Fate Therapeutics, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Dollar amounts below are in millions unless otherwise noted.
Business context and reporting period
Fate is a clinical-stage biopharmaceutical company developing off-the-shelf, engineered iPSC-derived NK- and T-cell therapies for cancer and autoimmune disorders. It has no product-sale revenue; reported revenue comes from collaborations and grants.
In January 2023, the company announced a workforce reduction of approximately 60%, to about 220 employees, and discontinued its FT516, FT596, FT538 and FT536 programs. Janssen gave notice of termination in January; the agreement terminated effective April 3, 2023. The company wound down the collaboration during Q1, including two candidates previously expected to enter clinical development in 2023.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Collaboration revenue | $59.0 | $18.4 |
| Research and development expense | $65.6 | $72.1 |
| General and administrative expense | $21.9 | $20.7 |
| Loss from operations | $(28.6) | $(74.5) |
| Total other income | $9.7 | $8.8 |
| Net loss | $(18.9) | $(65.7) |
| Net loss per share, basic and diluted | $(0.19) | $(0.68) |
| Net cash used in operating activities | $(28.9) | $(64.6) |
Revenue rose by $40.6 million, primarily because the Janssen termination led to recognition of deferred revenue: $52.3 million of Q1 revenue came from Janssen, including $41.2 million previously deferred. Thus, the quarter’s revenue increase should not be assumed to recur. R&D expense fell by $6.5 million, while G&A increased by $1.2 million. The net loss improvement also reflected $4.0 million of income from reversal of the CIRM award liability and a $1.7 million gain from remeasurement of MSK stock-price milestones.
At March 31, 2023, cash and cash equivalents were $42.0 million; short- and long-term investments totaled $370.8 million; and cash, cash equivalents and investments totaled $412.8 million. Restricted cash of $15.2 million was separately reported. Current assets were $437.9 million and current liabilities were $48.7 million. Accumulated deficit was $1.07 billion. The filing reports operating lease liabilities of $107.6 million and minimum undiscounted lease payments of $173.7 million; it does not present a borrowing-debt balance in the supplied financial statements.
Stockholders’ equity was $477.5 million. Common shares outstanding were 98.2 million at quarter-end, versus 97.3 million at December 31, 2022. No operating margin is presented; the company reported an operating loss.
Material changes and unusual items
- Restructuring charges were $12.9 million in Q1, including $10.9 million in R&D and $2.0 million in G&A; all related charges had been recognized by March 31. The company found no impairment of long-lived assets.
- Operating cash use declined year over year, principally because net loss was lower. Cash, cash equivalents and restricted cash decreased by $19.3 million during the quarter.
- Janssen termination ended the collaboration rights, subject to limited exceptions. Fate said it expected reimbursement for wind-down activities in Q2 2023.
- Ono remains a collaboration partner. Fate recognized $6.7 million in Q1 revenue under the Ono agreement and recorded $1.0 million as contra-R&D expense. Ono’s Candidate 3 option was described as expiring no later than September 2024, subject to possible extension.
- In April 2023, 33,441 preferred shares converted into 167,205 common shares, and the company amended the preferred-stock beneficial ownership limitation.
Outlook, risks and contingencies
Management stated that March 31 cash, cash equivalents and investments were expected to fund projected operating requirements for at least the next 12 months. The filing also describes the workforce reduction as intended to fund operations into the second half of 2025. These are forward-looking estimates, subject to clinical, manufacturing, regulatory, collaboration and financing uncertainties. The company expects continued losses and says additional capital will be required; access to financing on acceptable terms is not assured. No formal financial guidance is provided.
Key risks include early-stage clinical programs and uncertain safety or efficacy; complex cell-therapy manufacturing and supply dependence; potential clinical delays; reliance on the Ono collaboration after Janssen’s termination; and the possibility that further funding needs lead to dilution or reduced development activity. The filing also identifies inflation, geopolitical and financial-market uncertainty, and competition as risks.
Legal matters include two pending Shoreline-related lawsuits in which Fate seeks monetary damages, and a January 2023 securities lawsuit alleging misleading statements concerning Janssen and related revenue expectations. Fate disputes the securities allegations and intends to defend the case. The filing does not quantify a potential loss for these proceedings.
Important facts for investors to verify
- How much of future reported revenue will be supported by ongoing collaboration work, given the Q1 recognition of deferred Janssen revenue and the termination of that agreement.
- Whether management’s cash-runway assumptions remain valid as clinical, manufacturing and restructuring plans evolve.
- Which programs and clinical milestones will advance following the discontinuations and workforce reduction.
- Whether Ono continues funding and exercises relevant options, and the timing and conditions of any milestone payments.
- Potential cash requirements from operating leases, MSK stock-price milestones, litigation and future financing; assess dilution risks, including from preferred-stock conversions.