Fate Therapeutics, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted. The company is a clinical-stage biopharmaceutical developer of programmed cellular immunotherapies and had no product-sales revenue.
Financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Collaboration revenue | $1.026 | $1.027 | $2.053 | $2.349 |
| Research and development expense | $7.927 | $6.782 | $15.893 | $13.418 |
| General and administrative expense | $2.669 | $2.249 | $5.701 | $4.851 |
| Operating loss | $(9.570) | $(8.004) | $(19.541) | $(15.920) |
| Net loss | $(9.645) | $(8.408) | $(19.771) | $(16.785) |
| Basic and diluted loss per share | $(0.23) | $(0.29) | $(0.48) | $(0.58) |
| Operating cash used | — | — | $(16.327) | $(14.756) |
Gross margin is not presented as a meaningful measure in the filing. Revenue was from collaboration and grant activities, not therapeutic product sales; Q2 collaboration revenue was principally under the Juno agreement.
Balance sheet, debt and liquidity
- At June 30, 2017, cash and cash equivalents were $31.063 million and short-term investments were $39.950 million, totaling $71.013 million. Total assets were $73.952 million.
- Current liabilities were $8.052 million; total stockholders’ equity was $55.213 million. Debt was reported at $6.676 million net of the long-term portion of issuance costs and discount; no current debt portion was classified at June 30.
- Six-month investing cash use was $37.037 million, primarily reflecting purchases of U.S. Treasury investments; financing cash use was $4.182 million, primarily principal repayments on term loans.
- Management said June 30 cash, cash equivalents and short-term investments were expected to fund projected operating requirements for at least 12 months. The company nevertheless expects continuing losses and states it will require additional capital to advance development.
Changes versus prior comparable periods
- For the first half, revenue declined $0.296 million year over year, while R&D expense increased $2.475 million and G&A increased $0.850 million. Net loss widened by $2.986 million.
- Q2 revenue was essentially unchanged year over year. Higher R&D spending was attributed primarily to clinical-development services and consultants, increased compensation and headcount, and expanded facility space. Higher G&A was attributed mainly to intellectual-property expenses.
- Cash used in operations increased by $1.571 million in the first half. Cash and cash equivalents fell from $88.609 million at year-end 2016 to $31.063 million, while short-term investments rose from $3.503 million to $39.950 million.
- Weighted-average shares increased to 41.4 million in Q2 2017 from 28.9 million in Q2 2016. At June 30, potential dilution included approximately 14.1 million shares from conversion of preferred stock and about 6.1 million shares from options and restricted stock units; these were excluded from diluted loss per share because the company reported a net loss.
Outlook, commentary and material items
- Management anticipated higher R&D and G&A spending, including to conduct ProTmune and FATE-NK100 clinical trials, advance iPSC-derived candidates, support manufacturing and process development, and expand personnel and infrastructure. No numerical earnings or revenue guidance was provided.
- The July 14, 2017 SVB amendment, a subsequent event, provided a $15.0 million term loan; $7.5 million in cash proceeds remained after repayment of prior SVB debt. The new loan matures January 1, 2022, carries a floating rate of 7.25% to 8.25%, and includes an interest-only period through January 2019, potentially extendable to July 2019 upon a development milestone. It also has a 7.5% final payment fee and a warrant for up to 91,463 shares at $3.28. These terms arose after the reporting date.
- Juno collaboration revenue was $2.053 million for the first half, and related deferred revenue was $3.9 million at June 30. Potential selection fees, milestones and royalties are contingent; none had been received by June 30. Juno can terminate the agreement on six months’ written notice.
- Key risks include clinical-trial delays or failure, patient enrollment, uncertain regulation of novel cell therapies, complex manufacturing and reliance on third-party facilities and suppliers, need for additional financing, and debt covenants. Management reported no substantial doubt about the company’s ability to continue as a going concern at issuance.
- The company reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls at June 30, 2017.
Investor verification priorities
- Confirm cash burn, available liquidity and the assumptions behind management’s at-least-12-month runway statement; assess the impact of development spending and future financing needs.
- Review the July 2017 SVB amendment’s repayment, interest, collateral, covenant and warrant terms, and verify post-refinancing debt and cash balances in subsequent filings.
- Track clinical progress, enrollment, safety and manufacturing readiness for ProTmune and FATE-NK100, as well as the timing and funding of iPSC-derived programs.
- Assess reliance on Juno collaboration funding and the likelihood and timing of any contingent selection fees, milestones or royalties; none had been received as of June 30.
- Evaluate potential dilution from convertible preferred shares, equity awards, warrants and any future capital raises.