Fate Therapeutics, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; filed November 4, 2021. Fate is a clinical-stage biopharmaceutical company developing iPSC-derived cellular immunotherapies. It has no therapeutic product sales; reported revenue comes from collaborations and grants.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Collaboration revenue | $14.2 million | $7.6 million | $38.8 million | $15.5 million |
| Research and development expense | $53.1 million | $30.7 million | $146.0 million | $86.6 million |
| General and administrative expense | $15.7 million | $8.4 million | $40.4 million | $23.6 million |
| Net loss | $43.3 million | $58.7 million | $143.5 million | $120.3 million |
| Basic and diluted loss per share | $0.45 | $0.68 | $1.52 | $1.49 |
At September 30, 2021, cash and cash equivalents were $129.2 million and investments were $674.4 million, for $803.6 million in combined cash, cash equivalents and investments. Cash, cash equivalents and restricted cash totaled $144.4 million. Management said available cash and investments were expected to fund projected operating requirements for at least 12 months. Operating cash use was $92.6 million in the first nine months, compared with $18.6 million in 2020; investing activities used $395.3 million, primarily reflecting investment purchases, while financing activities provided $449.7 million.
Total assets were $984.6 million and stockholders’ equity was $730.3 million. The filing does not provide a clear conventional borrowings balance. Operating lease liabilities totaled $109.1 million, with $187.6 million of undiscounted future lease payments. The $4.0 million CIRM award is recorded as a liability. No gross-profit or operating-margin measure is reported.
Material changes versus prior periods
- Q3 collaboration revenue nearly doubled year over year, while nine-month revenue increased $23.2 million. Janssen revenue was $11.2 million for Q3 and $30.7 million year to date; Ono revenue was $3.0 million and $8.1 million, respectively.
- Research and development and general and administrative expenses rose substantially, reflecting higher personnel and stock-based compensation, clinical and consultant costs, laboratory and manufacturing materials, and new-headquarters costs.
- Q3 net loss narrowed year over year, mainly because the MSK stock-price milestone liability generated $11.0 million of other income in Q3 2021, versus $27.6 million of expense in Q3 2020. For the nine-month period, net loss increased despite a more favorable milestone fair-value change, as operating expenses rose sharply.
- In January 2021, the company raised $432.4 million net through a public offering and pre-funded warrants. Common shares outstanding increased to 95.4 million at September 30, from 87.7 million at year-end 2020.
- Property and equipment rose to $74.6 million from $32.3 million, and the company moved its headquarters to its new San Diego premises in August 2021.
Outlook, risks and unusual items
- Management expects continued operating losses and higher expenses as it advances clinical trials, research, manufacturing scale-up and collaboration work. It does not expect meaningful product sales or royalty revenue unless and until a product is developed and approved; no specific financial guidance was provided.
- COVID-19 caused delays or disruptions to research and clinical activities, including at clinical sites. The company said the duration and financial and operational effects remain uncertain; supply availability, trial enrollment and execution are also risks.
- The company achieved an MSK clinical milestone and crossed the first stock-price threshold in July 2021, making a $20.0 million payment due; it was unpaid at quarter-end and included in accrued expenses. The remaining stock-price appreciation milestone liability was $24.6 million and is remeasured using a Level 3 valuation model, making reported income or expense sensitive to assumptions and share-price movements.
- Janssen and Ono collaborations offer potential research funding, milestones and royalties, but future payments depend on research progress, options, development, regulatory and commercial outcomes. The filing reports no royalties received as of September 30, 2021.
- Key risks include clinical and regulatory failure, novel iPSC and gene-editing technology uncertainty, manufacturing scale-up and quality, reliance on collaborators and third-party suppliers, intellectual-property exposure, potential financing needs, and stockholder dilution. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether clinical-trial progress, enrollment and data support continued advancement of the pipeline, and whether COVID-19 or other factors are affecting timelines.
- How quickly the $803.6 million liquidity balance is consumed relative to management’s stated minimum 12-month runway, given rising operating expenses and planned manufacturing investment.
- Payment timing and future fair-value changes for the MSK obligations, including the $20.0 million accrued payment and $24.6 million remaining liability.
- Janssen and Ono program progress, collaboration funding and option decisions, and whether potential milestones or royalties become achievable.
- Manufacturing readiness at the new headquarters, the scale and cost of production, and the extent of future equity issuance or other financing.