Fate Therapeutics, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed March 5, 2019. The filing also reports fourth-quarter results. Fate is a clinical-stage biopharmaceutical company developing programmed cellular immunotherapies for cancer and immune disorders. It had no therapeutic product sales; revenue came from collaborations and grants.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Collaboration revenue | $4.74 million | $4.11 million |
| Research and development expense | $56.02 million | $34.36 million |
| General and administrative expense | $15.81 million | $11.87 million |
| Operating loss | $67.09 million | $42.13 million |
| Net loss | $66.60 million | $42.95 million |
| Basic and diluted loss per share | $1.19 | $1.02 |
| Net cash used in operating activities | $38.65 million | $36.82 million |
Fourth-quarter 2018 revenue was $1.66 million, operating expenses were $18.40 million, net loss was $16.03 million, and loss per share was $0.25. The comparable fourth-quarter 2017 amounts were $1.03 million, $13.27 million, $12.50 million, and $0.29, respectively. Gross margin is not meaningful to the reported business, which had no product sales.
- At year-end, cash and cash equivalents were $190.51 million and short-term investments were $10.49 million, totaling approximately $201.0 million. Working capital was $177.93 million; total assets were $213.03 million.
- Debt was $15.0 million principal, with a $14.88 million carrying value net of discounts and issuance costs. The SVB loan bears a floating rate capped at 8.25%, matures January 2022, and is secured by substantially all assets except certain intellectual property.
- Contractual obligations totaled $59.70 million, including $18.48 million of debt payments, interest and fees, and $41.22 million of lease payments. The lease runs through 2028, subject to an early-termination option and payment.
- Management said available cash and investments were expected to fund projected operating requirements for at least the next 12 months from the filing. The company nevertheless expects continuing losses and anticipates needing additional capital to advance development and commercialization.
Material changes and developments
- Revenue increased 15% year over year, principally reflecting collaboration activity, including the new Ono agreement. Revenue remains small relative to operating costs.
- R&D expense increased about 63%, driven by clinical development and manufacturing services, new intellectual-property licenses, employee costs, and laboratory spending. G&A expense rose about 33%.
- Net loss widened by about 55%. Operating cash use rose modestly; financing cash flow of $140.78 million, mainly from a September 2018 common-stock offering, drove the increase in cash.
- The September offering issued 10.65 million shares at $13.50 each and generated $134.9 million net proceeds. Year-end common shares outstanding were 64.69 million, compared with 52.65 million a year earlier. Potentially dilutive securities included 14.10 million shares issuable upon conversion of preferred stock, plus options, warrants and restricted stock units.
- Ono paid a $10 million upfront fee and prepaid $5 million of research funding; estimated research fees total $20 million over the collaboration plan. Fate recognized $0.6 million of Ono revenue in 2018 and reported $14.4 million of related deferred revenue. Further milestone and royalty amounts are contingent, not guaranteed.
Pipeline, outlook and key risks
- ProTmune: In the seven-subject Phase 1 cohort, all subjects were alive and relapse-free at Day 100; by Day 365, five of seven remained alive and relapse-free, with two non-relapse deaths. Three subjects experienced acute GvHD by Day 100 and responded to standard steroid treatment. These small, early results do not establish efficacy. More than 30 subjects had been treated in the randomized Phase 2 study by December 2018.
- FATE-NK100: Early Phase 1 findings included transient morphologic leukemia-free states in three AML subjects, followed by disease progression; no complete responses were reported in the first two dose levels. In ovarian cancer, one subject had disease control for 6.2 months after repeat dosing. In the solid-tumor study, some monotherapy subjects had stable disease at one month; combination-regimen subjects reported in the filing had progressive disease. A Grade 3 treatment-related serious adverse event of abdominal pain occurred in the ovarian study.
- FT500 and FT516: FDA allowed FT500’s IND in November 2018; the first subject was treated in February 2019. FT516’s IND for relapsed/refractory hematologic malignancies was allowed in February 2019. These are early clinical programs, and the filing provides no efficacy results for either.
- Outlook: Management planned continued investment in trials, preclinical programs, manufacturing and GMP capabilities, and collaborations. No quantified revenue, earnings, or clinical-success guidance was provided. The company warned that spending and timelines may vary substantially with trial progress, manufacturing needs, regulatory requirements and financing conditions.
- Principal risks: All candidates remain in research or early clinical development, with no approved products or product-sale revenue. Clinical enrollment, safety, efficacy, regulatory review, and cell-manufacturing scale-up are uncertain. Fate relies on third-party facilities and suppliers, including some sole sources, and lacks long-term supply agreements for certain materials. Additional financing may be needed and could dilute shareholders; debt covenants, collaboration termination rights, intellectual-property challenges, and competition also pose risks.
- The CIRM FT516 award had provided $3.5 million by year-end and was accounted for as a liability; the remaining $0.5 million was suspended pending a possible advanced-solid-tumor IND. Depending on the company’s election and development stage, repayment or future royalties may apply. No material legal proceedings were reported. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification checklist
- Check subsequent cash burn, financing, share count and preferred-stock conversion terms against the company’s current filings.
- Track enrollment, response durability, adverse events and follow-up in the ProTmune and FATE-NK100 studies; treat the reported small-cohort results as preliminary.
- Verify FT500 and FT516 trial progress, protocol changes, safety findings and any later efficacy disclosures.
- Assess manufacturing readiness, GMP facility build-out, supplier concentration and the ability to scale reproducibly.
- Review Ono option exercise and milestone conditions, Juno collaboration status, and the CIRM award’s repayment or royalty treatment.
- Monitor operating cash use against management’s stated runway, debt service and covenants, and the long-term lease commitment.