Fate Therapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; filed August 3, 2022. Fate is a clinical-stage biopharmaceutical company developing off-the-shelf, iPSC-derived NK- and T-cell cancer immunotherapies. It has no therapeutic product sales; reported revenue comes from collaborations and grants.
Financial performance and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Collaboration revenue | $18.5 | $13.4 | $37.0 | $24.6 |
| Research and development expense | $81.3 | $48.0 | $153.4 | $92.9 |
| General and administrative expense | $20.4 | $12.2 | $41.1 | $24.7 |
| Operating loss | $(83.1) | $(46.8) | $(157.6) | $(93.0) |
| Net loss | $(76.1) | $(55.1) | $(141.8) | $(100.2) |
| Basic and diluted loss per share | $(0.79) | $(0.58) | $(1.47) | $(1.07) |
- Revenue rose year over year, led by Janssen collaboration revenue: $18.1 million in Q2 and $34.1 million for the first half. Ono contributed $0.4 million and $2.9 million, respectively.
- Higher R&D spending reflected increased employee compensation, clinical and consulting costs, and laboratory materials and supplies. G&A growth included higher compensation, patent and legal costs, and facilities expenses.
- Six-month operating cash use was $117.8 million, versus $59.2 million a year earlier. Investing activities provided $33.3 million, principally reflecting investment maturities exceeding purchases; financing activities provided $6.2 million, primarily from equity-plan share issuance.
- At June 30, cash and cash equivalents were $55.3 million; short- and long-term investments were $525.5 million. Together, cash and investments totaled $580.8 million. Total current assets were $599.2 million and current liabilities $91.5 million.
- No conventional borrowings are reported in the supplied filing text. Operating lease liabilities totaled $112.3 million, including $5.7 million current; undiscounted future lease payments were $185.3 million.
- Stockholders’ equity was $580.5 million, down from $678.8 million at year-end 2021. Accumulated deficit was $910.9 million. Common shares outstanding increased from 95.7 million at December 31, 2021 to 96.9 million at June 30, 2022.
Material changes and notable items
- Operating expenses grew faster than collaboration revenue, widening operating losses. First-half net loss also increased year over year, although reported other income partly offset the operating loss.
- A noncash fair-value remeasurement of MSK stock-price appreciation milestones generated $5.9 million of Q2 income and $14.2 million of first-half income, compared with expenses of $8.7 million and $8.0 million in the respective 2021 periods. The liability declined to $9.9 million from $24.2 million at year-end; this earnings benefit is not operating revenue.
- Janssen paid $6.0 million for two research milestones in the first half and $10.0 million when it exercised a commercial option in May. The option payment remained deferred revenue at quarter-end because Fate had not completed the related performance obligations.
- A June amendment expanded the Ono collaboration to include CAR-NK research and a third candidate targeting a second solid-tumor antigen. Estimated aggregate research and development fees increased by about $9.3 million to $29.3 million, subject to Ono exercising an option to continue the research term for that candidate. Ono committed funding through September 2024.
- Fate adopted a 2022 equity plan authorizing 9.5 million shares. At June 30, 6.0 million restricted stock units and 7.7 million options were outstanding; future vesting and exercises may dilute shareholders.
Outlook, risks and contingencies
- Management expects continued, potentially increasing losses and R&D spending. It stated that cash and investments at June 30 were expected to fund projected operating requirements for at least the next 12 months; this is a forward-looking estimate, not a guarantee.
- The company expects to need additional capital for development and operations. It may seek equity or debt financing, collaborations, or other funding; additional financing may be unavailable or dilute shareholders. Its existing shelf and at-the-market program permits up to $350 million in common-stock sales.
- COVID-19 continued to slow some clinical-site activation, patient enrollment and treatment, and to delay receipt of equipment, materials and supplies. The filing also cites inflation, the Ukraine conflict, and broader economic conditions as potential cost, supply-chain, operating and financing risks.
- Key business risks include early-stage and unproven iPSC and gene-editing approaches; clinical safety, efficacy and enrollment uncertainty; complex manufacturing and supply constraints; regulatory requirements; dependence on collaborators and third parties; and competition. No product candidate has received marketing approval.
- The filing describes two pending lawsuits filed in May 2022 involving Shoreline Biosciences and co-founder Dan Kaufman: a state-court complaint alleging contract, fraud and related claims, and a federal patent-infringement action brought by Fate and Whitehead Institute. Defendants deny infringement and allege patent invalidity. Both cases are at an early stage; Fate seeks monetary damages.
- Fate recorded a $3.2 million current and $0.8 million noncurrent CIRM award liability. Depending on its election and the FT516 development status, the $4.0 million award may be repayable under specified terms or treated as a grant subject to royalties on commercial sales.
- Management reported that disclosure controls and procedures were effective as of June 30, 2022, and that no material change in internal control over financial reporting occurred during the quarter.
Most important facts for investors to verify
- Whether the $580.8 million cash-and-investments balance and management’s stated 12-month funding horizon remain adequate as clinical, manufacturing and facility spending continues.
- Actual cash burn and future spending trends, including the extent to which collaboration funding offsets development costs.
- Progress, enrollment, safety and efficacy results across clinical programs; the filing cautions that interim or preliminary data may change and may not predict final results.
- Manufacturing capacity, supply availability and the effect of delays on trials and development timelines.
- Terms and execution of the expanded Ono collaboration and Janssen program, including option decisions, deferred revenue recognition and any future milestone receipts.
- Potential dilution from equity financing, the at-the-market program, equity awards and convertible preferred stock; the filing notes that preferred shares could convert into approximately 14.0 million common shares, subject to ownership limitations.
- Developments in the Shoreline litigation, the MSK milestone liability and the CIRM award repayment or royalty obligations.