Fate Therapeutics, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Unaudited results. Fate is a clinical-stage biopharmaceutical company developing adult stem-cell modulators; it had no therapeutic product sales and had not generated revenue from its planned principal operations.
Financial highlights
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $0 | $0.290m | $0 | $0.762m |
| Research and development | $3.968m | $3.067m | $8.490m | $5.598m |
| General and administrative | $2.072m | $1.492m | $4.487m | $2.789m |
| Net loss | $6.067m | $5.534m | $13.047m | $9.082m |
| Net loss per share | $0.30 | $4.46 | $0.64 | $7.41 |
| Cash used in operations | Not separately stated | Not separately stated | $10.744m | $7.323m |
All amounts are U.S. dollars. Q2 operating expenses were $6.040m, versus $4.559m a year earlier. Operating loss was $6.040m, compared with $4.269m. For the first half, operating loss was $12.977m versus $7.625m. Profitability and operating margins are not meaningful given the absence of revenue and continuing losses.
At June 30, cash and cash equivalents were $42.012m, down $12.024m from year-end 2013. Current assets were $42.245m and current liabilities $3.812m, implying working capital of approximately $38.433m. Total assets were $43.551m and stockholders’ equity $39.638m. Debt was $0.750m principal, all classified as current (net carrying amount $0.746m); the company repaid $1.0m of debt during the first half. Cash used in investing was $0.424m, principally for equipment. No significant cash inflow from financing occurred in the first half; financing used $0.856m.
Changes versus prior comparable periods
- Revenue fell to zero as the government grant was fully expended in May 2013 and the three-year BD collaboration development period ended in September 2013. The company did not expect significant future revenue from either arrangement.
- First-half R&D increased $2.892m, reflecting higher staffing, PUMA study preparation and conduct, laboratory costs, and a $0.4m noncash Verio milestone charge. Q2 R&D rose $0.901m.
- First-half G&A increased $1.698m, primarily from higher staffing and public-company legal, financial, and insurance costs. Q2 G&A rose $0.580m.
- First-half net loss increased $3.965m despite lower other expense: 2013 included fair-value charges on exchangeable shares and warrants, including a $1.3m exchangeable-share charge that did not recur. Per-share loss improved substantially from 2013, but the comparison is heavily affected by the IPO and the resulting increase in weighted-average shares.
- First-half operating cash use increased $3.421m year over year. Cash and cash equivalents declined from $54.036m at December 31, 2013 to $42.012m at June 30, 2014.
Outlook, developments, and risks
- Management expected losses and expenses to continue rising for the foreseeable future, with no significant therapeutic-product revenue expected until a candidate is approved and commercialized; that process was expected to take years. Planned work included the Phase 2 PUMA ProHema study, planned pediatric PROMPT and PROVIDE studies, and preclinical Wnt7a analog work.
- Management stated that June 30 cash was expected to fund projected operating requirements for at least 12 months. It also said substantial additional funding would be needed for advanced clinical development, including Phase 3 ProHema trials, and that cash could be used faster than forecast. Future funding may be unavailable or dilutive; development could be delayed, scaled back, or discontinued.
- Subsequent financing: On July 30, 2014, the company entered into a Silicon Valley Bank facility for up to $20m: a $10m Term A loan funded at closing and up to $10m in additional loans contingent on a specified ProHema Phase 2 clinical milestone. Net Term A proceeds after repayment of existing loans and transaction costs were $8.8m. Term A bears 6.94% fixed interest and matures January 1, 2018. Accessing the first Term B loan would trigger warrants for up to $0.4m of common stock. The facility is secured by substantially all assets, excluding certain intellectual property, and includes restrictive covenants.
- Key clinical risks include uncertain trial outcomes, limited rare-disease patient pools and enrollment challenges, FDA requests for additional data or protocol changes, and the need to standardize ProHema manufacturing across transplant-center facilities. Supply dependence includes a single FT1050 supplier, other third-party components, and cord blood units. The Wnt7a analogs remained preclinical.
- The first PUMA interim review supported continuation, but the study was incomplete; the filing cautions that the limited interim data do not predict efficacy. The FDA permitted the planned PROVIDE study in July 2014. No material legal proceedings were reported. Management concluded disclosure controls were effective as of June 30, 2014.
Investor verification priorities
- Check subsequent ProHema trial enrollment, safety and efficacy updates, and FDA requirements for PUMA, PROMPT, and PROVIDE.
- Verify whether the specified clinical milestone for Term B borrowing was achieved, how much was drawn, and the resulting debt, interest, covenants, and warrant dilution.
- Track cash burn and runway against management’s 12-month estimate, including the effects of rising clinical and public-company expenses.
- Assess ProHema manufacturing consistency and availability of FT1050, other formulation components, and eligible cord blood units.
- Confirm the timing and funding needs of later-stage trials and whether additional capital or partnerships will be required.