Fate Therapeutics, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Fate is a clinical-stage biopharmaceutical company developing iPSC-derived, off-the-shelf cellular immunotherapies for cancer. It reported no therapeutic product sales; revenue came from collaborations. Amounts below are USD unless noted.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Collaboration revenue | $18.4 million | $11.1 million | Up $7.3 million |
| Research and development expense | $72.1 million | $44.9 million | Up $27.3 million |
| General and administrative expense | $20.7 million | $12.5 million | Up $8.2 million |
| Loss from operations | $74.5 million | $46.2 million | Loss widened |
| Net loss | $65.7 million | $45.1 million | Loss widened |
| Net loss per share, basic and diluted | $0.68 | $0.48 | Loss per share increased |
| Net cash used in operating activities | $64.6 million | $27.1 million | Higher cash use |
Collaboration revenue included $15.9 million from Janssen and $2.5 million from Ono. R&D and G&A expenses rose alongside employee compensation, laboratory and manufacturing supplies, clinical-trial and consultant costs, and facility expenses. No meaningful product sales or royalty revenue is expected unless a product is developed and approved. Gross margin is not meaningful for this development-stage business.
At March 31, 2022, cash and cash equivalents were $64.7 million and investments were $577.0 million, for combined cash, cash equivalents and investments of $641.7 million. Total current assets were $599.1 million versus current liabilities of $77.9 million. The company reported no conventional borrowing debt on the balance sheet; recorded obligations include operating lease liabilities, deferred revenue, CIRM award liabilities and MSK stock-price milestone liabilities. Stockholders’ equity was $633.4 million and accumulated deficit was $834.8 million.
Management said existing cash, cash equivalents and investments should fund projected operating requirements for at least the next 12 months. Cash and cash equivalents fell from $133.6 million at December 31, 2021 to $64.7 million at March 31, 2022; the quarter’s net decrease in cash, cash equivalents and restricted cash was $68.8 million. Investing activities used $7.0 million, while financing activities provided $2.8 million. The company had $188.9 million of undiscounted future operating-lease payments, with a $113.5 million recorded lease liability.
Material changes and notable items
- Revenue increased 65% year over year, while R&D expense increased 61% and G&A expense increased 66%; net loss widened 46%.
- Fate recognized $8.4 million of noncash income from remeasuring the MSK stock-price appreciation milestones, reducing the related liability from $24.2 million to $15.8 million. The gain partly offset operating losses.
- Operating cash use increased materially versus Q1 2021. The cash-flow statement reports $27.1 million used in Q1 2021, but MD&A states $21.7 million; the filing does not reconcile this difference.
- Cash used in investing was much lower than in Q1 2021, when the company made substantial investment purchases. Q1 2021 financing also included $432.4 million of net proceeds from a public offering; Q1 2022 had no comparable offering proceeds.
- Common shares outstanding were 96.5 million at March 31, 2022, up from 95.7 million at year-end 2021. The company also had 2.8 million convertible preferred shares, convertible into approximately 14.0 million common shares subject to applicable limitations.
Outlook, risks and contingencies
Management expects operating losses and expenses to increase as it advances clinical and preclinical programs, expands manufacturing capabilities, and performs collaboration work. It provided no quantified revenue, earnings or cash-burn guidance beyond its stated cash runway estimate. The company may need additional capital; a $350 million at-the-market offering program is available, but future equity financing could dilute shareholders. Management cautioned that actual funding needs and runway may differ from estimates.
- Development and regulatory: Product candidates are early-stage and unapproved. Clinical results, safety, efficacy, manufacturing consistency and regulatory requirements remain uncertain; preliminary data may change as more data are collected.
- Clinical execution and supply: COVID-19-related slower site activation, enrollment and treatment, plus supplier shortages and delays, affected studies and manufacturing. The filing also identifies the conflict in Ukraine, inflation, labor availability and supply-chain disruption as potential risks.
- Manufacturing: Cell-therapy manufacturing is complex, and commercial-scale experience is limited. Capacity, quality, regulatory compliance and third-party supplier or manufacturer performance could delay development or restrict supply.
- Collaborations: Future milestone payments, royalties and development progress depend on achievement of milestones and partner decisions. In April 2022, after quarter-end, Fate achieved another Janssen research milestone, with $3.0 million due.
- Contingencies: The $4.0 million CIRM award remains recorded as a liability until Fate elects to repay it or it becomes a grant; repayment or future sales royalties may apply. Remaining MSK stock-price milestone payments could total up to $55 million, depending on specified conditions.
- Other risks: The company cited competition, intellectual-property dependence, cybersecurity and data privacy, recruiting and retention, and potential future capital needs. It reported no material legal proceedings and stated that disclosure controls were effective as of March 31, 2022.
Key facts investors should verify
- Reconcile the Q1 2021 operating-cash-use discrepancy: $27.1 million in the cash-flow statement versus $21.7 million in MD&A.
- Assess the assumptions underlying the at-least-12-month runway estimate against ongoing cash burn, planned clinical and manufacturing spending, and the timing of collaboration receipts.
- Track clinical enrollment, safety and efficacy updates, manufacturing capacity and supply reliability, including the continuing effects of COVID-19 and other disruptions.
- Confirm the timing and accounting for the $3.0 million Janssen milestone achieved in April 2022 and monitor future collaboration milestones and partner options.
- Review potential dilution from the $350 million ATM program, equity awards and possible conversion of preferred shares, alongside the company’s financing needs.
- Monitor the MSK milestone liability and CIRM award terms; the MSK liability is fair-value-sensitive to Fate’s share price and other estimates.