Fate Therapeutics, Inc. — Q1 2020 Form 10-Q
Business context and reporting period
Clinical-stage biopharmaceutical company developing programmed cellular immunotherapies, including iPSC-derived NK- and T-cell candidates. This unaudited filing covers the three months ended March 31, 2020, compared with Q1 2019. The company had no therapeutic-product sales; revenue came from collaborations. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / March 31, 2020 balance |
|---|---|---|
| Collaboration revenue | $2.5 million | $2.6 million |
| Research and development expense | $29.3 million | $17.7 million |
| General and administrative expense | $7.7 million | $5.4 million |
| Operating loss | $34.5 million | $20.4 million |
| Net loss | $33.5 million | $19.8 million |
| Basic and diluted net loss per share | $0.44 | $0.30 |
| Net cash used in operating activities | $26.7 million | $17.5 million |
| Cash and cash equivalents | $83.4 million | — |
| Investments | $136.1 million | — |
| Cash, cash equivalents and investments | $219.4 million | — |
| Total debt | None reported | 2017 term loan repaid in November 2019 |
Cash, cash equivalents and restricted cash totaled $98.6 million at quarter-end; restricted cash included $15.0 million securing a letter of credit for the new headquarters lease. Management stated that cash, cash equivalents and investments at March 31 were expected to fund operations for at least the following 12 months. The company reported an accumulated deficit of $417.1 million and said it expects continued losses.
Material changes versus the prior comparable period
- Revenue declined slightly, principally because the Juno collaboration had ended; Q1 2020 collaboration revenue was from Ono, while Q1 2019 included both Ono and Juno revenue.
- R&D expense rose by $11.6 million, primarily from higher employee compensation, laboratory and manufacturing supplies, facility costs, and third-party clinical and development services.
- G&A expense increased by $2.4 million, mainly from employee costs and professional fees. Net loss and operating cash use both increased materially.
- Investing activities provided $23.8 million, largely from investment maturities. Financing activities provided $1.5 million, including $0.4 million from the CIRM award.
Outlook, commentary, risks and unusual items
- Outlook: Management expects R&D and operating expenses to increase as clinical and preclinical programs, manufacturing capabilities, and collaborations advance. No numerical earnings or revenue guidance was provided.
- COVID-19: The company reported delays or disruption to research, development and clinical-trial activities, including site and patient-enrollment constraints. The duration and financial impact were uncertain; supply-chain, manufacturing and capital-raising risks were also noted.
- Janssen agreement after quarter-end: On April 2, 2020, Fate entered a collaboration to develop iPSC-derived CAR NK and CAR T-cell candidates. The related arrangement provided $100 million in total consideration: $50 million upfront cash and a $50 million equity investment by Johnson & Johnson Innovation–JJDC, with the stock purchase closing April 7. Fate also incurred $12.9 million in sublicense fees. Further research funding, milestones and royalties are contingent on specified activity and outcomes.
- Ono collaboration: Ono research and development fees were estimated at $20 million in aggregate, with $8.5 million received by March 31, 2020. Additional option, milestone and royalty amounts are contingent and should not be treated as assured revenue.
- Lease commitment: A new San Diego headquarters lease has a 15-year term beginning with rent in May 2021, subject to conditions. Future undiscounted operating lease payments were $195.7 million; the recorded lease liability was $75.7 million. A $15 million letter of credit is secured by restricted cash.
- CIRM award: The $4 million FT516 award is recorded as a liability until the company elects whether to repay it or treat it as a grant, which would carry royalties on commercial sales subject to the award terms.
- The company reported no material legal proceedings and stated there was no substantial doubt about its ability to continue as a going concern for at least 12 months from issuance.
Important facts for investors to verify
- Confirm the post-quarter Janssen cash payment and JJDC share purchase closing, and assess the $12.9 million sublicense cost and resulting net funding.
- Track operating cash burn against the reported $219.4 million of cash, cash equivalents and investments, while accounting for restricted cash and lease commitments.
- Monitor COVID-19 effects on trial enrollment, clinical timelines, manufacturing and supply availability.
- Verify progress and remaining funding under Ono and Janssen, distinguishing earned collaboration revenue from contingent milestones, options and royalties.
- Assess whether rising R&D costs and the new headquarters obligations remain consistent with management’s stated liquidity runway.