Fate Therapeutics, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The company is a clinical-stage biopharmaceutical business developing off-the-shelf iPSC-derived cell therapies. It has no therapeutic product sales; reported revenue is from collaborations and grants. Financial amounts below are in millions of dollars unless noted.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Collaboration revenue | $0.9 | $18.5 | $59.9 | $37.0 |
| Research and development expense | $40.9 | $81.3 | $106.5 | $153.4 |
| General and administrative expense | $22.6 | $20.4 | $44.6 | $41.1 |
| Operating loss | $(62.6) | $(83.1) | $(91.2) | $(157.6) |
| Net loss | $(52.8) | $(76.1) | $(71.6) | $(141.8) |
| Net loss per share, basic and diluted | $(0.54) | $(0.79) | $(0.73) | $(1.47) |
- Q2 total other income was $9.8 million, including $4.8 million from an employee retention tax credit (ERC). Six-month other income of $19.5 million included $5.1 million of ERC income, a $4.0 million CIRM grant election, $8.1 million of interest income, and a $2.1 million gain from remeasuring stock-price milestones.
- Cash used in operating activities was $57.4 million in the first half, versus $117.8 million in the prior-year period. Investing activities provided $42.5 million, mainly reflecting investment maturities net of purchases; financing activities provided $0.3 million.
- At June 30, cash and cash equivalents were $46.8 million and investments were $338.4 million, totaling $385.2 million. The company also held $15.2 million of restricted cash, principally collateral for facility leases. The comparable cash-and-investment total at December 31, 2022 was $441.2 million.
- Total assets were $584.8 million and stockholders’ equity was $437.8 million. The balance sheet reports no borrowing balance; operating lease liabilities totaled $106.3 million, with $170.2 million of undiscounted future lease payments.
- No meaningful operating margin is reported: the company remains loss-making and has no product-sales revenue.
Material changes versus the prior comparable period
- Q2 revenue fell $17.6 million year over year, principally because the Janssen collaboration terminated effective April 3, 2023; no Janssen revenue was recognized in Q2. First-half revenue rose $23.0 million because the termination led to recognition of $41.2 million of previously deferred Janssen revenue.
- R&D expense declined $40.4 million in Q2 and $46.9 million in the first half, reflecting reduced employee costs and spending on laboratory materials and supplies. Q2 professional consulting and clinical-trial expense increased $6.0 million.
- G&A expense increased $2.3 million in Q2 and $3.5 million in the first half, primarily due to higher patent and legal costs.
- The January 2023 restructuring reduced the workforce by approximately 60%; the company recorded $12.9 million of severance and related costs in the first half. The restructuring was completed by March 31.
Outlook, risks and contingencies
- Management said available cash, cash equivalents and investments were expected to fund projected operating requirements for at least the next 12 months. The restructuring was intended to extend runway and focus resources on priority programs; the filing also describes a plan designed to support operations into the second half of 2025. These are forward-looking estimates and actual cash needs may differ.
- The company expects continued significant losses and requires additional capital over time. Potential equity or debt financing may be unavailable or dilutive, and management says it may need to delay, scale back or discontinue programs if funding is insufficient.
- In January 2023, the company discontinued FT516, FT596, FT538 and FT536. Janssen’s termination also ended development of its collaboration candidates, including two that had been expected to enter clinical development in 2023. Ono remains a collaboration partner; its Candidate 3 option generally expires by September 2024, with a possible extension to June 2026.
- Key risks include early-stage clinical and regulatory uncertainty, safety and efficacy of novel iPSC and gene-edited therapies, patient enrollment, complex manufacturing and supply dependencies, reliance on collaborators, competition, and the ability to protect intellectual property.
- Contingencies include ongoing lawsuits against Shoreline Biosciences relating to contract and patent claims, a securities class action concerning disclosures about Janssen and its termination, and a related derivative action. The company disputes the securities and derivative claims and intends to defend them. The Shoreline patent case remained pending, with summary-judgment motions filed in July 2023.
- MSK stock-price appreciation milestone obligations had a fair-value liability of $1.8 million at June 30, 2023; total potential payments under the agreement can reach $75 million, subject to specified conditions. Operating leases are also a substantial long-term commitment.
- Management concluded disclosure controls were effective and stated there were no material changes to internal control over financial reporting during the quarter. The filing did not provide a specific revenue or earnings forecast.
Important facts for investors to verify
- Whether the reported $385.2 million of cash and investments, current burn rate and management’s runway assumptions remain consistent with subsequent operating plans and spending.
- How the post-restructuring pipeline is progressing, including clinical, manufacturing and regulatory milestones for retained programs.
- Whether Ono continues funding and advances its collaboration candidates, and whether any option, milestone or cost-sharing payments are achieved.
- Developments in the Shoreline, securities class action and derivative litigation, including any potential financial or operational impact.
- Future dilution, including use of the existing at-the-market program, and the potential effect of conversion of Class A preferred stock and equity awards.