Fate Therapeutics, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Fate is a clinical-stage cell-therapy company and has not generated therapeutic-product sales; reported revenue is from collaborations and grants. Financial statements are unaudited.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Collaboration revenue | $1.0 million | $1.0 million | $3.1 million | $3.4 million |
| Research and development expense | $8.6 million | $6.8 million | $24.5 million | $20.2 million |
| General and administrative expense | $2.8 million | $2.6 million | $8.5 million | $7.5 million |
| Operating loss | $10.3 million | $8.4 million | $29.9 million | $24.3 million |
| Net loss | $10.7 million | $8.7 million | $30.5 million | $25.5 million |
| Basic and diluted loss per share | $0.26 | $0.27 | $0.74 | $0.85 |
- For the nine months, operating cash use was $26.2 million, versus $22.3 million a year earlier. Investing activities used $23.4 million, primarily reflecting purchases of U.S. Treasury investments; financing provided $4.2 million.
- At September 30, cash and cash equivalents were $43.2 million, short-term investments were $26.0 million, and total cash, cash equivalents and investments were $69.2 million. Total current assets were $70.0 million and current liabilities were $9.7 million.
- Accumulated deficit was $206.3 million. Stockholders’ equity was $45.7 million, down from $73.2 million at December 31, 2016.
- Long-term debt was $15.0 million gross ($14.8 million net of debt costs); none was classified as current at quarter-end. The loan’s stated rate was 7.75% at September 30, 2017, with an interest-only period through January 2019 and maturity in January 2022.
- Operating and net margins are not meaningful indicators for this pre-commercial company: collaboration revenue is small relative to research and operating costs, and the company reported losses.
Changes versus comparable periods
- Q3 revenue was unchanged year over year; nine-month revenue declined $0.3 million, primarily reflecting Juno collaboration revenue recognition.
- R&D expense increased $1.8 million in Q3 and $4.2 million year to date. Management cited higher clinical and research service-provider costs, employee costs, and facility rent following a laboratory and office expansion.
- G&A expense increased $0.2 million in Q3 and $1.0 million year to date, including higher intellectual-property and professional-service costs.
- Nine-month net loss increased $4.9 million year over year. Net loss per share improved, largely alongside a higher weighted-average share count in 2017.
- In July 2017, Fate refinanced its prior SVB debt with a $15.0 million term loan. The transaction repaid the previous loan; $7.5 million of proceeds remained as cash to the company. A $0.1 million debt-extinguishment loss was recorded.
Outlook, commentary and risks
- Management expects losses and expenses to continue, with R&D spending rising as it advances ProTmune and FATE-NK100 clinical programs and develops iPSC-derived candidates. It stated that September 30 cash and investments were expected to fund projected operating requirements for at least 12 months. The filing also says the company assessed going concern and found no substantial doubt as of issuance.
- The Phase 1 stage of the ProTmune PROTECT study had been reviewed by an independent data monitoring committee, which recommended starting the blinded Phase 2 stage. Management cautioned that safety and efficacy remain uncertain and that later results may differ.
- Fate reported no product-sales revenue and no Juno selection fees, milestones, or royalties received as of September 30. The Juno agreement provides research funding and potential future contingent payments, but those depend on program progress and Juno’s decisions.
- Key risks include clinical-trial delays or failure, patient enrollment challenges, uncertain regulatory requirements for novel cell therapies, manufacturing consistency and third-party dependence, availability of cell materials and supplies, and the need for additional capital. Management says additional financing may be needed and may be unavailable on acceptable terms.
- Debt is secured by substantially all assets other than certain intellectual property and carries covenants; a breach could make the balance immediately due. The company reported compliance with the covenants at quarter-end. It also disclosed $13.2 million of future minimum facility-lease payments through June 2023.
- An effective shelf registration permits issuance of up to $100 million of securities; future issuance could dilute existing holders. Class A preferred stock is convertible into up to 14.1 million common shares, subject to applicable terms and limitations.
- No material legal proceedings were reported. Management said disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Investor verification checklist
- Confirm current cash runway against actual clinical-trial, manufacturing, and hiring spend; the 12-month estimate is forward-looking.
- Track ProTmune Phase 2 and FATE-NK100 trial enrollment, safety findings, efficacy data, and regulatory or manufacturing requirements.
- Review future quarterly operating cash burn and whether revenue remains concentrated in the Juno collaboration.
- Check SVB loan terms, covenant compliance, interest-rate exposure, repayment schedule, and any new financing or debt.
- Monitor potential dilution from the shelf registration, preferred-stock conversion, equity awards, and any resale activity.
- Assess Juno collaboration continuation, target selections, and any milestone or royalty progress; no contingent payments had been received by the reporting date.