10-Q
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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 June 30, 2021

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 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  ☒

As of August 5, 2021, the registrant had 39,317,686 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

3

Balance Sheets

3

Statements of Operations and Comprehensive Loss

4

 

Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

5

Statements of Cash Flows

6

Notes to Unaudited Financial Statements

7

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

Item 4.

Controls and Procedures

21

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3.

Defaults Upon Senior Securities

74

Item 4.

Mine Safety Disclosures

74

Item 5.

Other Information

74

Item 6.

Exhibits

75

SIGNATURES

76

 

 

 

i


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, ORIC-944, ORIC-114 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, or IND, or Clinical Trial Application, or CTA, applications and final Food and Drug Administration, or FDA, approval of ORIC-101, ORIC-533, ORIC-944, ORIC-114 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, ORIC-944, ORIC-114 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, ORIC-944, ORIC-114 and other product candidates we may develop, if approved;

1


the rate and degree of market acceptance and clinical utility of ORIC-101, ORIC-533, ORIC-944, ORIC-114 and other product candidates we may develop;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our financial performance;
the period over which we estimate our existing cash, cash equivalents and short-term investments 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, 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.

 

2


Part I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

ORIC PHARMACEUTICALS, INC.

BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(unaudited)

 

 

 

 

Assets

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

170,078

 

 

$

78,446

 

Short-term investments

 

 

90,990

 

 

 

215,154

 

Prepaid expenses and other current assets

 

 

3,884

 

 

 

3,097

 

Total current assets

 

 

264,952

 

 

 

296,697

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,828

 

 

 

1,981

 

Other assets

 

 

1,447

 

 

 

319

 

Total assets

 

$

268,227

 

 

$

298,997

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

838

 

 

$

757

 

Accrued liabilities

 

 

9,066

 

 

 

8,245

 

Total current liabilities

 

 

9,904

 

 

 

9,002

 

 

 

 

 

 

 

Other long-term liabilities

 

 

 

 

 

219

 

Total liabilities

 

 

9,904

 

 

 

9,221

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 200,000,000 shares authorized; no shares issued and outstanding at June 30, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.0001 par value; 1,000,000,000 shares authorized; 36,715,612 shares and 36,672,415 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

462,227

 

 

 

456,196

 

Accumulated deficit

 

 

(203,911

)

 

 

(166,393

)

Accumulated other comprehensive gain (loss)

 

 

3

 

 

 

(31

)

Total stockholders' equity

 

 

258,323

 

 

 

289,776

 

Total liabilities and stockholders' equity

 

$

268,227

 

 

$

298,997

 

 

See accompanying notes to unaudited financial statements.

3


ORIC PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except share and per share amounts)

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

15,517

 

 

$

7,723

 

 

$

27,214

 

 

$

14,977

 

General and administrative

 

5,540

 

 

 

3,400

 

 

 

10,396

 

 

 

5,325

 

Total operating expenses

 

21,057

 

 

 

11,123

 

 

 

37,610

 

 

 

20,302

 

Loss from operations

 

(21,057

)

 

 

(11,123

)

 

 

(37,610

)

 

 

(20,302

)

 

 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

33

 

 

 

25

 

 

 

77

 

 

 

266

 

Other income

 

15

 

 

 

74

 

 

 

15

 

 

 

140

 

Total other income

 

48

 

 

 

99

 

 

 

92

 

 

 

406

 

Net loss

$

(21,009

)

 

$

(11,024

)

 

$

(37,518

)

 

$

(19,896

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 Unrealized (loss) gain on available-for-sale securities

 

(14

)

 

 

 

 

 

34

 

 

 

 

Comprehensive loss

$

(21,023

)

 

$

(11,024

)

 

$

(37,484

)

 

$

(19,896

)

Net loss per share, basic and diluted

$

(0.57

)

 

$

(0.51

)

 

$

(1.02

)

 

$

(1.68

)

Weighted-average shares outstanding, basic and diluted

 

36,701,836

 

 

 

21,627,361

 

 

 

36,690,824

 

 

 

11,808,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited financial statements.

 

4


 

ORIC PHARMACEUTICALS, INC.

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(in thousands, except share amounts)

 

 

 

 

Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated Other Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Gain (Loss)

 

 

Equity

 

Balance at December 31, 2020

 

 

 

 

$

 

 

 

36,672,415

 

 

$

4

 

 

$

456,196

 

 

$

(166,393

)

 

$

(31

)

 

$

289,776

 

Exercise of common stock options

 

 

 

 

 

 

 

 

18,411

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,744

 

 

 

 

 

 

 

 

 

2,744

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

48

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,509

)

 

 

 

 

 

(16,509

)

Balance at March 31, 2021

 

 

 

 

$

 

 

 

36,690,826

 

 

$

4

 

 

$

458,956

 

 

$

(182,902

)

 

$

17

 

 

$

276,075

 

Exercise of common stock options

 

 

 

 

 

 

 

 

24,786

 

 

 

 

 

 

58

 

 

 

 

 

 

 

 

 

58

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,213

 

 

 

 

 

 

 

 

 

3,213

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

(14

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,009

)

 

 

 

 

 

(21,009

)

Balance at June 30, 2021

 

 

 

 

$

 

 

 

36,715,612

 

 

$

4

 

 

$

462,227

 

 

$

(203,911

)

 

$

3

 

 

$

258,323

 

 

 

 

 

Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated Other Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

 Gain (Loss)

 

 

Deficit

 

Balance at December 31, 2019

 

 

19,278,606

 

 

$

178,058

 

 

 

1,984,222

 

 

$

 

 

$

2,606

 

 

$

(92,690

)

 

$

 

 

$

(90,084

)

Exercise of common stock options

 

 

 

 

 

 

 

 

13,433

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

527

 

 

 

 

 

 

 

 

 

527

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,872

)

 

 

 

 

 

(8,872

)

Balance at March 31, 2020

 

 

19,278,606

 

 

$

178,058

 

 

 

1,997,655

 

 

$

 

 

$

3,145

 

 

$

(101,562

)

 

$

 

 

$

(98,417

)

Exercise of common stock options

 

 

 

 

 

 

 

 

23,200

 

 

 

 

 

 

39

 

 

 

 

 

 

 

 

 

39

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,381

 

 

 

 

 

 

 

 

 

1,381

 

Initial public offering of common stock

 

 

 

 

 

 

 

 

8,625,000

 

 

 

1

 

 

 

137,999

 

 

 

 

 

 

 

 

 

138,000

 

Issuance costs associated with initial public offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,790

)

 

 

 

 

 

 

 

 

(12,790

)

Conversion to common stock

 

 

(19,278,606

)

 

 

(178,058

)

 

 

19,278,606

 

 

 

2

 

 

 

178,056

 

 

 

 

 

 

 

 

 

178,058

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,024

)

 

 

 

 

 

(11,024

)

Balance at June 30, 2020

 

 

 

 

$

 

 

 

29,924,461

 

 

$

3

 

 

$

307,830

 

 

$

(112,586

)

 

$

 

 

$

195,247

 

 

 

 

See accompanying notes to unaudited financial statements.

 

5


 

ORIC PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

Six Months Ended
June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(37,518

)

 

$

(19,896

)

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

 

 

 

 

 

 

Depreciation

 

 

451

 

 

 

496

 

Stock-based compensation expense

 

 

5,957

 

 

 

1,908

 

Loss on fixed asset disposals

 

 

3

 

 

 

 

Amortization of premium on investments, net

 

 

870

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

307

 

 

 

(1,746

)

Accounts payable and accrued other liabilities

 

 

(1,185

)

 

 

1,375

 

Net cash used in operating activities

 

 

(31,115

)

 

 

(17,863

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisitions of property and equipment

 

 

(317

)

 

 

(206

)

Purchases of investments

 

 

(25,171

)

 

 

 

Sales and maturities of investments

 

 

148,500

 

 

 

 

Proceeds from notes receivable

 

 

 

 

 

193

 

Net cash provided by (used in) investing activities

 

 

123,012

 

 

 

(13

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

 

 

 

138,000

 

Issuance costs associated with financings

 

 

(339

)

 

 

(12,692

)

Proceeds from stock option exercises

 

 

74

 

 

 

51

 

Net cash (used in) provided by financing activities

 

 

(265

)

 

 

125,359

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

91,632

 

 

 

107,483

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

78,446

 

 

 

89,159

 

Cash and cash equivalents, end of period

 

$

170,078

 

 

$

196,642

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Amounts accrued for purchase of property and equipment

 

$

28

 

 

$

27

 

Conversion of preferred stock to common stock

 

$

 

 

$

178,058

 

 

See accompanying notes to unaudited financial statements.

6


 

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. The Company’s principal operations are in the United States and the Company operates in one segment.

Since inception, the Company has devoted its primary efforts to raising capital, internal research and development activities and business development efforts, and has incurred significant operating losses and negative cash flows from operations. In August 2020, the Company licensed from Mirati Therapeutics, Inc. development and commercialization rights to an allosteric inhibitor program directed towards the polycomb repressive complex 2 (PRC2) and in October 2020, the Company licensed from Voronoi, Inc. development and commercialization rights to a brain penetrant, orally bioavailable, irreversible inhibitor designed to selectively target epidermal growth factor receptor (EGFR) and human epidermal growth factor receptor 2 (HER2) with high potency against exon 20 insertion mutations.

As of June 30, 2021, the Company had an accumulated deficit of $203.9 million. Through June 30, 2021, all of the Company’s financial support has been provided by proceeds from the issuance of common stock and from the sale of 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 financial statements.

At-The-Market Sales Agreement and Offering

On May 6, 2021, the Company entered into an "at the market" (ATM) sales agreement with Jefferies LLC as the Company's sales agent, under which the Company may offer and sell from time to time up to $150 million of shares of the Company's common stock in negotiated transactions or transactions that are deemed to be an ATM offering. On July 8, 2021, the Company raised gross proceeds of $50.0 million through the sale of 2,597,402 shares in an ATM offering, with participation based on unsolicited interest received from a healthcare specialist fund. The Company sold such shares at a purchase price per share of $19.25, a premium to the market price at the time of sale.

Secondary Public Offering

On November 17, 2020, the Company completed a secondary public offering selling 5,796,000 shares of common stock, which included the full exercise by the underwriters of their option to purchase up to 756,000 additional shares, at a price of $23.00 per share, resulting in gross proceeds of $133.3 million. After deducting underwriting discounts and commissions and other offering expenses related to the secondary public offering of approximately $8.5 million, the net proceeds to the Company from the transaction were $124.8 million.

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 included 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 resulting in gross proceeds of $138.0 million. After deducting underwriting discounts and commissions and other offering expenses related to the IPO of $12.8 million, the net proceeds to the Company from the transaction were $125.2 million. 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, where applicable, to the reverse stock split.

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 GAAP, have been omitted. The accompanying unaudited financial statements

7


 

include all known adjustments necessary for a fair presentation of the results as required by GAAP. These adjustments consist primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. Operating results for the interim period are not necessarily indicative of future results. 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. A portion of the Company’s workforce continues to work from home. Disruptions caused by the COVID-19 pandemic, including the effects of the stay-at-home orders and work-from-home policies, have impacted productivity, have resulted in increased operational expenses, certain adjustments to the operations of the Company’s clinical trials, the temporary suspension of enrollment of new patients at certain of the Company’s clinical trial sites, and delays in certain supply chain activities and collecting and analyzing data from patients in the Company’s clinical trials, and may further 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, 2020, which are included in the Company’s Annual Report on Form 10-K filed with the SEC. Furthermore, the Company’s significant accounting policies are disclosed in the audited financial statements for the periods ended December 31, 2020 and 2019, included in the Company’s Annual Report on Form 10-K. Since the date of those financial statements, there have been no changes to its significant accounting policies, except as noted below.

Recently Adopted Accounting Pronouncements

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

In February 2016, the FASB issued Accounting Standards Update (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 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. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term 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 months or less as leases in the scope of the new standard. ASC 842 supersedes the previous leases standard, ASC 840 Leases. ASC 842 requires 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. 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. On January 1, 2021, the Company early adopted ASC 842 using the modified retrospective approach. Accordingly, prior period financial information and disclosures have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under the previous lease standard. In addition, the Company elected the package of practical expedients available for existing contracts, which allowed it to carry forward historical assessments of lease identification, lease classification, and initial direct costs. As a result of adopting ASC 842, the Company recognized right-of-use assets and lease liabilities of $1.7 million and $2.5 million, respectively, on January 1, 2021, which are related to our facility operating leases (Note 9). The difference between the right-of-use assets and lease liabilities is primarily attributed to the elimination of deferred rent and unamortized lease incentives. There was no adjustment to the opening balance of accumulated deficit as a result of the adoption of ASC 842.

The Company determines if an arrangement is or contains a lease at inception. The Company’s operating leases with an initial term greater than one year are included in operating lease right-of-use assets, operating lease liabilities and operating lease liabilities, less current portion, which are included in other assets, accrued liabilities and other long-term liabilities, respectively, on our balance sheet as of June 30, 2021. Right-of-use assets represent the right to use an underlying asset during the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date, based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate which represents an estimated rate of interest that the Company would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date.

The Company’s operating leases may include options to extend the lease which are included in the lease term when it is reasonably certain that we will exercise a renewal option. Operating lease expense is recognized on a straight-line basis over the expected lease term.

8


 

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. The guidance is effective for public business entities for annual periods beginning after December 15, 2019, including interim periods within those years. For all other entities, the standard is effective for annual periods beginning after December 15, 2022 and interim periods, therein. Early adoption is permitted. The Company early adopted the new standard in the first quarter of 2021, using the modified retrospective approach. The adoption did not have a material impact on its financial statements.

In accordance with ASU 2016-13, the Company will no longer evaluate whether its available-for-sale debt securities in an unrealized loss position are other than temporarily impaired. Instead, the Company will assess whether such unrealized loss positions are credit-related. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account. Unrealized gains and losses that are not credit-related are included in accumulated other comprehensive income (loss). 

3. License Agreements

Mirati License Agreement

On August 3, 2020, the Company entered into a license agreement (Mirati License Agreement) with Mirati Therapeutics, Inc (Mirati). Under the Mirati License Agreement, Mirati granted the Company a worldwide, exclusive, sublicensable, royalty-free license under Mirati’s rights to certain patents and patent applications directed to certain small molecule compounds that bind to and inhibit PRC2 and certain related know-how, in each case, to develop and commercialize certain licensed compounds and licensed products incorporating any such compounds. Under the Mirati License Agreement, the Company is wholly responsible for development and commercialization of licensed products. In addition, the Company is obligated to use commercially reasonable efforts to develop and commercialize at least one licensed product in certain major markets.

Unless earlier terminated, the Mirati License Agreement will continue in effect on a country-by-country and licensed product-by-licensed product basis until the later of (a) the expiration of the last valid claim of a licensed patent covering such licensed product in such country or (b) ten years after the first commercial sale of such licensed product in such country. Following the expiration of the Mirati License Agreement, the Company will retain its licenses under the intellectual property Mirati licensed to it on a royalty-free basis. ORIC and Mirati may each terminate the Mirati License Agreement if the other party materially breaches the terms of such agreement, subject to specified notice and cure provisions, or enters into bankruptcy or insolvency proceedings. Mirati may terminate the agreement if the Company challenges any of the patent rights licensed to the Company by Mirati or it discontinues development of licensed products for a specified period of time. The Company also has the right to terminate the Mirati License Agreement without cause by providing prior notice to Mirati.

The Company’s financial obligation under the Mirati License Agreement was comprised of an upfront payment of 588,235 shares of ORIC common stock, valued at approximately $13.0 million based upon the closing price of the Company’s common stock on the acquisition date. The number of shares issued was based on a price of $34.00 per share, representing a premium of 10% to the 60-day trailing volume-weighted average trading price of the Company’s common stock. The shares were issued in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions by an issuer not involving any public offering. During the eighteen-month period following the date of the agreement, Mirati is subject to certain transfer restrictions, and the parties agreed to negotiate and enter into a registration rights agreement, with respect to the shares. The Company is not obligated to pay Mirati milestones or royalties.

The Company recorded the transaction as an asset purchase as management concluded that all of the value received was related to a single identifiable asset. Further, as the asset was in early development at the time the license was acquired, the Company concluded that there was no alternative future use for the asset and recorded a charge to acquired in process research and development at the closing of the transaction in August 2020 for the full $13.0 million value assigned to the shares issued in connection with Mirati License Agreement.

Voronoi License Agreement

On October 19, 2020, the Company entered into a license and collaboration agreement (Voronoi License Agreement) with Voronoi Inc. (Voronoi). The Voronoi License Agreement gives the Company access to Voronoi’s preclinical stage EGFR and HER2 exon 20 insertion mutation program, including a lead product candidate now designated as ORIC-114. Under the Voronoi License Agreement, Voronoi granted the Company an exclusive, sublicensable license under Voronoi’s rights to certain patent applications directed to certain small molecule compounds that bind to EGFR and HER2 with one or more exon 20 insertion mutations and certain related know-how, in each case, to develop and commercialize certain licensed compounds and licensed products incorporating any

9


 

such compound worldwide (other than in the People’s Republic of China, Hong Kong, Macau and Taiwan) (the ORIC Territory). Under the Voronoi License Agreement, Voronoi has the right to perform certain mutually agreed upon development activities. Except for Voronoi's right to participate in such development activities, the Company is wholly responsible for development and commercialization of licensed products in the ORIC Territory. In addition, the Company is obligated to use commercially reasonable efforts to develop and commercialize at least one licensed product in certain major markets in the ORIC Territory.

The Company’s financial obligations under the Voronoi License Agreement included an upfront payment comprised of a $5.0 million cash payment and the issuance to Voronoi of 283,259 shares of the Company’s common stock, valued at approximately $6.8 million, issued pursuant to a stock issuance agreement (Stock Agreement) entered into between the parties on October 19, 2020. The number of shares issued pursuant to the Stock Agreement was based on a price of $28.24 per share, representing a premium of 25% to the 30-day trailing volume weighted average trading price of the Company’s common stock. The shares were issued in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions by an issuer not involving any public offering.

Under the Voronoi License Agreement, Voronoi will be responsible for certain research and development costs up to a predetermined threshold. Upon achievement of the predetermined threshold, Voronoi has the option to opt-out of participation in and funding of future development activities. If Voronoi decides not to exercise the opt-out provision, the parties would share certain future research and development costs equally in the Republic of Korea. The Company is also obligated to make milestone payments to Voronoi upon the achievement of certain events. Upon the achievement of certain development and regulatory milestones with respect to the first licensed product, the Company is obligated to pay Voronoi up to a maximum of $111.0 million. Upon the achievement of certain commercial milestones with respect to the first licensed product, the Company is obligated to pay Voronoi up to a maximum of $225.0 million. If the Company pursues a second licensed product, the Company would pay Voronoi up to an additional $272.0 million in success-based milestones. In addition, the Company is obligated to pay royalties on net sales of licensed products in the ORIC Territory.

Unless earlier terminated, the Voronoi License Agreement will continue in effect until the expiration of all royalty payment obligations. Following the expiration of the Voronoi License Agreement, the Company will retain its licenses under the intellectual property Voronoi licensed to it on a royalty-free basis. The Company and Voronoi may each terminate the Voronoi License Agreement if the other party materially breaches the terms of such agreement, subject to specified notice and cure provisions, or enters into bankruptcy or insolvency proceedings. Voronoi may also terminate the agreement if the Company discontinues development of licensed products for a specified period of time. The Company also has the right to terminate the Voronoi License Agreement without cause by providing prior notice to Voronoi.

If Voronoi terminates the Voronoi License Agreement for cause, or if the Company terminates the Voronoi License Agreement without cause, then the Company is obligated to grant a nonexclusive license to Voronoi under certain of the Company’s patents and know-how and to assign to Voronoi certain of its regulatory filings for licensed compounds and licensed products.

The Company recorded the transaction as an asset purchase as management concluded that all of the value received was related to a specific identifiable asset related to EGFR and HER2. Further, as the asset was in early development at the time the license was acquired, the Company concluded that there was no alternative future use for the asset and recorded a charge to acquired in process research and development expense of $11.8 million at the closing of the transaction in October 2020, which consisted of the $5.0 million cash payment plus the $6.8 million value assigned to the shares issued in connection with Voronoi License Agreement.

4. Property and Equipment, net

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

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Lab equipment

 

$

4,520

 

 

$

4,396

 

Leasehold improvements

 

 

1,710

 

 

 

1,710

 

Computer hardware and software

 

 

212

 

 

 

220

 

Furniture and fixtures

 

 

140

 

 

 

140

 

Total property and equipment, gross

 

 

6,582

 

 

 

6,466

 

Less accumulated depreciation

 

 

(4,754

)

 

 

(4,485

)

Total property and equipment, net

 

$

1,828

 

 

$

1,981

 

 

10


 

5. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Accrued clinical and manufacturing costs

 

$

4,314

 

 

$

3,072

 

Lease liabilities - short-term

 

 

1,614

 

 

 —

 

Accrued compensation

 

 

2,398

 

 

 

3,723

 

Other accruals

 

 

740

 

 

 

904

 

Deferred rent - short-term

 

 

-

 

 

 

546

 

Total accrued liabilities

 

$

9,066

 

 

$

8,245

 

 

6. Short-Term Investments

The Company’s investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. In accordance with the Company’s investment policy, it has invested funds in available-for-sale securities as of June 30, 2021 and December 31, 2020.

The Company's available-for-sale securities consisted of the following (in thousands):

 

At June 30, 2021

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Estimated
Fair Value

 

U.S. treasury securities

 

$

90,987

 

 

$

3

 

 

$

 

 

$

90,990

 

Total

 

$

90,987

 

 

$

3

 

 

$

 

 

$

90,990

 

At December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

215,185

 

 

$

 

 

$

(31

)

 

$

215,154

 

Total

 

$

215,185

 

 

$

 

 

$

(31

)