5,212

 

General and administrative

 

 

1,925

 

 

 

1,134

 

Total operating expenses

 

 

9,179

 

 

 

6,346

 

Loss from operations

 

 

(9,179

)

 

 

(6,346

)

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

Interest income, net

 

 

241

 

 

 

261

 

Other income

 

 

66

 

 

 

70

 

Total other income

 

 

307

 

 

 

331

 

Net loss and comprehensive loss

 

$

(8,872

)

 

$

(6,015

)

Net loss per share, basic and diluted

 

$

(4.46

)

 

$

(3.32

)

Weighted-average shares outstanding, basic and diluted

 

 

1,988,861

 

 

 

1,809,323

 

See accompanying notes to unaudited financial statements.

 

 

2


 

ORIC PHARMACEUTICALS, INC.

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(Unaudited)

(in thousands, except share amounts)

 

 

 

Series A

Convertible

Preferred Stock

 

 

Series B

Convertible

Preferred Stock

 

 

Series C

Convertible

Preferred Stock

 

 

Series D

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance at December 31, 2018

 

 

3,862,500

 

 

$

15,431

 

 

 

6,749,999

 

 

$

53,906

 

 

 

3,177,271

 

 

$

37,929

 

 

 

-

 

 

$

-

 

 

 

1,802,134

 

 

$

-

 

 

$

1,381

 

 

$

(65,807

)

 

$

(64,426

)

Issuance of Series C

   Preferred Stock, net

   of issuance costs of $15

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,271,509

 

 

 

15,243

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercise of stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

26,159

 

 

 

-

 

 

 

21

 

 

 

-

 

 

 

21

 

Stock-based compensation

   expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

191

 

 

 

-

 

 

 

191

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,015

)

 

 

(6,015

)

Balance at March 31, 2019

 

 

3,862,500

 

 

$

15,431

 

 

 

6,749,999

 

 

$

53,906

 

 

 

4,448,780

 

 

$

53,172

 

 

 

-

 

 

$

-

 

 

 

1,828,293

 

 

$

-

 

 

$

1,593

 

 

$

(71,822

)

 

$

(70,229

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

3,862,500

 

 

$

15,431

 

 

 

6,749,999

 

 

$

53,906

 

 

 

4,448,780

 

 

$

53,172

 

 

 

4,217,327

 

 

$

55,549

 

 

 

1,984,222

 

 

$

-

 

 

$

2,606

 

 

$

(92,690

)

 

$

(90,084

)

Exercise of stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,433

 

 

 

-

 

 

 

12

 

 

 

-

 

 

 

12

 

Stock-based compensation

   expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

527

 

 

 

-

 

 

 

527

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,872

)

 

 

(8,872

)

Balance at March 31, 2020

 

 

3,862,500

 

 

$

15,431

 

 

 

6,749,999

 

 

$

53,906

 

 

 

4,448,780

 

 

$

53,172

 

 

 

4,217,327

 

 

$

55,549

 

 

 

1,997,655

 

 

$

-

 

 

$

3,145

 

 

$

(101,562

)

 

$

(98,417

)

 

See accompanying notes to unaudited financial statements.

 

 

 

 

3


 

ORIC PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,872

)

 

$

(6,015

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

250

 

 

 

242

 

Share-based compensation expense

 

 

527

 

 

 

191

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

53

 

 

 

(289

)

Accounts payable and accrued other liabilities

 

 

(237

)

 

 

340

 

Net cash used in operating activities

 

 

(8,279

)

 

 

(5,531

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisitions of property and equipment

 

 

(4

)

 

 

(100

)

Proceeds from notes receivable

 

 

193

 

 

 

-

 

Net cash provided by (used in) investing activities

 

 

189

 

 

 

(100

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of preferred stock

 

 

-

 

 

 

15,258

 

Issuance cost associated with preferred stock

 

 

-

 

 

 

(15

)

Proceeds from stock option exercises

 

 

12

 

 

 

21

 

Payment of deferred offering costs

 

 

(1,639

)

 

 

-

 

Net cash (used in) provided by financing activities

 

 

(1,627

)

 

 

15,264

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(9,717

)

 

 

9,633

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

89,159

 

 

 

42,636

 

Cash and cash equivalents, end of period

 

$

79,442

 

 

$

52,269

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Amounts accrued for property and equipment

 

$

101

 

 

$

135

 

Amounts accrued for offering costs

 

$

675

 

 

$

-

 

 

See accompanying notes to unaudited financial statements.

4


 

ORIC PHARMACEUTICALS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

1. Description of the Business

ORIC Pharmaceuticals, Inc. (ORIC or the Company) is a clinical-stage biopharmaceutical company dedicated to improving patients’ lives by Overcoming Resistance In Cancer.  The Company was incorporated in Delaware in August 2014 and has offices in South San Francisco and San Diego, California.

Since inception, the Company has devoted its primary efforts to raising capital and research and development activities and has incurred significant operating losses and negative cash flows from operations. As of March 31, 2020, the Company had an accumulated deficit of $101.6 million and cash and cash equivalents of $79.4 million. From its inception through March 31, 2020, all of the Company’s financial support has been provided primarily from the sale of its convertible preferred stock.

As the Company continues its expansion, it may seek additional financing and/or strategic investments, however, there can be no assurance that any additional financing or strategic investments will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it will most likely be required to reduce its plans and/or certain discretionary spending, which could have a material adverse effect on the Company’s ability to achieve its intended business objectives. The accompanying financial statements do not include any adjustments that might be necessary if it were unable to continue as a going concern. Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date of the issuance of these unaudited interim financial statements.

Initial Public Offering and Related Transaction

On April 28, 2020, the Company completed an initial public offering (IPO) selling 8,625,000 shares of common stock, which includes the full exercise by the underwriters of their option to purchase up to 1,125,000 additional shares, at a price of $16.00 per share. Gross proceeds from the IPO, excluding underwriting discounts and commissions and other offering expenses, were $138.0 million. In addition, in connection with the IPO, all shares of convertible preferred stock outstanding at the time of the IPO converted into 19,278,606 shares of common stock. On April 21, 2020, the Company amended its certificate of incorporation to effect a one-for-four reverse stock split of its issued and outstanding common and convertible preferred stock. The accompanying financial statements and related notes give retroactive effect to the reverse stock split for all periods presented.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions of the Securities and Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, have been omitted. The accompanying unaudited financial statements include all known adjustments necessary for a fair presentation of the results of interim periods as required by U.S. GAAP. These adjustments consist primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, particularly in light of the novel coronavirus pandemic, or COVID-19, and its impact on domestic and global economies. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended operating activities. Beginning the week of March 16, 2020, the majority of the Company’s workforce began working from home. The effects of the stay-at-home orders and work-from-home policies may negatively impact productivity, disrupt the business and delay the development programs and regulatory timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct business in the ordinary course. As a result, research and development expenses and general and administrative expenses may vary significantly if there is an increased impact from COVID-19 on the costs and timing associated with the conduct of the clinical trials and other related business activities.

The accompanying unaudited financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2019, which are included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b)(4) on April 24, 2020 under the Securities Act of 1933, as amended (the Securities Act).

Use of Estimates

The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, expenses, and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis

5


 

for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding our cash and cash equivalents that are recorded on our balance sheets. The Company mitigates its risk by investing in high-grade instruments and limiting the concentration in any one issuer, which limits its exposure. The Company has not experienced any losses since inception.

The carrying amounts of cash and cash equivalents, prepaid expenses, accounts payable and accrued other liabilities are reasonable estimates of their fair value because of the short maturity of these items.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents primarily represent funds invested in readily available checking and money market funds.

Research and Development Expenses and Accrued Research and Development Expenses

The Company is required to estimate its expenses resulting from its obligations under contracts with vendors, consultants, contract research organizations (CRO), and contract manufacturing organizations (CMO) in connection with conducting research and development activities. The financial terms of these contracts vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

Research and development costs are expensed in the periods in which they are incurred. External costs consist primarily payments to outside CROs, CMOs, clinical trial sites and central laboratories in connection with the Company’s discovery and preclinical activities, process development, clinical manufacturing and clinical development activities. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers or its estimate of the level of service that has been performed at each reporting date. The Company allocates external costs by the stage of program, clinical or preclinical. Internal costs consist primary of employee-related costs, laboratory supplies, facilities, depreciation and costs related to compliance with regulatory requirements. The Company does not allocate internal costs by stage of program because these costs are deployed across multiple programs and, as such, are not separately classified. Research and development expenses amounted to $7.3 million and $5.2 million during the three months ended March 31, 2020 and 2019, respectively.

Deferred Offering Costs

The Company capitalizes costs that are directly associated with in-process equity financings until such financings are consummated at which time such costs are recorded against the gross proceeds of the IPO. Should an in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statement of operations and comprehensive loss. The Company recorded $2.4 million and $1.3 million of deferred offering costs as of March 31, 2020 and December 31, 2019, respectively.

Net Loss Per Share

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. As the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.

6


 

The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share amounts).

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Numerator

 

 

 

 

 

 

 

 

Net loss

 

$

(8,872

)

 

$

(6,015

)

Denominator

 

 

 

 

 

 

 

 

Weighted average shares outstanding used in computing net loss per share, basic and diluted

 

 

1,988,861

 

 

 

1,809,323

 

Net loss per share, basic and diluted

 

$

(4.46

)

 

$

(3.32

)

 

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Options to purchase common stock

 

 

2,658,953

 

 

 

1,974,884

 

Convertible preferred stock

 

 

19,278,606

 

 

 

15,061,279

 

Total

 

 

21,937,559

 

 

 

17,036,163

 

 

 

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) under its accounting standard codifications (ASC) or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.

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New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. ASC 842 provides a lessee with an option to not account for leases with a term of 12 month or less as leases in the scope of the new standard. ASC 842 supersedes the previous leases standard, ASC 840 Leases. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU No. 2016-02 is effective for the Company for the year ended December 31, 2021, and all interim periods within. In July 2018, the FASB issued supplemental adoption guidance and clarification to ASC 842 within ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. ASU No. 2018-11 provides another transition method in addition to the existing modified retrospective transition method by allowing entities to initially apply the new leasing standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. The Company is currently evaluating the impact the adoption of these ASUs will have on financial statements and related disclosures. The Company expects to recognize a right-of-use asset and corresponding lease liability for its real estate operating leases upon adoption. See Note 9 for more information related to the Company’s lease obligations, which are presented on an undiscounted basis therein.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) (ASC 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. Effective for fiscal years beginning after December 15, 2019.  Since the Company has elected to use the extended transition period under the JOBS Act available to emerging growth companies (EGCs), the ASU is effective for the Company for fiscal years beginning after December 15, 2020. The Company expects to adopt the new standard in the first quarter of 2021. The Company is currently evaluating the impact the adoption of these ASUs will have on its financial statements and related disclosures.

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which eliminates certain exceptions to the general principles in Topic 740 and simplifies other areas of the existing guidance. For non-EGCs, ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. For EGCs, the standard is effective for fiscal years beginning after December 15, 2021. The Company expects to adopt the new standard in the first quarter of 2022. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on its financial statements and related disclosures.

3. Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Lab equipment

 

$

3,855

 

 

$

3,748

 

Leasehold improvements

 

 

1,710

 

 

 

1,710

 

Computer hardware and software

 

 

156

 

 

 

158

 

Furniture and fixtures

 

 

140

 

 

 

140

 

Total property and equipment, gross

 

 

5,861

 

 

 

5,756

 

Less accumulated depreciation

 

 

(3,765

)

 

 

(3,515

)

Total property and equipment, net

 

$

2,096

 

 

$

2,241

 

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4. Accrued Other Liabilities

Accrued other liabilities consisted of the following (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Accrued compensation

 

$

1,019

 

 

$

1,883

 

Accrued deferred financing costs

 

 

675

 

 

 

1,244

 

Deferred rent - short-term

 

 

509

 

 

 

495

 

Accrued clinical development costs

 

 

877

 

 

 

484

 

Accrued manufacturing costs

 

 

369

 

 

 

479

 

Accrued professional fees

 

 

157

 

 

 

175

 

Accrued legal fees

 

 

93

 

 

 

163

 

Share purchase liability

 

 

36

 

 

 

39

 

Other accruals

 

 

275

 

 

 

240

 

Total accrued other liabilities

 

$

4,010

 

 

$

5,202

 

 

 

5. Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

At March 31, 2020 and December 31, 2019, the carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, accounts payable and accrued expenses, approximate fair value because of their short maturities. Included in cash and cash equivalents at March 31, 2020 and December 31, 2019 are money market funds with a carrying value and fair value of $79.4 million and $88.1 million, respectively, based upon a Level 1 fair value assessment.

As of March 31, 2020 and December 31, 2019, the Company did not hold any Level 2 or Level 3 financial assets.

6. Convertible Preferred Stock

Issued and outstanding convertible preferred stock and its principal terms as of March 31, 2020 and December 31, 2019 were as follows (in thousands, except share and per share amounts):

 

 

 

Shares

Authorized

 

 

Shares Issued

and Outstanding

 

 

Issue Period

 

Issue Price per

Share

 

 

Dividend Annual

Rate per Share

 

 

Aggregate

Liquidation

Preference

 

Series A

 

 

3,862,500

 

 

 

3,862,500

 

 

2014- 2015

 

$

4.00

 

 

$

0.32

 

 

$

15,450

 

Series B

 

 

6,750,000

 

 

 

6,749,999

 

 

2015 - 2016

 

$

8.00

 

 

$

0.64

 

 

$

54,000

 

Series C

 

 

4,448,788

 

 

 

4,448,780

 

 

2018 - 2019

 

$

12.00

 

 

$

0.96

 

 

$

53,385

 

Series D

 

 

5,287,500

 

 

 

4,217,327

 

 

2019

 

$

13.20

 

 

$

1.056

 

 

$

55,669

 

Total

 

 

20,348,788

 

 

 

19,278,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Holders of the convertible preferred stock, in preference to any distributions to the holders of common stock, shall be entitled to receive dividends at an annual rate. Such dividends shall be payable only when and if declared by the Company’s Board of Directors and shall not be cumulative. No such dividends have been declared or paid through March 31, 2020.

Following the closing of the IPO, all outstanding shares of the convertible preferred stock converted into 19,278,606 shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital. There were no shares of convertible preferred stock outstanding as of the closing of the IPO on April 28, 2020.

9


 

7. Stock-Based Compensation

2014 Incentive Plan

In October 2014, the Company approved the 2014 Equity Incentive Plan (the 2014 Plan). The 2014 Plan provides for the issuance of 16,035,400 shares of common stock to officers, directors, employees, non-employee directors, and consultants of the Company. The 2014 Plan allows for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock unit awards and other stock awards. As of March 31, 2020 and December 31, 2019, there were 214,751 and 203,696, respectively, options remaining available for future issuance under the 2014 Plan.

The options that were granted from the 2014 Plan are exercisable at various dates as determined upon grant and will expire no more than ten years from their date of grant. Stock options generally vest over a four-year term. The exercise price of each option shall be determined by the Company’s Board of Directors, although generally options have an exercise price equal to the fair market value of the Company’s stock on the date of the option grant. In the case of incentive stock options, the exercise price shall not be less than 100% of the fair market value of the Company’s common stock at the time the option is granted. For holders of more than 10% of the Company’s total combined voting power of all classes of stock, incentive stock options may not be granted at less than 110% of the fair market value of the Company’s common stock at the date of grant and for a term not to exceed five years.

The following table summarizes the option activity:

 

 

 

Options

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Outstanding at December 31, 2019

 

 

2,683,441

 

 

$

3.75

 

 

 

9.0

 

 

 

 

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Exercised

 

 

(13,433

)

 

 

1.24

 

 

 

7.7

 

 

 

 

 

Forfeited and cancelled

 

 

(11,055

)

 

 

1.60

 

 

 

8.5

 

 

 

 

 

Outstanding at March 31, 2020

 

 

2,658,953

 

 

$

3.76

 

 

 

8.8

 

 

$

29,929

 

Exercisable at March 31, 2020

 

 

820,963

 

 

$

2.40

 

 

 

8.4

 

 

$

10,349

 

 

Certain individuals were granted the ability to early exercise their stock options. The shares of common stock issued from the early exercise of unvested stock options are restricted and continue to vest in accordance with the original vesting schedule. The Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. The shares purchased by the employees and non-employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding until those shares vest. The cash received in exchange for exercised and unvested shares related to stock options granted is recorded as a liability for the early exercise of stock options on the accompanying balance sheets and will be transferred into common stock and additional paid-in capital as the shares vest. As of March 31, 2020 and December 31, 2019, there were 26,056 shares and 29,579 shares subject to repurchase by the Company, respectively. As of March 31, 2020 and December 31, 2019, the Company recorded less than $0.1 million of liabilities associated with shares issued with repurchase rights.

Fair Value of Common Stock

Prior to the Company’s IPO, the fair value of the Company’s common stock underlying the stock options was determined by the Board of Directors with assistance from management and, in part, on input from an independent third-party valuation firm. The Board of Directors determines the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. Subsequent to the Company’s IPO, the fair value of the Company’s common stock is determined based on its closing market price.

10


 

The fair value of stock options was estimated using the Black-Scholes Merton option pricing model with the following assumptions:  

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

2019

 

Stock price

 

-

 

$

1.60

 

Risk-free interest rate

 

-

 

2.58%

 

Expected volatility

 

-

 

100.5%

 

Expected term (in years)

 

-

 

 

6.1

 

Expected dividend yield

 

-

 

0%

 

 

The Company recognized stock-based compensation expense of $0.5 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively. The total unrecognized compensation expense related to outstanding unvested stock-based awards as of March 31, 2020 and 2019 was $6.3 million and $2.4 million, respectively, which is expected to be recognized over a weighted-average remaining service period for 3.2 years for 2019 and 2020.  

8. Income Taxes

No income tax expense or benefit was recorded for the three months ended March 31, 2020 and 2019, due to the full valuation allowance on the Company’s net deferred tax assets. The full valuation is based on the Company’s assessment that it is more likely than not that the benefits of those deferred tax assets will not be realized.

9. Commitments and Contingencies

Operating Leases

Rent expense is recorded on a straight-line basis over the term of the respective lease. Total rent expense for South San Francisco and San Diego locations was $0.3 million for the three months ended March 31, 2020 and 2019.

Future minimum lease payments under non-cancelable operating leases as of March 31, 2020 were as follows (in thousands):

 

 

 

Operating Leases

 

2020 remaining nine months

 

$

1,427

 

2021

 

 

1,871

 

2022

 

 

686

 

Total minimum lease payments

 

$

3,984

 

Litigation

From time to time, the Company may be involved in legal proceedings arising in the ordinary course of business. The Company believes there is no threatened litigation or litigation pending that could have, individually or in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

10. Employee Benefit Plan

The Company has a defined-contribution 401(k) plan for employees. Employees are eligible to participate in the plan beginning on the first day of the month following date of hire. Under the terms of the plan, employees may make voluntary contributions as a percentage of compensation and the Company has the option to make a discretionary match as determined by the Company’s Board of Directors, within prescribed limits. There were no employer contributions to the plan during the period ended March 31, 2020 or March 31, 2019.

11. Subsequent Events

On April 21, 2020, the Company amended its certificate of incorporation to effect a one-for-four reverse stock split of its issued and outstanding capital stock. The accompanying financial statements and related notes give retroactive effect to the reverse stock split for all periods presented.

On April 22, 2020, the 2014 Plan terminated, and the Company will not grant any additional awards under the 2014 Plan. On April 22, 2020, the Company’s 2020 Equity Incentive Plan (the 2020 Plan) and the Company’s 2020 Employee Stock Purchase Plan (the 2020 ESPP) became effective. The 2020 Plan authorizes 2,656,500 shares plus the number of shares (not to exceed 3,000,000 shares) that remain unissued under the 2014 Plan as of the effective date of the 2020 Plan and the shares subject to or issued pursuant

11


 

to awards granted under the 2014 Plan that subsequently expire or otherwise terminate without having been exercised or issued in full, are tendered or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest. The 2020 Plan also provides for certain automatic increases in the number of shares of common stock reserved for issuance under the 2020 Plan.  Under the 2020 ESPP, 290,000 shares of common stock are reserved for future issuance. The 2020 ESPP also provides for certain automatic increases in the number of shares of common stock reserved for future issuance under the 2020 ESPP.

On April 28, 2020, the Company completed an IPO selling 8,625,000 shares of common stock, which includes the full exercise by the underwriters of their option to purchase up to 1,125,000 additional shares, at a price of $16.00 per share. Gross proceeds from the IPO, excluding underwriting discounts and commissions and other offering expenses, were $138.0 million. In addition, in connection with the IPO, all shares of convertible preferred stock outstanding at the time of the IPO converted into 19,278,606 shares of common stock.

12


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited financial statements and the related notes and other financial information included in this quarterly report on Form 10-Q and our audited financial statements and notes thereto as of and for the years ended December 31, 2018 and 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, including Contractual Obligations and Critical Accounting Policies and Significant Judgments and Estimates, included in our final prospectus filed with the Securities and Exchange Commission (SEC) on April 24, 2020 relating to our Registration Statements on Form S-1 (File Nos. 333-236792 and 333-237814).  Unless the context requires otherwise, references in this quarterly report on Form 10-Q to “we,” “us,” and “our” refer to ORIC Pharmaceuticals, Inc.

 

In addition to historical information, this quarterly report contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under the captions “Special Note Regarding Forward-Looking Statements” and “Risk Factors” in this quarterly report, as updated by our subsequent filings under the Securities Exchange Act of 1934, as amended. Furthermore, past operating results are not necessarily indicative of results that may occur in future periods.

 

Overview

ORIC Pharmaceuticals is a clinical-stage biopharmaceutical company dedicated to improving patients’ lives by Overcoming Resistance In Cancer.

Our fully integrated discovery and development team is advancing a diverse pipeline of innovative therapies designed to counter resistance mechanisms in cancer by leveraging our expertise within three specific areas: hormone-dependent cancers, precision oncology and key tumor dependencies. Our lead product candidate, ORIC-101, builds upon a legacy of successful drug development by our founders in the field of nuclear hormone receptors and their efforts to elucidate the cause of resistance to the groundbreaking prostate cancer therapies that they had developed. ORIC-101 is a potent and selective small molecule antagonist of the glucocorticoid receptor (GR), which has been linked to resistance to multiple classes of cancer therapeutics across a variety of solid tumors. In 2019, we initiated two separate Phase 1b trials of ORIC-101 in combination with (1) Xtandi (enzalutamide) in metastatic prostate cancer and (2) Abraxane (nab-paclitaxel) in advanced or metastatic solid tumors, and we expect to report interim data from one of these trials in the first half of 2021 and from the other trial in the second half of 2021. Our second product candidate, ORIC-533, is an orally bioavailable small molecule inhibitor of CD73, a key node in the adenosine pathway believed to play a central role in resistance to chemotherapy- and immunotherapy- based treatment regimens. We expect to file an IND for ORIC-533 in the first half of 2021. Beyond these two product candidates, we are developing multiple precision medicines targeting other hallmark cancer resistance mechanisms.

Since our inception in 2014, we have substantially devoted our resources to research and development activities, including with respect to our GR antagonist and CD73 inhibitor programs and other preclinical programs, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital and providing general and administrative support for these operations.

We have incurred significant losses since the commencement of our operations. Our net losses were $8.9 million and $6.0 million for the three months ended March 31, 2020 and 2019, respectively, and we expect to continue to incur significant losses for the foreseeable future as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates. As of March 31, 2020, we had an accumulated deficit of $101.6 million. These losses have resulted primarily from costs incurred in connection with research and development activities and to a lesser extent from general and administrative costs associated with our operations. We expect to incur significant and increasing expenses and operating losses for the foreseeable future. Our net losses may fluctuate significantly from period to period, depending on the timing of and expenditures on our planned research and development activities. Additionally, in March 2020, the World Health Organization declared the novel coronavirus disease, or COVID-19, outbreak a global pandemic. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended operating activities. Beginning the week of March 16, 2020, the majority of our workforce began working from home. The effects of the stay-at-home orders and work-from-home policies may negatively impact productivity, disrupt our business and delay our development programs and regulatory timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct business in the ordinary course. As a result, research and development expenses and general and administrative expenses may vary significantly if there is an increased impact from COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related business activities.

On April 28, 2020, we completed the IPO of our common stock. In connection with the IPO, we issued and sold 8,625,000 shares of our common stock, including 1,125,000 shares associated with the full exercise of the underwriters’ option to purchase

13


 

additional shares, at a price to the public of $16.00 per share. Gross proceeds were $138.0 million excluding underwriting discounts and commissions or other offering expenses payable by us. 

Components of Operating Results

Research and Development

Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal costs incurred in connection with the discovery and development of our product candidates.

External expenses include: 

 

payments to third parties in connection with the clinical development of our product candidates, including CROs and consultants;

 

the cost of manufacturing products for use in our preclinical studies and clinical trials, including payments to CMOs and consultants;

 

payments to third parties in connection with the preclinical development of our product candidates, including outsourced professional scientific development services, consulting research fees and for sponsored research arrangements with third parties;

 

laboratory supplies; and

 

allocated facilities, depreciation and other expenses, which include direct or allocated expenses for IT, rent and maintenance of facilities.

Internal expenses include employee-related costs such as salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions.

We expense research and development costs in the periods in which they are incurred. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date. We track external costs by the stage of program, clinical or preclinical. We do not track internal costs by program because these costs are deployed across multiple programs and, as such, are not separately classified.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially in the foreseeable future as we advance our product candidates through preclinical studies and clinical trials; continue to discover and develop additional product candidates and expand our pipeline; maintain, expand, protect and enforce our intellectual property portfolio; and hire additional personnel.

The successful development of our product candidates is highly uncertain, and we do not believe it is possible at this time to accurately project the nature, timing and estimated costs of the efforts necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. To the extent our product candidates continue to advance into clinical trials, as well as advance into larger and later-stage clinical trials, our expenses will increase substantially and may become more variable. We are also unable to predict when, if ever, we will generate revenue from our product candidates to offset these expenses. Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:

 

 

the timing and progress of preclinical and clinical development activities;

 

the number and scope of preclinical and clinical programs we decide to pursue;

 

our ability to maintain our current research and development programs and to establish new ones;

 

establishing an appropriate safety profile with IND-enabling toxicology studies;

 

successful patient enrollment in, and the initiation and completion of, clinical trials;

 

the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

 

the receipt of regulatory approvals from applicable regulatory authorities;

 

the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;

14


 

 

our ability to establish licensing or collaboration arrangements;

 

the performance of our future collaborators, if any;

 

obtaining and retaining research and development personnel;

 

establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

 

development and timely delivery of commercial-grade product formulations that can be used in our planned clinical trials and for commercial launch;

 

obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;

 

launching commercial sales of our product candidates, if approved, whether alone or in collaboration with others; and

 

maintaining a continued acceptable safety profile of our products following approval.

Any changes in the outcome of any of these factors could significantly impact the costs, timing and viability associated with the development of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, related benefits and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include allocated facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance, not otherwise included in research and development expenses, as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We expect that our general and administrative expenses will increase substantially in the foreseeable future as we increase our headcount to support the continued research and development of our programs and the growth of our business. We also anticipate increased expenses relating to accounting, audit, legal, regulatory, compliance, director and officer insurance and investor and public relations costs associated with operating as a public company.

Total Other Income

Interest income, net and other income, net primarily consists of interest income generated from our investments in interest-bearing money market accounts. Other income primarily consists of rental income from the sub-lease of a portion of our office in South San Francisco, California.

Results of Operations

Comparison of the three months ended March 31, 2020 and 2019

The following table summarizes our results of operations for the three months ended March 31, 2020 and 2019 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

7,254

 

 

$

5,212

 

 

$

2,042

 

General and administrative

 

 

1,925

 

 

 

1,134

 

 

 

791

 

Total operating expenses

 

 

9,179

 

 

 

6,346

 

 

 

2,833

 

Loss from operations

 

 

(9,179

)

 

 

(6,346

)

 

 

(2,833

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

241

 

 

 

261

 

 

 

(20

)

Other income

 

 

66

 

 

 

70