Mirati: Reborn After Reincorporation In The U.S. And Nasdaq Listing

| About: Mirati Therapeutics, (MRTX)

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Mirati Therapeutics (NASDAQ:MRTX) is a development stage biopharmaceutical company which is focused on the development of novel therapeutics for the treatment of cancer. "Mirati" means "targeted" in Italian and reflects the company's focus: targeted therapeutics, targeted patient selection, and targeted execution that drives value.

Mirati is formed from MethylGene based in Canada. On May 9, 2013, MethylGene announced that its Board of Directors has unanimously approved a proposal to change MethylGene's jurisdiction of incorporation from the federal jurisdiction of Canada to the State of Delaware in the US.

Under the Arrangement, MethylGene will create a holding corporation, Mirati Therapeutics, Inc., incorporated in the State of Delaware, and Mirati will become the ultimate parent corporation of MethylGene and its subsidiaries. Concurrently with the Arrangement, MethylGene is making an application to list its shares of common stock on the NASDAQ Capital Market, which will result in the Mirati Shares being listed on both NASDAQ and the Toronto Stock Exchange (TSX) for a period of time.

On July 15, 2013, Mirati Therapeutics Inc. began to trade on the NASDAQ Capital Market under the ticker symbol MRTX. And on July 19, 2013, Mirati shares were delisted from Toronto Stock Exchange. As a result of the change, each shareholder received one Mirati share for every 50 common shares of Mirati held, which has the effect of a 1 for 50 reverse split of common shares.

Listing on NASDAQ Provides Improved Visibility and Liquidity

On July 15, 2013, Mirati Therapeutics Inc. began to trade on the NASDAQ Capital Market under the ticker symbol MRTX.

We think the incorporation in the US/listing on NASDAQ is important to Mirati. It will improve Mirati's ability to attract financing in the larger U.S. capital markets from a greater number of U.S. investors. It will also raise the visibility of the Company and enhance the trading liquidity and marketability of the Company's stocks. It will eliminate potentially adverse "passive foreign investment company" tax issues for certain US shareholders.

Mirati is now better positioned to see the promise of MGCD265, mocetinostat and MGCD516 translate into significant new medicines to address the unmet needs of cancer patients.

Focus Shifted to Oncology Programs

As a result of the MGCD290 Phase II failure, Mirati has decided to shift its focus to its oncology programs.

Mirati is advancing three exciting oncology programs: MGCD265, mocetinostat and MGCD516, which were all discovered and developed internally.

Mirati's lead program in clinical development is MGCD265, a multi-targeted small molecule kinase inhibitor for treatment of oncology patients with solid tumors. The company is also evaluating development opportunities in oncology for mocetinostat, a spectrum-selective HDAC inhibitor for the treatment of patients with myelodysplastic syndrome (MDS) and MGCD516, a unique kinase inhibitor with a distinct target profile for the treatment of patients with non-small cell lung cancer and other solid tumors.

MGCD265, Multi-targeted Kinase Inhibitor for Cancer

MGCD265 is an oral, multi-targeted kinase inhibitor rationally designed to target the Met, VEGFR, RON, Tie-2 RTKs and Axl, key kinases involved in cancer and angiogenesis.

MGCD265 potently inhibits Met and VEGF receptors 1, 2 and 3, and also inhibits the Tie-2 and RON RTKs.

Source: Company presentation

Preclinical studies, in a variety of in vivo tumor models, have demonstrated that MGCD265 has relatively low toxicity and in many cases appears equal or more effective in vivo than some of the leading multi-targeted kinase inhibitors including Sutent®, Nexavar®, Pfizer's (MET) inhibitor Xalkori®, as well as Astra Zeneca's multi-targeted kinase inhibitor Zactima.

MGCD265 Has Shown Excellent Tolerability and Clinical Activity

Mirati has completed a Phase I monotherapy study (Trial 265-102, intermittent dosing) for MGCD265. Another monotherapy Phase I/II study (Trial 265-101, continuous dosing) and a combination study Phase I/II (Trial 265-103) with two arms: MGCD265+full dose docetaxel, or MGCD265+full dose erlotinib) are ongoing.

The completed Phase I trial 265-102:

Trial 102 was a Phase I dose-escalation study in patients with advanced solid tumors. Oral MGCD265 was administered intermittently (one week on/one week off) over 28-day cycles. The primary objectives were to determine the maximum tolerated dose (MTD), dose-limiting toxicities (DLTs) and safety of MGCD265. Forty seven (47) patients with advanced solid tumors were treated. MGCD265 was administered once a day (QD) in the initial cohorts and then twice daily (BID) in the last two cohorts with increased exposure following the introduction of the BID schedule. Patients received doses up to 340 mg/m2.

MGCD265 is safe and well tolerated when using the intermittent schedule of administration. Prolonged stable disease was observed in 4 patients. The observed DLTs were grade 3 mood alteration, and grade 3 fatigue and grade 3 hemoptysis all at the dose of 170 mg/m2 BID. As MGCD265 was administered safely at doses higher than 170 mg/m2 in other studies, the intermittent schedule has been abandoned in favor of the continuous schedule for all future studies.

Mirati also completed a Phase I pharmacokinetics trial 265-105 in healthy volunteers in a fed versus fasted state. This Phase I study was conducted to compare the pharmacokinetics of a single 100 mg dose of MGCD265 under fed conditions versus those after a 10-hr overnight fast. A total of 14 subjects were recruited. Preliminary data showed that the fed condition was associated with a ~3 fold increase in exposure. No serious AEs were reported. There were no clinically significant changes in vital signs, ECG or laboratory values.

The ongoing Phase I/II trial 265-101 and Phase I/II trial 265-103

Enrollment is ongoing in the Phase I/II trials MGCD265-101 (monotherapy) and MGCD265-103 (combination therapy with docetaxel or erlotinib).

Interim data from the Phase I/II trials have been reported. In monotherapy studies, MGCD265 has been well tolerated with no grade 4 adverse events. Treatment-related grade 3-4 adverse events were infrequent. Long term stable disease (over 12 months in duration) has been observed in patients with bladder, renal cell and neuroendocrine cancer. One patient with squamous cell cancer achieved a partial response (PR), as determined by RECIST criteria, after ten cycles of monotherapy with MGCD265. The PR was based on one target axillary lesion, but the non-target bone lesions remained stable.

MGCD265 in combination with docetaxel continues to be well tolerated. Non-hematologic grade 3-4 adverse events occurring in more than one patient were infrequent and hematologic toxicities of grade 3-4 were as expected with docetaxel therapy. Objective responses have been observed in NSCLC, prostate cancer and endometrial cancer patients. Of twelve evaluable NSCLC patients, two achieved partial remission and eleven achieved disease control (partial remission or stable disease) at the first tumor assessment.

In the MGCD265 plus erlotinib combination studies there were no grade 4 toxicities and grade 3-4 adverse events were infrequent. Five of nine gastro-esophageal (GE) patients achieved stable disease at the first scan (disease control rate of 56%). Of these four patients remained stable for greater than 4 months and two remained stable for greater than 1 year.

The product has moved into multiple Phase I/II expansion cohorts including indications of renal cell, gastric, NSCLC and hepatocellular cancer patients who are c-Met positive. Enrollment is continuing in the 265-101 monotherapy and 265-103 combination trials with until a maximum tolerated dose is reached. Once the MTD is reached, the Company will define the optimal dose for Phase II studies.

Mirati has been talking about the kinase Axl as a potential differentiator based on potent inhibition of Axl by MGCD265. Plans are underway to initiate a study in NSCLC patients who express Axl.

We think the decision to shift focus to oncology programs after the MGCD290 failure is prudent. In addition to its lead cancer program MGCD265, Mirati also has MGCD516 in preclinical studies as well as MGCD0103 (Mocetinostat) which is partnered with Taiho in some Asian countries, and is in Phase II clinical studies. Together, these cancer programs constitute the major assets post MGCD290, and will build up shareholder value in the years ahead.

Positive Phase II Clinical Data of Mocetinostat Were Presented at the 2013 ASCO

Mocetinostat is an orally available, isoform selective histone deacetylase (HDAC) inhibitor.

Based on the promising early phase single agent responses in patients with Hodgkin's disease Mirati is evaluating Phase II study designs in these patients. In addition, the company is evaluating plans for development of this agent in combination with azacitidine for the treatment of patients with intermediate and high risk myelodysplastic syndromes.

On June 3, 2013, Mirati presented clinical data for mocetinostat at the 2013 ASCO Annual Meeting in Chicago, Illinois.

Mocetinostat in Combination with 5-Azacitidine for Patients with MDS

Poster #7116: A Phase II Study of Mocetinostat, An Oral Isotope-Specific Histone Deacetylase (HDAC) Inhibitor, in Combination with 5-Azacitidine in Patients with Myelodysplastic Syndrome

Data was presented from an open-label phase II combination trial in patients with MDS or acute myeloid leukemia (AML). The population included twenty-eight MDS patients who were categorized as relatively poor risk and thirty-eight AML patients. Mocetinostat in combination with 5‐AZA is active in MDS and AML.

  • The Objective Response Rate (ORR) (defined as Complete Response (CR) + Complete Response with incomplete blood count recovery (CRI) + Hematological Improvement (HI)) was 61% in the MDS cohorts and 32% in the AML patients;
  • The disease control rate (ORR + stable disease) was 93% in the MDS group and 84% in the AML patients;
  • Approximately two‐thirds of highest‐risk MDS patients achieved a best response of CR or Cri;
  • Median overall survival (OS) was 12.9 months (1.9‐62) in MDS and 5.1months (0.5‐30.7) in AML;
  • Approximately two‐thirds of both MDS and AML patients remained progression‐free on study;
  • Combined therapy with mocetinostat and 5‐AZA produced clinically meaningful reductions in bone marrow blasts that continued to improve in successive treatment cycle;
  • The most common drug‐related toxicities ≥ grades 3 were fatigue, thrombocytopenia, anemia and gastrointestinal events. There were no treatment‐related deaths.

The clinical and safety findings among the study population, which included a significant percentage of high‐risk patients, support further development of mocetinostat in MDS and AML.

Mocetinostat Single Agent for Patients with Lymphomas

Poster #8535: A Phase II Study of Single Agent Mocetinostat, An Oral Isotype-Selective Histone Deacetylase (HDAC) Inhibitor, In Patients With Diffuse Large B-Cell (DLBCL) And Follicular (FL) Lymphomas:

Data was presented from a Phase II open label multicenter mocetinostat monotherapy trial in a population of seventy-two patients treated with 70 mg - 110 mg mocetinostat monotherapy on a 3x/week schedule.

Highlights of the Phase II findings:

  • Single agent mocetinostat has clinical activity in DLBCL and FL;
  • Objective response rate (ORR): 17% in DLBCL, 10% in FL;
  • Disease control rate (DCR): 49% in DLBCL, 61% in FL;
  • Estimated median OS was 8.3mos in the DLBCL cohort and was not reached in the FL cohort;
  • Estimated median PFS was 2.7mos in the DLBCL cohort and 4mos in the FL cohort;
  • Reduction in tumor size was observed in ~70% of the overall population;
  • HDAC inhibition up to 45% was demonstrated in a whole‐cell assay;
  • Results compare favorably with historical results achieved with single‐agent chemotherapy drugs in a similar patient population;

The most common drug-related toxicities of grade 3 or higher were fatigue, neutropenia, thrombocytopenia, anemia and hypophosphatemia. Discontinuation due to AE was dose‐related and occurred in 19/72 patients (26%).

We think the data presented at the ASCO meeting are encouraging. These data have demonstrated further favorable safety and efficacious clinical activity of mocetinostat as a single agent as well as in combination with other anticancer agents.

The data support the view that mocetinostat has clinical activity as monotherapy and in combination and that further evaluation is warranted. The company is working with investigators and the FDA to establish the optimal path forward for mocetinostat.

We believe mocetinostat alone or in combination has the potential to provide additional treatment options for patients of MDS and lymphomas.

MGCD516, another multi-targeted kinase inhibitor

In addition to MGCD265 and MGCD103, MRTX is also developing MGCD516. MGCD516 is a rationally designed, oral, multi-targeted kinase inhibitor that covers a novel spectrum of targets including members of the Eph receptor family, the Met receptor, the Ret receptor tyrosine kinase, and all three vascular endothelial growth factor receptors (VEGFR 1, 2, 3).

MGCD516 has good oral bioavailability in mice, rats and dogs, and excellent anti-tumor activities in multiple human xenograft tumor models in mice. MGCD516 is in advanced preclinical development and ready to commence IND-enabling studies.

On April 8, 2013, Mirati presented preclinical data of MG516 at the American Association for Cancer Research (AACR) Annual Meeting held in Washington DC. Preclinical data has shown that MG516 possesses potent inhibitory activity against a spectrum of tyrosine kinase receptor targets including Eph receptors and Ret as well as Met, Axl and VEGF-R family members. The study incorporated data from in vitro kinase and cell-based analyses. In a broad variety of animal models of human cancer, MG516 demonstrated significant inhibition of tumor growth accompanied by suppression of the target kinases. MG516 also reversed resistance to the VEGFR inhibitor sunitinib in an in vivo preclinical tumor model.

Mirati Exited First Quarter 2013 With Strong Balance Sheet

On May 13, 2013, Mirati reported financial results for the first quarter ended March 31, 2013.

There was no revenue for the first quarter ended March 31, 2013.

Net R&D expenditures for the first quarter of 2013 were $5.5 million, $3.3 million higher than the first quarter of 2012. This increase was primarily due to costs relating to the departure of the company's Chief Scientific Officer, costs relating to the manufacture of and formulation work relating to MGCD265 and costs associated with the recently completed Phase II clinical trial for MGCD290.

SG&A expenses in the first quarter of 2013 were $2.5 million, $1.3 million higher than in the first quarter of 2012 due primarily to costs related to the management changes discussed above as well as the costs incurred in connection with the Arrangement and NASDAQ listing.

Net loss for the first quarter ended March 31, 2013 was $8.6 million, or ($0.02) per share, compared to a net loss of $3.4 million, or ($0.01) per share, for the same period last year. The increased loss per share relates to the higher net loss for the quarter relating to the higher operating costs and was partially offset by the higher number of outstanding shares at the end of the first quarter 2013 versus the same period last year.

Balance sheet remained strong. Mirati exited the first quarter of 2013 with cash, cash equivalents, marketable securities and restricted cash of $29.9 million compared to $37.4 million on December 31, 2012. This cash balance should be able to allow the Company to carry forward its current clinical development and operating plans into the second quarter of 2014 according to our model.

Valuation is attractive now

Mirati is a development stage development biotech company focused on development and commercialization of pharmaceuticals for the targeted treatment of cancer. Based on its extensive knowledge and expertise in molecular biology and chemistry, the Company has built up an impressive pipeline with candidates in different development stages.

With MGCD290 gone, the Company has shifted its focus to its oncology assets. We think the decision is prudent. Among its oncology assets is its lead cancer program MGCD265, which is already in Phase I/II clinical study, and MGCD516 in preclinical studies as well as MGCD0103 which is partnered with Taiho for certain Asian countries, and is in Phase II clinical studies. Together, these cancer programs constitute the Company's major assets post MGCD290, and will build up shareholder value in the coming years.

MGCD265 is a highly promising drug candidate, which is differentiated from other kinase inhibitors either in development or on the market. MGCD265 is a multi-targeted kinase inhibitor, which has shown favorable safety profile and clinical activities. MGCD265 is in Phase I studies now, and will enter into Phase II soon. We estimate the FDA approval in 2017. MGCD could gain the FDA nod in 2016.

In terms of valuation, we think Mirati is undervalued. Currently, Mirati shares are traded at about $8.3 per share, which values the company at $83 million in market cap. This certainly is a deep discount. We understand that the street discounts Mirati because of the failure of its lead fungal program MGCD290. But reminder investors that Mirati has built up a diversified oncology pipeline post MGCD290 failure. These oncology programs hold great potential to fulfill unmet medical needs for cancer patients.

Our target price of $12.50 per share values the Company at $125 million in market cap, which is conservative in our view.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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