Fate Therapeutics, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Unless stated otherwise, amounts are in U.S. dollars; financial statement amounts are presented in millions.
Business context
Fate is a clinical-stage biopharmaceutical company developing programmed cellular immunotherapies for cancer and immune disorders, including ProTmune, FATE-NK100 and cell therapy candidates derived from induced pluripotent stem cells. It has no therapeutic product sales; reported revenue came from collaboration activities. The filing was signed August 6, 2018.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $1.0 | $1.0 | $2.1 | $2.1 |
| Research and development expense | $16.8 | $7.9 | $28.3 | $15.9 |
| General and administrative expense | $3.8 | $2.7 | $7.4 | $5.7 |
| Net loss | $19.7 | $9.6 | $33.8 | $19.8 |
| Basic and diluted loss per share | $0.37 | $0.23 | $0.64 | $0.48 |
- Cash and cash equivalents were $36.2 million at June 30, 2018; short-term investments were $41.9 million, giving $78.0 million in combined cash, cash equivalents and investments. Total current assets were $80.0 million against current liabilities of $16.3 million.
- Operating cash use was $24.1 million for the first half, versus $16.3 million in the prior-year period. Investing activities used $30.1 million, mainly reflecting purchases of U.S. Treasuries; financing activities provided $1.5 million.
- Long-term debt principal was $15.0 million, with $2.0 million classified as current and $12.8 million as long-term net of the current portion. The loan’s stated interest rate was 8.25% at quarter-end; principal payments were scheduled to begin after the interest-only period ending January 2019, subject to a possible milestone-based extension.
- No meaningful product gross margin is reported because the company had no therapeutic product sales. Operating losses reflect development spending and are not presented as a product margin measure.
Changes versus comparable periods
- Q2 R&D expense rose $8.9 million year over year; first-half R&D expense increased $12.4 million. Management attributed the increase principally to the MSK license, clinical development and manufacturing services, personnel, and laboratory spending.
- First-half G&A expense increased $1.7 million, mainly from employee compensation and advisory costs. Revenue was essentially unchanged, while the Q2 net loss approximately doubled year over year.
- Cash and cash equivalents declined from $89.0 million at December 31, 2017 to $36.2 million at June 30, 2018, while short-term investments rose from $12.0 million to $41.9 million. Combined cash and investments fell from $101.0 million to $78.0 million.
Outlook, commentary and material items
- Management expects continued operating losses and increased R&D spending as it advances clinical programs and develops iPSC-derived candidates. It stated that available cash, cash equivalents and short-term investments should fund projected operating requirements for at least the next 12 months; this is a forward-looking estimate, not a guarantee.
- In May 2018, the company amended its MSK license, adding CAR-related licenses and obtaining MSK’s remaining interest in Tfinity. It issued 500,000 shares valued at $4.8 million and paid a $0.5 million upfront fee; the aggregate $5.3 million was recognized as R&D expense. Additional milestone, royalty and sublicense obligations may apply.
- CIRM awarded up to $4.0 million to support FT516 development. The first $1.0 million was received and recorded as a liability. After the project period, the company may elect repayment terms or, if it does not elect a loan within 10 years, the award becomes a grant with royalties on FT516 sales until payments equal nine times the award.
- The office and laboratory lease was extended to approximately 2028 and expanded by about 24,000 square feet, bringing leased space to approximately 72,000 square feet. Future minimum payments were $41.1 million; an early termination option carries conditions and a $2.5 million payment.
- Juno was acquired by Celgene in March 2018; the filing says the acquisition did not change the collaboration agreement. Juno research funding continues under the agreement, but selection fees, milestones and royalties had not been received as of June 30, 2018.
- Key risks include clinical-trial delay or failure, patient enrollment, uncertain regulatory requirements for novel cell therapies, manufacturing scalability and third-party dependence, donor-material and supplier availability, intellectual-property matters, and the need for additional capital. The company reported no material legal proceedings and no substantial doubt about its ability to continue as a going concern at issuance.
Important facts for investors to verify
- Whether the stated 12-month cash runway remains adequate as clinical, manufacturing and facility costs develop.
- Clinical progress, enrollment, safety and efficacy for ProTmune and FATE-NK100, and timing and costs for first-in-human iPSC-derived programs.
- Whether cell-processing facilities, suppliers and donor materials can support consistent, compliant clinical manufacturing at greater scale.
- Future financing needs and potential dilution, including the company’s shelf registrations and convertible preferred stock; the filing reports 14.1 million common shares potentially issuable upon conversion of the preferred stock.
- Debt repayment obligations, loan covenants and the impact of the expanded lease, alongside the conditional CIRM repayment or royalty exposure and MSK license obligations.