Fate Therapeutics, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. The company is a clinical-stage cell therapy developer and had no therapeutic product sales; revenue came from collaborations and grants.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $7.6 million | $2.4 million | $15.5 million | $7.9 million |
| Research and development expense | $30.7 million | $23.2 million | $86.6 million | $62.6 million |
| General and administrative expense | $8.4 million | $6.3 million | $23.6 million | $17.0 million |
| Operating loss | $31.5 million | $27.1 million | $94.7 million | $71.6 million |
| Net loss | $58.7 million | $26.6 million | $120.3 million | $69.8 million |
| Basic and diluted loss per share | $0.68 | $0.40 | $1.49 | $1.06 |
- At September 30, cash and cash equivalents were $349.1 million; investments were $152.9 million. Together, cash, cash equivalents and investments totaled $502.0 million. Restricted cash was an additional $15.2 million.
- Operating cash use for the first nine months was $18.6 million, versus $57.6 million in 2019. This period’s cash flows included collaboration-related upfront consideration and deferred revenue; operating cash use should not be treated as a straightforward measure of recurring cash burn.
- Financing activities provided $277.9 million, primarily from a June public offering ($188.8 million net), a JJDC private placement ($50.0 million), and Janssen-related stock proceeds ($33.9 million). Common shares outstanding increased to 87.0 million from 75.7 million at year-end 2019.
- The company reported no outstanding long-term debt; its Silicon Valley Bank facility was repaid in November 2019. Operating lease liabilities totaled $85.5 million, with $194.0 million of undiscounted future lease payments.
- Current assets were $496.8 million and current liabilities were $54.2 million. Deferred revenue totaled approximately $66.5 million, reflecting consideration received but not yet recognized as revenue.
Material changes versus the prior comparable period
- Q3 revenue rose $5.1 million year over year, reflecting Janssen and Ono collaboration revenue in 2020; Q3 2019 revenue was from Ono. Nine-month revenue increased $7.7 million, with Janssen and Ono replacing the prior-year mix that included Juno.
- Operating expenses increased: nine-month R&D rose $24.1 million, mainly from employee compensation, facility lease costs, and clinical development and manufacturing; G&A rose $6.6 million, principally from compensation and professional costs.
- Net loss increased by $32.1 million in Q3 and $50.4 million for the nine-month period. A principal unusual item was a $27.6 million noncash expense from remeasuring contingent MSK stock-price appreciation milestones; no related clinical milestone had been achieved and no payment was then owed.
- Cash and investments increased substantially, chiefly following the 2020 equity financings and Janssen-related receipts. The company also recorded a $48.1 million increase in right-of-use assets obtained in exchange for lease obligations during the nine-month period.
Outlook, commentary and risks
- Management expected continued operating losses and higher R&D and G&A spending as it advances clinical programs, manufacturing capabilities and collaborations. It stated that September 30 cash, cash equivalents and investments should fund projected operating requirements for at least the next 12 months; this is a forward-looking estimate subject to significant uncertainty.
- Under the Janssen collaboration, Fate is eligible for research funding, development and sales milestones, and tiered royalties. The filing reports no Janssen milestone or royalty receipts by September 30, 2020; such future payments depend on development and other achievements.
- COVID-19 had delayed or disrupted some research and clinical trial activity, including site initiation, enrollment and conduct. The duration and financial impact were unknown.
- Key risks include clinical and regulatory failure or delay, patient enrollment, complex and scalable cell manufacturing, reliance on collaborators and third-party facilities, and the need for additional capital. Future financing could dilute shareholders.
- The MSK milestone liability is a Level 3 fair-value estimate sensitive to stock price and other assumptions. The potential payments can total up to $75 million, but are contingent on clinical and share-price conditions; none had been triggered as of quarter-end.
- The company had a $15.0 million cash-collateralized letter of credit for its future headquarters lease. Its CIRM award is recorded as a liability and may require repayment or, if treated as a grant, royalties on FT516 commercial sales.
- Management concluded there was no substantial doubt about the company’s ability to continue as a going concern for at least 12 months. Disclosure controls were assessed as effective; the filing reported no material legal proceedings or off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether clinical progress, enrollment and trial timelines are recovering from COVID-19 disruptions, and whether reported interim results are confirmed in later data.
- Actual operating cash use and the duration of the stated liquidity runway as R&D, manufacturing and headquarters-related costs rise.
- Janssen and Ono program progress, research funding, option decisions and the conditions required for milestone or royalty payments.
- Changes in the MSK milestone valuation and assumptions, and whether any clinical or stock-price triggers become payable.
- Future financing needs, share-count growth and the scale and timing of lease and manufacturing commitments.