Oric Pharmaceuticals, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Pages Report of Independent Registered Public Accounting Firm 116 Balance Sheets 117 Statements of Operations and Comprehensive Loss 118 Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) 119 Statements of Cash Flows 120 Notes to Financial Statements 121 115 REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors ORIC Pharmaceuticals, Inc.: Opinion on the Financial Statements We have audited the accompanying balance sheets of ORIC Pharmaceuticals, Inc. (the Company) as of December 31, 2020 and 2019, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2018. San Diego, California March 23, 2021 116 ORIC PHARMACEUTICALS, INC. BALANCE SHEETS (in thousands, except share and per share amounts) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 78,446 $ 89,159 Short-term investments 215,154 — Prepaid expenses and other current assets 3,097 840 Total current assets 296,697 89,999 Property and equipment, net 1,981 2,241 Other assets 319 1,853 Total assets $ 298,997 $ 94,093 Liabilities, Convertible Preferred Stock and Stockholders' Equity (Deficit) Current liabilities: Accounts payable $ 757 $ 152 Accrued liabilities 8,245 5,202 Total current liabilities 9,002 5,354 Deferred rent - long term 219 765 Total liabilities 9,221 6,119 Commitments and contingencies (Note 11) Convertible preferred stock: Convertible preferred stock, $ 0.0001 par value; no shares and 20,348,788 shares authorized at December 31, 2020 and December 31, 2019, respectively; no shares and 19,278,606 issued and outstanding at December 31, 2020 and December 31, 2019, respectively; aggregate liquidation preference of $ 0 and $ 178,058 at December 31, 2020 and December 31, 2019, respectively — 178,058 Stockholders' equity (deficit): Preferred stock, $ 0.0001 par value; 200,000,000 shares and no shares authorized at December 31, 2020 and December 31, 2019, respectively; no shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively — — Common stock, $ 0.0001 par value; 1,000,000,000 shares and 26,750,000 shares authorized at December 31, 2020 and December 31, 2019, respectively; 36,672,415 shares and 1,984,222 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively 4 — Additional paid-in capital 456,196 2,606 Accumulated deficit ( 166,393 ) ( 92,690 ) Accumulated other comprehensive loss ( 31 ) — Total stockholders' equity (deficit) 289,776 ( 90,084 ) Total liabilities, convertible preferred stock and stockholders' equity (deficit) $ 298,997 $ 94,093 See accompanying notes to financial statements. 117 ORIC PHARMACEUTICALS, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share amounts) Years Ended December 31, 2020 2019 2018 Operating expenses: Research and development $ 35,921 $ 22,844 $ 19,026 Acquired in-process research and development 24,843 — — General and administrative 13,422 5,725 3,345 Total operating expenses 74,186 28,569 22,371 Loss from operations ( 74,186 ) ( 28,569 ) ( 22,371 ) Other income: Interest income, net 306 1,397 775 Other income 177 289 233 Total other income 483 1,686 1,008 Net loss $ ( 73,703 ) $ ( 26,883 ) $ ( 21,363 ) Other comprehensive loss: Unrealized loss on available-for-sale securities ( 31 ) — — Comprehensive loss $ ( 73,734 ) $ ( 26,883 ) $ ( 21,363 ) Net loss per share, basic and diluted $ ( 3.36 ) $ ( 14.15 ) $ ( 12.32 ) Weighted-average shares outstanding, basic and diluted 21,942,476 1,899,348 1,734,115 See accompanying notes to financial statements. 118 ORIC PHARMACEUTICALS, INC. STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (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 Loss Equity (Deficit) Balance at January 1, 2018 10,612,499 $ 69,337 1,672,087 $ — $ 833 $ ( 44,444 ) $ — $ ( 43,611 ) Issuance of Series C preferred stock, net of issuance costs of $ 198 3,177,271 37,929 — — — — — — Exercise of common stock options — — 130,047 — 79 — — 79 Stock-based compensation expense — — — — 469 — — 469 Net loss — — — — — ( 21,363 ) ( 21,363 ) Balance at December 31, 2018 13,789,770 $ 107,266 1,802,134 $ — $ 1,381 $ ( 65,807 ) $ — $ ( 64,426 ) Issuance of Series C and D preferred stock net of issuance costs of $ 135 5,488,836 70,792 — — — — — — Exercise of common stock options — — 182,088 — 131 — — 131 Stock-based compensation expense — — — — 1,094 — — 1,094 Net loss — — — — — ( 26,883 ) ( 26,883 ) Balance at December 31, 2019 19,278,606 $ 178,058 1,984,222 $ — $ 2,606 $ ( 92,690 ) $ — $ ( 90,084 ) Initial public offering of common stock — — 8,625,000 1 137,999 — — 138,000 Issuance costs associated with initial public offering of common stock — — — — ( 12,790 ) — — ( 12,790 ) Conversion to common stock ( 19,278,606 ) ( 178,058 ) 19,278,606 2 178,056 — — 178,058 Public offering of common stock — — 5,796,000 1 133,307 — — 133,308 Issuance costs associated with public offering of common stock — — — — ( 8,546 ) — — ( 8,546 ) Issuance of common stock related to acquired-in- process research and development — — 871,494 — 19,843 — — 19,843 Exercise of common stock options — — 117,093 — 443 — — 443 Stock-based compensation expense — — — — 5,278 — — 5,278 Net loss — — — — — ( 73,703 ) — ( 73,703 ) Other comprehensive loss — — — — — — ( 31 ) ( 31 ) Balance at December 31, 2020 — $ — 36,672,415 $ 4 $ 456,196 $ ( 166,393 ) $ ( 31 ) $ 289,776 See accompanying notes to financial statements. 119 ORIC PHARMACEUTICALS, INC. STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2020 2019 2018 Cash flows from operating activities: Net loss $ ( 73,703 ) $ ( 26,883 ) $ ( 21,363 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 970 1,028 903 Stock-based compensation expense 5,278 1,094 469 Non-cash stock consideration, acquisition 19,843 — — Loss on fixed asset disposals — 8 15 Amortization of discount on investments, net 299 — — Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 2,258 ) 234 ( 297 ) Accounts payable and accrued other liabilities 4,303 986 ( 410 ) Net cash used in operating activities ( 45,268 ) ( 23,533 ) ( 20,683 ) Cash flows from investing activities: Acquisitions of property and equipment ( 667 ) ( 768 ) ( 525 ) Purchases of investments ( 225,485 ) — — Sales and maturities of investments 10,000 — — Proceeds from notes receivable 193 — 17 Net cash used in investing activities ( 215,959 ) ( 768 ) ( 508 ) Cash flows from financing activities: Proceeds from issuance of common stock pursuant to initial public offering 138,000 — — Issuance costs associated with initial public offering ( 12,691 ) ( 99 ) — Proceeds from issuance of common stock pursuant to public offering 133,308 — — Issuance costs associated with public offering ( 8,546 ) — — Proceeds from issuance of preferred stock, net of issuance costs — 70,792 37,929 Proceeds from stock option exercises 443 131 79 Net cash provided by financing activities 250,514 70,824 38,008 Net (decrease) increase in cash and cash equivalents ( 10,713 ) 46,523 16,817 Cash and cash equivalents, beginning of period 89,159 42,636 25,819 Cash and cash equivalents, end of period $ 78,446 $ 89,159 $ 42,636 Supplemental disclosure of non-cash investing and financing activities: Conversion of preferred stock to common stock $ 178,058 — — Amounts accrued for purchase of property and equipment $ 43 — — Unpaid deferred financing costs — $ 1,244 — See accompanying notes to financial statements. 120 ORIC PHARMACEUTICALS, INC. NOTES TO 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 O vercoming R esistance I n C ancer . 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 December 31, 2020, the Company had an accumulated deficit of $ 166.4 million. Through December 31, 2020, 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. 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. Secondary Public Offering On November 17, 2020, the Company completed a secondary public offering selling 5,796,000 shares of common stock, which includes 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. 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The accompanying 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 year ended December 31, 2020 are not necessarily indicative of future results, particularly in light of the novel coronavirus (COVID-19) and its impact on domestic and global economies. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended operating activities. Beginning the week of March 16, 2020, 121 the majority of the Company’s workforce began working 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. In the third quarter of 2020, the Company began reporting deferred offering costs within other assets on its balance sheets. To conform to current presentation, the Company included $ 1.3 million of deferred financing costs at December 31, 2019 in other assets. This reclassification had no effect on the Company’s total assets, net loss or stockholders’ equity (deficit) as previously reported. Use of Estimates The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, expenses, and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash, cash equivalents and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash, cash equivalents and short-term investments that are recorded on its balance sheets. The Company mitigates its risk by investing in high-grade instruments and limiting the concentration in any one issuer, which limits its exposure. Fair Value of Financial Instruments The accounting guidance defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The carrying amounts of cash, cash equivalents and short-term investments, prepaid expenses, accounts payable and accrued liabilities are reasonable estimates of their fair value because of the short nature of these items. Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of 90 days or less at the time of purchase that are readily convertible into cash as cash equivalents. These investments may include money market funds, securities issued by U.S. Government agencies, corporate debt securities and commercial paper. Investments All investments have been classified as “available-for-sale” and are carried at fair value as determined based upon quoted market prices or pricing models for similar securities at period end. Investments with contractual maturities less than 12 months at the balance sheet date are considered short-term investments. Those investments with contractual maturities 12 months or greater at the balance sheet date are considered long-term investments. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss). The Company reviews its portfolio of available-for-sale debt securities, using both quantitative and qualitative factors, to determine if declines in fair value below cost have resulted from a credit-related loss or other factors. If the decline in fair value is due to credit-related factors, a loss is recognized in statements of operations, whereas if the decline in fair value is not due to credit-related factors, the loss is recorded in other comprehensive income (loss). 122 Property and Equipment Property and equipment, which consist of lab equipment, leasehold improvements, computer hardware and software, and furniture and fixtures, are stated at historical cost less accumulated depreciation. Depreciation is recognized on a straight-line basis over the estimated useful lives of the related assets, which are generally three to seven years . Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimate useful life of the asset. Impairment of Property and Equipment The Company accounts for the impairment of long-lived assets by reviewing these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted-cash-flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. The Company did no t recognize impairment losses for the years ended December 31, 2020, 2019 and 2018. Deferred Rent Deferred rent consists of the difference between cash payments and the recognition of rent expense on a straight-line basis for the office facilities over the terms of the leases. The Company’s leased office facilities provide for fixed increases in minimum annual rent payments. The total amount of rent payments due over the lease term are being charged to rent expense ratably over the life of the leases. Research and Development Expenses and Accrued Research and Development Expenses The Company is required to estimate its expenses resulting from its obligations under contracts with vendors, consultants, contract research organizations (CRO), and contract manufacturing organizations (CMO) in connection with conducting research and development activities. The financial terms of these contracts vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. Research and development costs are expensed in the period in which they are incurred. External costs consist primarily of payments to outside consultants, third-party CROs, CMOs, clinical trial sites and central laboratories in connection with the Company’s discovery and preclinical activities, process development, clinical manufacturing and clinical development activities. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers or its estimate of the level of service that has been performed at each reporting date. The Company allocates external costs by program, clinical or preclinical. Internal costs consist primary of employee-related costs, laboratory supplies, facilities, depreciation and costs related to compliance with regulatory requirements. The Company does not allocate internal costs by program because these costs are deployed across multiple programs and, as such, are not separately classified. The Company makes estimates of accrued expenses as of each balance sheet date based on facts and circumstances known at that time. The Company periodically confirms the accuracy of its estimates with the service providers and makes adjustments if necessary. The significant estimates in its accrued research and development expenses include the costs incurred for services performed by vendors in connection with research and development activities for which the Company has not yet been invoiced. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. 123 As of December 31, 20 20 and 2019, the Company maintained valuation allowances against its deferred tax assets as the Company concluded it had not met the “more likely than not” to be realized threshold. Changes in the valuation allowance when they are recognized in the provision for income taxes would result in a change in the estimated annual effective tax rate. Stock-Based Compensation Stock-based compensation expense represents the cost of the grant date fair value of employee, officer, director and non-employee stock option grants, estimated in accordance with the applicable accounting guidance, recognized on a ratable straight-line basis over the vesting period. The vesting period generally approximates the expected 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 the fair value of the underlying common stock, a risk-free interest rate, expected volatility of the Company’s common stock, expected term of the option before exercise and expected dividend yield. Options granted have a maximum contractual term of ten years . License Fees Acquisitions of technology licenses are charged to acquired in-process research and development expense or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. Deferred Offering Costs The Company capitalizes costs that are directly associated with equity financings until such financings are consummated at which time such costs are recorded against the gross proceeds of the offering. Should an in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations and comprehensive loss. Comprehensive Loss Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on investments and foreign currency gains and losses. The unrealized losses on available for sale investments represent the only component of other comprehensive loss that is excluded from the reported net loss. Net Loss Per Share Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. As the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods. The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share amounts). Years Ended December 31, 2020 2019 2018 Numerator Net loss $ ( 73,703 ) $ ( 26,883 ) $ ( 21,363 ) Denominator Weighted average shares outstanding used in computing net loss per share, basic and diluted 21,942,476 1,899,348 1,734,115 Net loss per share, basic and diluted $ ( 3.36 ) $ ( 14.15 ) $ ( 12.32 ) 124 The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive: December 31, 2020 2019 2018 Options to purchase common stock 3,996,174 2,683,441 1,854,886 Convertible preferred stock — 19,278,606 13,789,770 Total 3,996,174 21,962,047 15,644,656 Recently Adopted Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) under its accounting standard codifications (ASC) or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below. In December 2019, the FASB issued ASU No 2019-12 , Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. The amendments in ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. For emerging growth companies (EGCs), the standard is effective for fiscal years beginning after December 15, 2021. The Company early adopted the new standard in 2020 and the adoption of the standard did not have a material impact on the Company’s current financial position, results of operations or financial statement disclosures. New Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. ASC 842 provides a lessee with an option to not account for leases with a term of 12 month or less as leases in the scope of the new standard. ASC 842 supersedes the previous leases standard, ASC 840 Leases. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. As amended by ASU No. 2020-05, for all other entities, this ASU is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU No. 2016-02 is effective for the Company for the year ended December 31, 2022, and all interim periods within. In July 2018, the FASB issued supplemental adoption guidance and clarification to ASC 842 within ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements . ASU No. 2018-11 provides another transition method in addition to the existing modified retrospective transition method by allowing entities to initially apply the new leasing standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. The Company is currently evaluating the impact the adoption of these ASUs will have on financial statements and related disclosures. The Company expects to recognize a right-of-use asset and corresponding lease liability on its balance sheets for its real estate operating leases upon adoption. See Note 11 for more information related to the Company’s lease obligations, which are presented on an undiscounted basis therein. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses ( Topic 326 ) (ASC 326): Measurement of Credit Losses on Financial Instruments , which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. 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. Since the Company has elected to use the extended transition period under the JOBS Act available to EGCs, the ASU is effective for the Company for fiscal years beginning after December 15, 2022. The Company expects to adopt the new standard in the first quarter of 2021, using the modified retrospective approach. The Company currently does not expect the adoption to have a material impact on its financial statements. 125 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 at the closing of the transaction for the full $ 13.0 million value assigned to the shares issued in connection with Mirati License Agreement. This non-cash charge was recorded as acquired in-process research and development expense in the statements of operations and comprehensive loss for the year ended December 31, 2020. Voronoi License Agreement On October 19, 2020, the Company entered into a license 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 worldwide (other than in the People’s Republic of China, Hong Kong, Macau and Taiwan) (the ORIC Territory). Under the Voronoi License Agreement, 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. 126 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 of $ 11.8 million at the closing of the transaction 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. This charge was recorded as acquired in-process research and development expense in the statements of operations and comprehensive loss for the year ended December 31, 2020. The charge was also reflected within cash flows from operating activities, with the $ 5.0 million cash payment included in net loss and the $ 6.8 million associated with the shares issued as an adjustment to reconcile net loss to net cash used in operating activities. 4. Property and Equipment, net Property and equipment, net consisted of the following (in thousands): December 31, 2020 2019 Lab equipment $ 4,396 $ 3,748 Leasehold improvements 1,710 1,710 Computer hardware and software 220 158 Furniture and fixtures 140 140 Total property and equipment, gross 6,466 5,756 Less accumulated depreciation ( 4,485 ) ( 3,515 ) Total property and equipment, net $ 1,981 $ 2,241 Depreciation expense for the years ended December 31, 2020 and 2019 was $ 1.0 million for both years and $ 0.9 million for the year ended December 31, 2018. 5. Accrued Liabilities Accrued liabilities consisted of the following (in thousands): December 31, 2020 2019 Accrued compensation $ 3,723 $ 1,883 Accrued clinical and manufacturing costs 3,072 963 Other accruals 904 617 Deferred rent - short-term 546 495 Accrued deferred financing costs — 1,244 Total accrued liabilities $ 8,245 $ 5,202 127 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 December 31, 2020. The Company had no investments at December 31, 2019. The cost, gross unrealized holding gains, gross unrealized holding losses and fair value of available-for-sale investments by types and classes of security at December 31, 2020 consisted of the following (in thousands): December 31, 2020 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value U.S. treasury securities $ 215,185 $ — $ ( 31 ) $ 215,154 Total $ 215,185 $ — $ ( 31 ) $ 215,154 The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. At December 31, 2020, there were 18 securities in unrealized loss positions. These securities have not been in a continuous loss position for more than 12 months. Further, the Company does not generally intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis which may be at maturity. As such, the Company has classified these losses as temporary in nature. None of the Company’s available-for-sale investments had maturities of greater than 12 months at December 31, 2020. The Company has determined that there were no material declines in fair value of its investments due to credit-related factors as of December 31, 2020. 7. Fair Value Measurements The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair-value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The carrying amounts of the Company’s interest receivable, included in prepaid expenses and other current assets, accounts payable and accrued liabilities are generally considered to be representative of their fair value because of the short-term nature of these instruments. The Company’s investments, which may include money market funds and available-for-sale investment securities consisting of U.S. treasury securities, and high-quality, marketable debt instruments of corporations and government sponsored enterprises, are measured at fair value in accordance with the fair value hierarchy. 128 Following are the major categories of assets measured at fair value on a recurring basis as of December 31, 2020 and 2019 (in thousands): Fair Value Measurement at End of Period Using: Fair Value Quoted Market Price for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total At December 31, 2020 Money market funds (1) $ 78,446 $ 78,446 $ — $ — $ 78,446 U.S. treasury securities 215,154 215,154 — — 215,154 Total $ 293,600 $ 293,600 $ — $ — 293,600 At December 31, 2019 Money market funds (1) $ 88,159 $ 88,159 $ — $ — $ 88,159 (1) Included in cash and cash equivalents in accompanying balance sheets. No transfers between levels occurred during either of the reporting periods presented. 8. Convertible Preferred Stock Prior to its conversion to common stock in connection with the Company’s IPO in April 2020, the Company’s convertible preferred stock was classified as temporary equity on the Company’s balance sheets in accordance with authoritative guidance. Convertible preferred stock authorized and issued and its principal terms as of December 31, 2019 consisted of the following (in thousands, except share and per share amounts): As of December 31, 2019 Shares Authorized Shares Issued and Outstanding Issue Period Issue Price per Share Dividend Annual Rate per Share Aggregate Liquidation Preference Series A 3,862,500 3,862,500 2014 - 2015 $ 4.00 $ 0.32 $ 15,450 Series B 6,750,000 6,749,999 2015 - 2016 $ 8.00 $ 0.64 $ 54,000 Series C 4,448,788 4,448,780 2018 - 2019 $ 12.00 $ 0.96 $ 53,385 Series D 5,287,500 4,217,327 2019 $ 13.20 $ 1.056 $ 55,669 Total 20,348,788 19,278,606 In connection with the Company’s IPO in April 2020, all outstanding shares of the convertible preferred stock converted into 19,278,606 shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital. There were no shares of convertible preferred stock outstanding as of the closing of the IPO. 9. Equity Incentive Plans and Stock-Based Compensation Equity Incentive Plans In February 2020, the Company’s Board of Directors adopted, and its stockholders approved, the 2020 Equity Incentive Plan (the 2020 Plan), which became effective in April 2020 in connection with the Company’s IPO. Upon adoption of the 2020 Plan, the Company restricted the grant of future equity awards under its 2014 Equity Incentive Plan, as amended and restated (the 2014 Plan). The 2020 Plan provides for the grants of stock options and other equity-based awards to employees, non-employee directors, and consultants of the Company. A total of 2,656,500 shares of the Company’s common stock were initially reserved for issuance pursuant to the 2020 Plan. The number of shares reserved under the 2020 Plan also included 241,653 shares of the Company’s common stock that remained available for issuance under the 2014 Plan as of immediately prior to the effectiveness of the 2020 Plan. The 2020 Plan share reserve will be increased by the number of shares under the 2014 Plan that are repurchased, forfeited, expired or cancelled after the effective date of the 2020 Plan up to the limit under the 2020 Plan. In addition, the number of shares of the Company’s common stock available for issuance under the 2020 Plan will automatically increase on the first day of each fiscal year, beginning with the Company’s 2021 fiscal year, in an amount equal to the lessor of (1) 2,656,500 shares, (2) 5 % of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year, or (3) such other amount as determined by the Company’s Board of Directors. 129 Stock options granted under the 2020 Plan and the 2014 Plan become exercisable at various dates as determined by the Company’s Board of Directors or its authorized committee and will expire no more than ten years from their date of grant. Stock options generally vest over a four-year term. The exercise price of each option is determined by the Company’s Board of Directors, although generally options have an exercise price equal to the fair market value of the Company’s stock on the date of the option grant. In the case of incentive stock options, the exercise price shall not be less than 100 % of the fair market value of the Company’s common stock at the time the option is granted. For holders of more than 10 % of the Company’s total combined voting power of all classes of stock, incentive stock options may not be granted at less than 110 % of the fair market value of the Company’s common stock at the date of grant and for a term not to exceed five years . As of December 31, 2020, there were 1,430,368 shares available for future issuance under the 2020 Plan. The following table summarizes the option activity for the year ended December 31, 2020: Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2019 2,683,441 $ 3.75 Granted 1,599,409 17.86 Exercised ( 117,093 ) 4.11 Forfeited and cancelled ( 169,583 ) 12.96 Outstanding at December 31, 2020 3,996,174 $ 9.03 8.5 $ 99,107 Exercisable at December 31, 2020 1,249,351 $ 3.07 7.8 $ 38,465 The total intrinsic value of options exercised was $ 2.7 million, $ 0.1 million and $ 0 for the years ended December 31, 2020, 2019 and 2018, respectively. Certain stock options granted under the Company’s 2014 Plan provided option holders the ability to early exercise their stock options prior to vesting. The shares of common stock granted from the early exercise of unvested stock options are restricted and continue to vest in accordance with the original vesting schedule. The Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. The shares purchased by the employees and non-employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding or issued until those shares vest. The cash received in exchange for exercised and unvested shares related to stock options granted is recorded as a liability for the early exercise of stock options on the accompanying balance sheets and will be transferred into common stock and additional paid-in capital as the shares vest. As of December 31, 2020, 2019 and 2018, there were 6,072 shares, 29,579 shares and 121,794 shares subject to repurchase by the Company, respectively. As of December 31, 2020 and 2019, the Company recorded less than $ 0.1 million of liabilities associated with shares issued with repurchase rights. Employee Stock Purchase Plan In February 2020, the Company’s Board of Directors adopted, and its stockholders approved, the 2020 Employee Stock Purchase Plan (ESPP). The ESPP became effective in connection with the Company’s IPO however no offering period or purchase period under the ESPP will begin unless and until otherwise determined by the Company’s Board of Directors. A total of 290,000 shares of common stock were reserved for future issuance under the ESPP. Further, the number of shares of common stock available for issuance under the ESPP will automatically increase on the first day of each fiscal year following the fiscal year in which the first offering period under the ESPP commences in an amount equal to the lessor of (1) 500,000 shares, (2) 1 % of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year, or (3) such other amount as determined by the Company’s Board of Directors. As of December 31, 2020, no shares had been issued pursuant to the ESPP and there were no active offering periods or purchase periods. Stock-Based Compensation Expense Stock options are valued using the Black-Scholes Merton option pricing model on the date of grant. This option pricing model involves a number of estimates, including the expected lives of the stock options, the Company’s anticipated stock volatility and interest rates. Stock-based compensation expense is recognized using the straight-line method over the vesting period. Forfeitures are recognized as they occur. 130 The Company determines the assumptions used in the option pricing model in the following manner: • Expected term. T he expected term represents the period of time that options are expected to be outstanding. Because the Company does not have sufficient historical exercise behavior, it determines the expected life assumption using the simplified method which is an average of the contractual term of the option and its vesting period. • Expected volatility . Due to the Company’s limited historical stock price volatility data, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. • Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the expected term of the awards. • Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends and, therefore, used an expected dividend yield of zero . Prior to the Company’s IPO, the fair value of the Company’s common stock underlying the stock options was determined by the Board of Directors with assistance from management and, in part, on input from an independent third-party valuation firm. The Board of Directors determined the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. Subsequent to the Company’s IPO, the fair value of the Company’s common stock is determined based on its closing market price. The fair value of stock option awards to employees, executives, directors, and other service providers was estimated at the date of grant using the Black-Scholes Merton option pricing model with the following assumptions. Years Ended December 31, 2020 2019 2018 Stock price $16.00 - $35.92 $1.60 - $9.16 $ 1.60 Risk-free interest rate 3.17% - 5.59% 1.4% - 2.6% 2.7% - 3.0% Expected volatility 88.01% - 95.11% 77% - 104% 93% - 98% Expected term (in years) 5.50 - 6.08 6.10 6.01 - 6.10 Expected dividend yield 0 % 0 % 0 % The weighted-average grant-date fair value of options granted was $ 12.99 , $ 5.01 and $ 1.41 for the years ended December 31, 2020, 2019 and 2018, respectively. The Company recognized stock-based compensation expense of $ 5.3 million, $ 1.1 million and $ 0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. No stock-based compensation expense has been recognized as of December 31, 2020, pursuant to the Company’s ESPP. The total unrecognized compensation expense related to outstanding unvested stock-based awards as of December 31, 2020, 2019 and 2018 was $ 20.6 million, $ 6.9 million and $ 2.3 million, respectively, which is expected to be recognized over a weighted-average remaining service period of 2.7 years for 2020 and 3.4 years for both year 2019 and 2018, respectively. The table below summarizes the total stock-based compensation expense included in the Company’s statements of operations and comprehensive loss for stock options for the periods presented (in thousands): Years Ended December 31, 2020 2019 2018 Research and development $ 2,025 $ 476 $ 110 General and administrative 3,253 618 359 Total stock-based compensation expense $ 5,278 $ 1,094 $ 469 131 10. Income Tax Significant components of the Company’s provision for income taxes and income taxes computed using the U.S. federal statutory corporate tax rate were as follows (in thousands): For the Year Ended December 31, 2020 2019 2018 Statutory rate $ ( 15,478 ) $ ( 5,647 ) $ ( 4,487 ) State tax ( 5,158 ) ( 2,351 ) ( 1,465 ) Other permanent items ( 280 ) 17 ( 15 ) Research and development credit — ( 692 ) ( 663 ) Change in valuation allowance 20,916 8,673 6,536 Impact of Tax Cuts and Jobs Act — — — Stock-based compensation — — 94 Provisions for income taxes — — — Significant components of the Company’s deferred taxes were as follows (in thousands): For the Year Ended December 31, 2020 2019 2018 Deferred tax assets: Net operating loss carryforward $ 36,740 $ 24,380 $ 17,353 Research and development credits 3,319 3,319 2,147 Deferred rent 214 353 491 Accruals and other 2,636 771 255 Intangible 6,836 — — Gross deferred tax assets 49,745 28,823 20,246 Less valuation allowance ( 49,507 ) ( 28,583 ) ( 19,910 ) Total deferred tax assets 238 240 336 Deferred tax liabilities: Fixed assets ( 238 ) ( 240 ) ( 336 ) Net deferred tax assets — — — A valuation allowance of $ 49.5 million at December 31, 2020 has been recognized to offset the net deferred tax assets as realization of such assets is uncertain. The valuation allowance increased by $ 20.9 million during the year ended December 31, 2020. As of December 31, 2020, the Company had available net operating loss (NOL) carryforwards of $ 130.8 million. Of the $130.8 million of NOL carryforwards, $ 41.6 million begin to expire in 2034 and $ 89.2 million do not expire. The Company also has available California NOL carryforwards of approximately $ 132.0 million as of December 31, 2020, which begin to expire in 2034. Pursuant to Sections 382 and 383 of the Internal Revenue Code (IRC), annual use of the Company’s NOL and credit carryforwards may be limited in the event a cumulative change in ownership of more than 50 % occurs within a three-year period. Since the Company’s formation, the Company has raised capital through the issuance of capital stock, which on its own or combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership. Upon the occurrence of an ownership change under Section 382 as outlined above, utilization of the Company’s NOL and research and development credit carryforwards are subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, which could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL or R&D credit carryforwards before utilization. The Company has not completed an analysis to determine if such an ownership change has occurred. 132 The Company recognizes liabilities for uncertain tax positions based in a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes that it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcome of examinations by tax authorities in determining the adequacy of its provision for income taxes. As of December 31, 2020, the Company had gross unrecognized tax benefits of $ 0.8 million, none of which would affect the effective tax rate if recognized. The Company does not anticipate any significant changes in its unrecognized tax benefits over the next 12 months. The Company’s policy is to recognize the interest expense and/or penalties related to income tax matters as a component of income tax expense. The Company had no accrual for interest or penalties on its balance sheets at December 31, 2020 and has no t recognized interest and/or penalties in its statement of operations for the year ended December 31, 2020. The Company is subject to taxation in the United States and California. The Company is not currently under examination by any taxing authorities. Due to the carryover of tax attributes, the statute of limitations is currently open for tax years since inception. 11. Commitments and Contingencies Operating Leases The Company leases certain office and lab space in South San Francisco, California under a non-cancelable operating lease, with a term through May 2022 , and an option to renew for an additional five-year term. In March 2019, the Company entered into a lease agreement for office space in San Diego, California under a non-cancelable operating lease with a 13 -month term. In October 2019, the lease was amended to increase the office space and extend the term until May 2021 . The lease was further amended in November 2020 to extend the lease term until December 2021 . Rent expense is recorded on a straight-line basis over the term of the respective lease. Total rent expense was $ 1.4 million for the year ended December 31, 2020 and $ 1.3 million for both the years ended December 31 , 2019 and 2018. Future minimum lease payments under non-cancelable operating leases as of December 31 , 2020 were as follows (in thousands): Operating Leases Year ending December 31, 2021 $ 1,942 2022 686 2023 — 2024 — Total minimum lease payments $ 2,628 Litigation From time to time, the Company may be involved in legal proceedings arising in the ordinary course of business. The Company believes there is no threatened litigation or litigation pending that could have, individually or in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows. 12. Employee Benefit Plan The Company has a defined-contribution 401(k) plan for employees. Employees are eligible to participate in the plan beginning on the first day of the month following date of hire. Under the terms of the plan, employees may make voluntary contributions as a percentage of compensation and the Company has the option to make a discretionary match as determined by the Company’s Board of Directors, within prescribed limits. There were no employer contributions to the plan during the years ended December 31, 2020, 2019 or 2018. 133 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.