Fate Therapeutics, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; comparative period is Q1 2017. Unless otherwise stated, amounts are U.S. dollars in millions. Fate is a clinical-stage biopharmaceutical company developing programmed cellular immunotherapies. It has no therapeutic-product sales and relies on collaboration revenue, grants, and external financing.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Collaboration revenue | $1.026 | $1.027 |
| Research and development expense | $11.476 | $7.966 |
| General and administrative expense | $3.604 | $3.032 |
| Operating loss | $(14.054) | $(9.971) |
| Net loss | $(14.135) | $(10.126) |
| Net loss per share, basic and diluted | $(0.27) | $(0.24) |
| Net cash used in operating activities | $(12.551) | $(7.455) |
- Revenue was essentially flat year over year and came from the Juno collaboration. No product gross margin is reported; product sales have not begun.
- R&D expense increased $3.510 million, primarily from clinical development, manufacturing, consultants, laboratory supplies, and personnel. G&A rose $0.572 million, mainly from compensation and intellectual-property costs.
- At March 31, cash and cash equivalents were $32.912 million and short-term investments were $55.722 million, totaling $88.634 million. Total liquidity was $100.949 million at December 31, 2017. The quarter-end balance-sheet cash and investments include Treasury purchases; investing activities used $43.844 million, largely for those purchases.
- Current assets were $90.625 million and current liabilities $12.588 million. Long-term debt had $15.0 million principal outstanding; its net carrying amount was approximately $14.827 million, including current and noncurrent portions. The loan bears interest at 8.25% at quarter-end and matures January 2022.
- Management stated existing cash and investments should fund projected operating requirements for at least the next 12 months. The company nevertheless expects continued losses and says it will require additional capital to advance development and potentially commercialize candidates.
Material changes and notable items
- Net loss increased $4.009 million year over year; operating cash use increased $5.096 million. Collaboration revenue was unchanged, while operating expenses grew.
- Fate adopted ASC 606 in Q1 using the full retrospective method; management reported no material impact on historical financial statements.
- Celgene completed its acquisition of Juno on March 6, 2018. Fate said the transaction did not change the Juno collaboration agreement.
- After quarter-end, the California Institute for Regenerative Medicine award was fully executed in April 2018: up to $4.0 million to support FT516 development, with disbursements tied partly to milestones and co-funding requirements. At project end, Fate may elect to repay 60% as a loan; otherwise, intellectual-property and revenue-sharing terms apply.
- The company reported an accumulated deficit of $232.933 million and no material legal proceedings. Management concluded there was no substantial doubt about going concern at the financial-statement issuance date.
Outlook, commentary, and risks
- Management expects operating losses and expenses to increase as it conducts ProTmune and FATE-NK100 clinical work, advances iPSC-derived candidates toward clinical testing, and supports research, manufacturing, and regulatory activities. It did not provide specific financial guidance beyond the stated liquidity outlook.
- Key risks include clinical-trial delays or failure, patient-enrollment challenges, uncertain safety and efficacy, complex and unvalidated cell-therapy manufacturing, dependence on third-party processing facilities and suppliers, and the need for additional financing. Additional equity could dilute shareholders; debt could add payment obligations and restrictive covenants.
- The $15.0 million SVB loan is secured by substantially all assets except certain intellectual property and includes operating covenants. Breach could accelerate repayment. The company stated it was in compliance with the covenants.
- The Juno agreement offers potential selection fees, milestones, and low-single-digit royalties, but no selection fees, milestones, or royalties had been received by March 31, 2018; these amounts are contingent and uncertain.
- The filing identifies no material off-balance-sheet arrangements. Future minimum payments under the facility lease were $12.5 million through June 2023.
Investor verification points
- Track clinical progress, enrollment, safety, and data for ProTmune and FATE-NK100, and milestones for FT516 and other iPSC-derived programs.
- Reconcile quarterly cash burn and total cash-plus-investment balances with management’s stated 12-month runway; assess financing needs and potential dilution.
- Review SVB debt terms, floating-rate exposure, amortization timing, collateral, covenants, and the final payment fee.
- Confirm CIRM award disbursement conditions, co-funding obligations, and the eventual choice between repayment and revenue/IP-sharing terms.
- Monitor the Juno/Celgene collaboration’s continuation and any target selections, milestones, or other contingent payments.