ORIC Pharmaceuticals, Inc. — Form 10-Q Summary
Business context and reporting period
ORIC Pharmaceuticals is a clinical-stage biopharmaceutical company focused on therapies designed to overcome cancer treatment resistance. The filing covers the three and nine months ended September 30, 2022, and was filed November 7, 2022. ORIC has no approved products and has not generated product revenue.
- Lead clinical programs: ORIC-533 for multiple myeloma, ORIC-114 for EGFR/HER2 exon 20 alterations and HER2 amplifications, and ORIC-944 for prostate cancer.
- ORIC-114 and ORIC-944 were being evaluated in Phase 1b trials; ORIC-533 was also in a Phase 1b trial. Management expected initial data from all three programs in the first half of 2023.
- ORIC-101 was discontinued in the first quarter of 2022.
- The company had 88 full-time employees as of September 30, 2022, including 63 in research and development.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | First nine months 2022 | First nine months 2021 |
|---|---|---|---|---|
| Research and development expense | $14.7 million | $12.9 million | $45.4 million | $40.1 million |
| General and administrative expense | $6.0 million | $5.6 million | $19.3 million | $16.0 million |
| Acquired in-process R&D | $5.0 million | — | $5.0 million | — |
| Total operating expenses | $25.7 million | $18.5 million | $69.6 million | $56.1 million |
| Net loss | $24.8 million | $18.4 million | $68.3 million | $55.9 million |
| Net loss per share | $0.63 | $0.47 | $1.73 | $1.49 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $59.8 million | $43.3 million |
Because ORIC has no revenue, gross margin and operating margin are not meaningful. Loss from operations equaled operating expenses: $25.7 million for the quarter and $69.6 million for the first nine months.
- Interest income increased to $0.9 million in Q3 2022 and $1.4 million for the first nine months, compared with $0.03 million and $0.1 million, respectively, in the prior periods, reflecting a larger investment portfolio and higher interest rates.
- Cash, cash equivalents and investments totaled approximately $218.0 million at September 30, 2022, consisting of $29.1 million of cash and cash equivalents, $164.6 million of short-term investments and $24.3 million of long-term investments.
- Total assets were $238.0 million and stockholders’ equity was $214.8 million. Total liabilities were $23.2 million, primarily current operating liabilities and lease-related obligations. The filing does not identify outstanding debt financing.
- Net cash used in investing activities was $137.5 million, primarily reflecting purchases of investments exceeding maturities. Financing activities provided $0.4 million from stock option exercises and the employee stock purchase plan.
- Accumulated deficit reached $313.4 million at September 30, 2022.
Material changes versus the prior comparable period
- Q3 operating expenses increased $7.2 million, or approximately 39%, primarily due to higher R&D spending and a $5.0 million development milestone payment to Voronoi under the ORIC-114 license agreement.
- First-nine-month operating expenses increased $13.6 million, or approximately 24%, with R&D up $5.3 million and G&A up $3.3 million.
- R&D growth reflected advancement of ORIC-114, ORIC-944 and ORIC-533, higher personnel costs and increased preclinical and other unallocated costs, partly offset by reduced ORIC-101 spending.
- Operating cash burn increased by $16.6 million, or approximately 38%, to $59.8 million for the first nine months.
- Cash, cash equivalents and restricted cash declined $196.9 million during the first nine months, largely because the company shifted funds into investments and incurred operating cash burn; this decline should not be interpreted solely as cash consumption because investment purchases and maturities significantly affected the reported cash-flow classification.
- The company completed a one-time exchange of employee stock options covering 4.4 million shares. The exchange is expected to generate $3.7 million of incremental stock-based compensation expense over three or four years.
Guidance, outlook, risks and unusual items
- Management expected current cash, cash equivalents and investments to fund the current operating plan into the second half of 2024, but stated that this estimate is subject to significant uncertainty.
- ORIC expects substantial additional capital will be required. Potential sources include equity or debt financings, collaborations, strategic partnerships, licensing arrangements and grants. Additional equity could dilute existing holders.
- The company expects operating losses and R&D expenses to increase as programs advance, additional trials are conducted, manufacturing capabilities are expanded and personnel are added.
- The $5.0 million Voronoi milestone payment was recorded as acquired in-process R&D. The Voronoi agreement also provides for up to $111.0 million of development and regulatory milestones, up to $225.0 million of commercial milestones for the first licensed product and potentially up to $272.0 million for a second product, plus royalties.
- Voronoi opted out of funding future development activities after reaching the applicable funding threshold. ORIC is responsible for future development and commercialization in its licensed territories.
- Key risks include clinical-trial failure or delays, patient enrollment challenges, regulatory uncertainty, adverse events, reliance on single-source third-party manufacturers and CROs, supply-chain disruption, competition, intellectual-property disputes, license termination risk, COVID-19 impacts, inflation and financial-market volatility.
- The filing identifies an SEC civil enforcement action against ORIC’s Chief Business Officer relating to securities trading of other companies; the matter is unrelated to ORIC. The CFO’s SEC investigation concluded without a recommendation for further action.
- A third party has inquired about a potential breach of a confidentiality agreement relating to ORIC’s CD73 inhibitor program; the filing states that the inquiry could progress to a claim.
- Management reported no material litigation currently expected to have a material adverse effect and concluded that disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Whether the projected funding runway into the second half of 2024 remains valid after subsequent clinical, manufacturing and operating developments.
- Enrollment status, safety findings and initial efficacy data for the ORIC-533, ORIC-114 and ORIC-944 Phase 1b programs.
- Whether additional Voronoi or other license milestones have been triggered and the expected timing and amount of potential payments.
- The pace of quarterly cash burn and the company’s plans and market conditions for raising additional capital.
- Potential developments relating to the SEC enforcement action involving the Chief Business Officer and the CD73 confidentiality inquiry.
- Manufacturing capacity, supply continuity and reliance on single-source suppliers for clinical materials.