Business context and reporting period
Fate Therapeutics, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2016. The clinical-stage biopharmaceutical company develops programmed cellular immunotherapies. Its lead clinical program, ProTmune, was in Phase 1/2 development; other immuno-oncology and immuno-regulatory programs were preclinical. The company had no therapeutic product sales and derived revenue from collaborations and grants.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Collaboration revenue | 2016: $1.027 million; 2015: $0.329 million | 2016: $2.349 million; 2015: $0.329 million |
| Research and development expense | 2016: $6.782 million; 2015: $4.857 million | 2016: $13.418 million; 2015: $9.425 million |
| General and administrative expense | 2016: $2.249 million; 2015: $2.690 million | 2016: $4.851 million; 2015: $5.446 million |
| Operating loss | 2016: $8.004 million; 2015: $7.218 million | 2016: $15.920 million; 2015: $14.542 million |
| Net loss | 2016: $8.408 million; 2015: $7.779 million | 2016: $16.785 million; 2015: $15.660 million |
| Net loss per share, basic and diluted | 2016: $0.29; 2015: $0.33 | 2016: $0.58; 2015: $0.70 |
- For the six months ended June 30, 2016, operating cash use was $14.756 million, investing cash use was $10.550 million, and financing cash use was $3.633 million. Cash and cash equivalents declined $28.939 million.
- At June 30, 2016, cash and cash equivalents were $35.870 million and short-term investments were $10.060 million, totaling $45.930 million. Current assets were $47.092 million and current liabilities were $14.327 million.
- Long-term debt had $14.678 million of principal outstanding; its balance-sheet carrying amount was $14.540 million, including current and long-term portions. The loans bear fixed rates of 6.94% and 7.07%, are secured by substantially all assets except certain intellectual property, and mature in 2018.
- Operating lease commitments totaled $14.8 million, following a June 2016 lease amendment extending the facility lease through June 2023 and adding approximately 24,000 square feet.
- Gross margin is not meaningful to the reported results because the company had no product sales.
Material changes versus prior comparable periods
- Second-quarter revenue increased $0.698 million year over year, and first-half revenue increased $2.020 million, primarily reflecting greater research activity under the Juno collaboration.
- R&D expense rose $1.925 million in the quarter and $3.993 million in the first half. Management attributed the increases primarily to outside services, higher compensation and headcount, and laboratory equipment and supplies.
- G&A expense decreased $0.441 million in the quarter and $0.595 million in the first half, primarily due to lower intellectual-property-related expenses.
- Net loss increased year over year in both periods despite higher collaboration revenue. First-half operating cash use increased from $4.296 million in 2015 to $14.756 million in 2016; the filing notes that the prior-year comparison benefited from Juno-related deferred revenue and that current-period net loss also increased.
- Cash and cash equivalents plus short-term investments were $45.930 million at June 30, 2016, compared with cash and cash equivalents of $64.809 million at December 31, 2015; the company began holding short-term U.S. Treasury investments during 2016.
Outlook, management commentary, and risks
- Management expected operating losses to continue for at least several years, with expenses rising as it advances ProTmune, develops preclinical programs, conducts Juno research, and builds clinical, regulatory, and technical capabilities. No revenue or earnings guidance was provided.
- Management stated that June 30 cash and short-term investments were expected to fund projected operating requirements for at least the next 12 months. It also warned that development costs, timelines, regulatory requirements, and funding needs are uncertain and that additional capital may be required sooner than expected.
- The Juno agreement provides minimum annual research funding of $2.0 million during its initial four-year term. As of June 30, 2016, the company had received $1.8 million in research payments and had recognized $2.3 million of collaboration revenue for the first half. No selection fees, milestone payments, or royalties had been received. Potential milestone and royalty amounts depend on future partner selections, development, approvals, and sales.
- On August 6, 2016, after quarter-end, the company entered into an agreement for a private placement of 5.25 million shares at $1.96 per share, or approximately $10.3 million gross. Closing was expected on or before August 10, subject to customary conditions; proceeds were therefore not included in June 30 liquidity.
- Key risks include clinical and regulatory uncertainty, patient enrollment and trial execution, manufacturing consistency and third-party supply, dependence on collaborators, intellectual-property challenges, continued operating losses, and the availability and potential dilutive effect of future financing. The company reported no material legal proceedings and said disclosure controls were effective.
Important facts for investors to verify
- Whether the announced private placement closed, its net proceeds, and the resulting share count and dilution.
- Actual cash burn and whether the stated at-least-12-month runway remains valid after the financing and planned development spending.
- Progress, enrollment, safety, and results in the ProTmune Phase 1/2 trial, as well as any regulatory or manufacturing requirements affecting its timeline.
- Juno collaboration progress, future research funding, and whether any target selections, milestones, or royalties become payable.
- Debt repayment requirements and covenants, along with the cash impact of the expanded lease commitments.