FATE THERAPEUTICS INC annual report, FY2019

Fate Therapeutics, Inc. — FY2019 Form 10-K

Reporting period: Fiscal year ended December 31, 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; reported revenue came from collaborations and grants.

Financial performance and liquidity

MetricFY2019FY2018
Collaboration revenue$10.7 million$4.7 million
Research and development expense$87.8 million$56.0 million
General and administrative expense$23.6 million$15.8 million
Operating loss$100.7 million$67.1 million
Net loss$98.1 million$66.6 million
Basic and diluted loss per share$1.44$1.19
Net cash used in operating activities$83.2 million$38.7 million
  • Revenue increased about 125%; management attributed the increase chiefly to Ono collaboration revenue. R&D expense rose about 57%, and G&A expense about 50%, reflecting increased staffing, laboratory materials, clinical development and manufacturing activity.
  • Fourth-quarter 2019 revenue was $2.8 million and net loss was $28.3 million, versus $1.7 million revenue and $16.0 million net loss in fourth-quarter 2018.
  • At year-end, cash and cash equivalents were $99.8 million; short- and long-term investments totaled $161.1 million. Combined cash and investments were $260.9 million, versus $201.0 million at December 31, 2018. Working capital was $199.3 million.
  • Fate reported no long-term debt at year-end after repaying its Silicon Valley Bank facility in November 2019. The payoff used $14.2 million, including principal, final fee and interest.
  • The company raised $162.4 million net in a September 2019 common-stock offering of 9.89 million shares. Common shares outstanding increased from 64.7 million to 75.7 million during 2019. No dividends were paid.
  • Operating lease obligations were $38.2 million at year-end. A new headquarters/manufacturing lease signed in January 2020 carries $157.6 million of future minimum payments, beginning in 2021, and was not included in the 2019 obligations table.
  • Operating and net margins are not representative of a commercial business: revenue was collaboration-based, with no product sales, and the company incurred substantial development losses.

Business developments and changes

  • The pipeline centered on off-the-shelf, iPSC-derived NK- and T-cell therapies. FT500 and FT516 were in Phase 1 clinical development; ProTmune’s Phase 2 PROTECT trial was fully enrolled. FT596 was planned to enter Phase 1 enrollment in early 2020. Other iPSC candidates, including FT538, FT576 and FT819, remained preclinical.
  • In interim Phase 1 data for FT500, 12 patients had been treated by the November 2019 cutoff. No dose-limiting toxicities or FT500-related Grade 3 or higher adverse events were reported; stable disease was reported in some patients. These early results do not establish efficacy.
  • The FDA allowed FT516’s solid-tumor IND in December 2019, in addition to its hematologic-malignancy investigation. Management planned further FT516 and FT596 clinical work in 2020 and IND submissions for FT538, FT576 and FT819.
  • Fate discontinued further development of FATE-NK100 in 2019 as it advanced engineered iPSC-derived NK candidates.
  • Ono collaboration revenue rose, while the Juno research collaboration ended in May 2019; no further Juno funding or revenue was expected. Ono’s potential milestone and royalty payments remain conditional and had not been received at year-end.

Outlook, risks and notable items

  • Management expected losses and R&D spending to continue rising as clinical programs, manufacturing capabilities and research advance. It stated year-end cash, cash equivalents and investments were expected to fund projected operations for at least 12 months; future capital needs remain dependent on development costs, timelines and results.
  • Key risks include early-stage clinical uncertainty, patient enrollment and trial delays, novel regulatory requirements, complex cell manufacturing and scale-up, reliance on third-party suppliers and facilities, and the possibility that candidates fail to demonstrate safety or benefit. The company had no approved products or product-sales experience.
  • The company opened a cGMP-compliant manufacturing facility in San Diego in September 2019, but noted that manufacturing processes were still developing and some materials were research-grade or sourced from third parties, including sole-source suppliers.
  • The $4.0 million CIRM award for FT516 is accounted for as a liability until Fate elects whether to treat it as a loan or grant. A loan election could require repayment; a grant election entails royalties on commercial sales up to the contractual cap.
  • Adoption of lease accounting in 2019 added $16.6 million of right-of-use assets and $18.2 million of liabilities at adoption. The auditor issued unqualified opinions on the financial statements and internal control; the identified critical audit matter concerned estimates of total costs under the Ono collaboration used in revenue recognition.
  • No material legal proceedings were reported. The filing states there were no conditions raising substantial doubt about the company’s ability to continue as a going concern at issuance.

Important facts for investors to verify

  • Whether subsequent clinical data support meaningful safety and efficacy, particularly for FT500, FT516, FT596 and the fully enrolled ProTmune Phase 2 trial.
  • Whether trial, IND and manufacturing milestones occurred on management’s stated schedules, and whether the new manufacturing facility can supply consistent clinical-grade product.
  • Cash burn and remaining runway, including the effects of expanded trials, lease commitments and any additional equity financing or dilution.
  • Ono option exercises, collaboration funding and any milestone or royalty receipts; these potential payments are contingent, not assured revenue.
  • The eventual CIRM award classification and any repayment or royalty obligation, and the timing and costs associated with the new headquarters lease.