Fate Therapeutics, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The company is a clinical-stage biopharmaceutical developer of programmed cellular therapeutics. Its lead candidate, ProHema, was in clinical development; it had no approved products and had not generated revenue from therapeutic product sales.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 or prior period |
|---|---|---|
| Revenue | No revenue amount is reported in the statements presented; no therapeutic product sales | Not stated in the statements presented |
| Research and development expense | $4.568 million | $4.522 million |
| General and administrative expense | $2.756 million | $2.415 million |
| Operating loss | $7.324 million | $6.937 million |
| Interest expense | $0.558 million | $0.043 million |
| Net loss | $7.881 million; $0.38 per share | $6.980 million; $0.34 per share |
| Net cash used in operating activities | $6.375 million | $5.255 million |
| Cash and cash equivalents | $42.349 million at March 31, 2015 | $49.101 million at December 31, 2014 |
| Current assets / current liabilities | $42.792 million / $6.413 million | $49.872 million / $4.581 million at December 31, 2014 |
| Long-term debt | $20.0 million principal; $19.670 million net carrying amount, including current and noncurrent portions | $20.0 million principal |
Gross margin is not meaningful for this development-stage company, and the filing does not provide a clear value for it. Cash used in investing activities was $0.452 million, mainly for property and equipment; financing activities provided $0.075 million. Cash declined by $6.752 million during the quarter. Accumulated deficit was $120.273 million.
Material changes and notable items
- Net loss increased by $0.901 million year over year. R&D expense rose slightly; 2014 included a $0.4 million noncash Verio milestone charge, while 2015 included higher clinical-trial consulting costs. G&A increased $0.341 million, reflecting compensation, facility and infrastructure, and corporate registration costs.
- Other expense increased primarily because of interest on the Silicon Valley Bank loans. The company had drawn the full $20 million facility; the loans are secured by substantially all assets except certain intellectual property. Fixed rates are 6.94% and 7.07%, with maturities in 2018 and final payment fees.
- In March 2015, the company extended a facility lease through September 2017 and subleased additional laboratory space. Future minimum payments were $2.5 million under the lease and $0.8 million under the sublease as of March 31.
- After quarter-end, on May 4, the company entered a Juno Therapeutics collaboration. Juno agreed to a $5 million upfront payment and an $8 million purchase of 1 million shares at $8 per share, scheduled for May 7. Juno is also to fund collaboration research for an initial four-year term, subject to minimum annual research payments. Fate may earn target-selection, development, regulatory and commercial milestones—approximately $50 million per developed product—and low-single-digit royalties; these amounts are contingent, not assured revenue.
Outlook, risks and management commentary
Management expected continued losses for at least several years and anticipated increased R&D and G&A spending. Planned work included the Phase 2 PUMA study and Phase 1b PROMPT and PROVIDE studies of ProHema, as well as research into other programmed-cell products. Management stated that March 31 cash was expected to fund projected operating requirements for at least the next 12 months, while cautioning that forecasts depend on uncertain assumptions and additional capital would be needed for development. The later Juno payment and share purchase were not included in the March 31 cash balance.
- Clinical-stage and regulatory risks include uncertain safety and efficacy, possible additional FDA data or trial requirements, delays, and uncertainty about the regulatory pathway for novel cellular therapies.
- ProHema manufacturing depends on clinical-site facilities, third-party suppliers and cord-blood availability; variability or regulatory requirements could delay development or commercialization.
- Additional financing may be necessary and may not be available on acceptable terms; equity financing could dilute shareholders. Debt covenants restrict certain business and financing activities.
- The Juno collaboration is subject to scientific and execution risk, may not result in products or contingent payments, and includes exclusivity restrictions for specified engineered T-cell targets.
- The company reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2015.
Important facts for investors to verify
- Whether the PUMA, PROMPT and PROVIDE studies progress on schedule and produce adequate safety and efficacy data.
- Actual cash runway and spending, including the receipt and timing of Juno’s $5 million payment and $8 million stock purchase.
- Debt repayment terms, covenant compliance, collateral scope and the effect of interest and final payment fees on cash needs.
- Whether Juno funds the research as contracted and whether the collaboration produces target selections, milestones or royalties.
- Whether manufacturing, clinical-site, supply and FDA requirements create additional delays or costs.