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, 2022

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 3, 2022, the registrant had 39,576,657 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 Stockholders’ Equity

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

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

Item 4.

Controls and Procedures

19

 

 

 

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

70

Item 3.

Defaults Upon Senior Securities

71

Item 4.

Mine Safety Disclosures

71

Item 5.

Other Information

71

Item 6.

Exhibits

72

SIGNATURES

73

 

 

 

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-533, ORIC-114, ORIC-944 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-533, ORIC-114, ORIC-944 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-533, ORIC-114, ORIC-944 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-533, ORIC-114, ORIC-944 and other product candidates we may develop, if approved;

1


 

the rate and degree of market acceptance and clinical utility of ORIC-533, ORIC-114, ORIC-944 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 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, 2022

 

 

December 31, 2021

 

 

 

(unaudited)

 

 

 

 

Assets

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

49,080

 

 

$

226,006

 

Short-term investments

 

 

177,984

 

 

 

10,973

 

Prepaid expenses and other current assets

 

 

6,462

 

 

 

3,543

 

Total current assets

 

 

233,526

 

 

 

240,522

 

 

 

 

 

 

 

 

Long-term investments

 

 

10,772

 

 

 

43,386

 

Property and equipment, net

 

 

3,005

 

 

 

2,413

 

Other assets

 

 

12,381

 

 

 

12,321

 

Total assets

 

$

259,684

 

 

$

298,642

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,093

 

 

$

1,886

 

Accrued liabilities

 

 

10,381

 

 

 

13,265

 

Total current liabilities

 

 

12,474

 

 

 

15,151

 

 

 

 

 

 

 

 

Other long-term liabilities

 

 

10,340

 

 

 

10,515

 

Total liabilities

 

 

22,814

 

 

 

25,666

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 200,000,000 shares authorized; no shares issued and outstanding at June 30, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.0001 par value; 1,000,000,000 shares authorized; 39,575,454 and 39,430,120 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

526,651

 

 

 

518,183

 

Accumulated deficit

 

 

(288,554

)

 

 

(245,108

)

Accumulated other comprehensive loss

 

 

(1,231

)

 

 

(103

)

Total stockholders' equity

 

 

236,870

 

 

 

272,976

 

Total liabilities and stockholders' equity

 

$

259,684

 

 

$

298,642

 

 

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,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

13,834

 

 

$

15,517

 

 

$

30,662

 

 

$

27,214

 

General and administrative

 

6,862

 

 

 

5,540

 

 

 

13,292

 

 

 

10,396

 

Total operating expenses

 

20,696

 

 

 

21,057

 

 

 

43,954

 

 

 

37,610

 

Loss from operations

 

(20,696

)

 

 

(21,057

)

 

 

(43,954

)

 

 

(37,610

)

 

 

 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

409

 

 

 

33

 

 

 

508

 

 

 

77

 

Other

 

 

 

 

15

 

 

 

 

 

 

15

 

Total other income

 

409

 

 

 

48

 

 

 

508

 

 

 

92

 

Net loss

$

(20,287

)

 

$

(21,009

)

 

$

(43,446

)

 

$

(37,518

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 Unrealized (loss) gain on investments

 

(429

)

 

 

(14

)

 

 

(1,128

)

 

 

34

 

Comprehensive loss

$

(20,716

)

 

$

(21,023

)

 

$

(44,574

)

 

$

(37,484

)

Net loss per share, basic and diluted

$

(0.51

)

 

$

(0.57

)

 

$

(1.10

)

 

$

(1.02

)

Weighted-average shares outstanding, basic and diluted

 

39,481,628

 

 

 

36,701,836

 

 

 

39,456,812

 

 

 

36,690,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited financial statements.

 

4


 

ORIC PHARMACEUTICALS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands, except share amounts)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated Other Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Gain (Loss)

 

 

Equity

 

Balance at December 31, 2021

 

 

39,430,120

 

 

$

4

 

 

$

518,183

 

 

$

(245,108

)

 

$

(103

)

 

$

272,976

 

Exercise of common stock options

 

 

8,482

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,945

 

 

 

 

 

 

 

 

 

3,945

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(699

)

 

 

(699

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(23,159

)

 

 

 

 

 

(23,159

)

Balance at March 31, 2022

 

 

39,438,602

 

 

$

4

 

 

$

522,144

 

 

$

(268,267

)

 

$

(802

)

 

$

253,079

 

Exercise of common stock options

 

 

38,407

 

 

 

 

 

 

61

 

 

 

 

 

 

 

 

 

61

 

Issuance of common stock under the Employee Stock Purchase Plan

 

 

98,445

 

 

 

 

 

 

354

 

 

 

 

 

 

 

 

 

354

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,092

 

 

 

 

 

 

 

 

 

4,092

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(429

)

 

 

(429

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(20,287

)

 

 

 

 

 

(20,287

)

Balance at June 30, 2022

 

 

39,575,454

 

 

$

4

 

 

$

526,651

 

 

$

(288,554

)

 

$

(1,231

)

 

$

236,870

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated Other Comprehensive

 

 

Total
Stockholders'

 

 

 

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 investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

(14

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(21,009

)

 

 

 

 

 

(21,009

)

Balance at June 30, 2021

 

 

36,715,612

 

 

$

4

 

 

$

462,227

 

 

$

(203,911

)

 

$

3

 

 

$

258,323

 

 

See accompanying notes to unaudited financial statements.

5


 

ORIC PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(43,446

)

 

$

(37,518

)

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

 

 

 

 

 

 

Depreciation

 

 

498

 

 

 

451

 

Stock-based compensation expense

 

 

8,037

 

 

 

5,957

 

Loss on fixed asset disposals

 

 

 

 

 

3

 

(Accretion of discount) amortization of premium on investments, net

 

 

(52

)

 

 

870

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(2,112

)

 

 

307

 

Accounts payable and accrued other liabilities

 

 

(3,419

)

 

 

(1,185

)

Net cash used in operating activities

 

 

(40,494

)

 

 

(31,115

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisitions of property and equipment

 

 

(1,390

)

 

 

(317

)

Purchases of investments

 

 

(145,473

)

 

 

(25,171

)

Maturities of investments

 

 

10,000

 

 

 

148,500

 

Net cash (used in) provided by investing activities

 

 

(136,863

)

 

 

123,012

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Issuance costs associated with financings

 

 

 

 

 

(339

)

Proceeds from issuance of common stock under the Employee Stock Purchase Plan

 

 

354

 

 

 

 

Proceeds from stock option exercises

 

 

77

 

 

 

74

 

Net cash provided by (used in) financing activities

 

 

431

 

 

 

(265

)

 

 

 

 

 

 

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(176,926

)

 

 

91,632

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

226,474

 

 

 

78,446

 

Cash, cash equivalents and restricted cash at end of period

 

$

49,548

 

 

$

170,078

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash within the balance sheets to the amounts shown in the statements of cash flows above, in thousands:

 

 

June 30,

 

 

 

2022

 

 

2021

 

Cash and cash equivalents

 

$

49,080

 

 

$

170,078

 

Restricted cash included in other assets

 

 

468

 

 

 

 

Total cash, cash equivalents and restricted cash

 

$

49,548

 

 

$

170,078

 

 

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, 2022, the Company had an accumulated deficit of $288.6 million. Through June 30, 2022, all of the Company’s financial support has been provided by proceeds from the issuance of common stock and 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. After deducting commissions and other offering expenses related to the ATM offering of $1.9 million, the net proceeds to the Company from the transaction were $48.1 million.

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 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. Governments have taken various actions in response to the COVID-19 pandemic, including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended certain operating activities. Disruptions caused by the COVID-19 pandemic have impacted the Company, including the temporary suspension or delayed enrollment of patients in the Company’s clinical trials. The future impacts of the COVID-19 pandemic 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, 2021, 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, 2021 and 2020, 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.

7


 

Stock-Based Compensation

Stock-based compensation expense represents the grant date fair value of employee, officer, director and non-employee stock option and restricted stock unit grants, estimated in accordance with the applicable accounting guidance and recognized over the vesting period, which approximates the requisite service period of the awards. The Company recognizes forfeitures as they occur.

The fair value of stock options is estimated using a Black-Scholes-Merton valuation model on the date of grant. This method requires certain assumptions be used as inputs, such as a risk-free interest rate, expected volatility of the Company’s common stock and expected term of the option before exercise. The risk-free interest rate is based on U.S. Treasury instruments with maturities similar to the expected term. The expected volatility is computed using historical volatility for a period equal to the expected term. Given the limited period of time the Company's stock has been traded, expected volatility is based on the Company's historical volatility and the historical volatility of a group of similar companies that are publicly traded. The expected term represents the length of time the stock options are expected to be outstanding. Because the Company does not have sufficient exercise behavior, it determines the expected term assumption using the simplified method, which is an average of the contractual term of the option and its vesting period. Options granted have a maximum contractual term of ten years and generally vest over a four year period.

The fair value of restricted stock units is equal to the closing price of the Company's stock on the date of grant. Restricted stock units generally vest over a three year period.

Recently Issued Accounting Pronouncements

There are no recently issued accounting pronouncements that would materially impact the Company’s financial statements and related disclosures.

3. License Agreements

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 such compound in the ORIC Territory, defined as worldwide other than in the People’s Republic of China, Hong Kong, Macau and Taiwan. 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 of $5.0 million in cash 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 entered into between the parties on October 19, 2020. The number of shares issued pursuant to the stock issuance 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 was responsible for certain research and development costs up to a predetermined threshold. Upon achievement of the predetermined threshold during the quarter ended June 30, 2022, Voronoi has chosen to opt-out of participation in and funding of future development activities. 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 could 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.

8


 

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.

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.

The Company’s financial obligation under the Mirati License Agreement was 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.

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.

4. Property and Equipment, net

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

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Lab equipment

 

$

5,922

 

 

$

5,305

 

Leasehold improvements

 

 

1,730

 

 

 

1,710

 

Computer hardware and software

 

 

296

 

 

 

247

 

Furniture and fixtures

 

 

508

 

 

 

140

 

Total property and equipment, gross

 

 

8,456

 

 

 

7,402

 

Less accumulated depreciation

 

 

(5,451

)

 

 

(4,989

)

Total property and equipment, net

 

$

3,005

 

 

$

2,413

 

 

5. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):