Fate Therapeutics, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Fate is a clinical-stage biopharmaceutical company developing programmed cellular immunotherapies. It had no product sales; reported revenue came from collaborations.
Financial results and liquidity
Amounts are in USD millions except per-share data.
| Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 |
|---|---|---|---|---|
| Collaboration revenue | 2.8 | 1.0 | 5.4 | 2.1 |
| Research and development expense | 21.6 | 16.8 | 39.4 | 28.3 |
| General and administrative expense | 5.3 | 3.8 | 10.6 | 7.4 |
| Operating loss | (24.1) | (19.6) | (44.5) | (33.7) |
| Net loss | (23.5) | (19.7) | (43.2) | (33.8) |
| Basic and diluted loss per share | $(0.36) | $(0.37) | $(0.66) | $(0.64) |
- Cash flow: H1 operating cash use was $37.8 million, versus $24.1 million in H1 2018. Investing activities used $83.2 million, largely reflecting purchases of short-term U.S. Treasury investments; financing activities provided $1.9 million.
- Liquidity: At June 30, cash and cash equivalents were $71.4 million and short-term investments were $90.6 million, totaling $162.0 million. Current assets were $165.2 million and current liabilities were $29.4 million. Management stated available cash and investments were expected to fund projected operations for at least the next 12 months; it also noted forecasts are uncertain.
- Debt and commitments: SVB term-loan principal was $15.0 million, with a 2022 maturity and an 8.25% interest rate at quarter-end. The debt is secured by substantially all assets except certain intellectual property. Operating lease liabilities totaled $27.7 million; undiscounted future lease payments were $40.0 million over the remaining lease term.
- Margins: The filing does not present a meaningful product gross margin; the company had no therapeutic-product sales and reported operating losses.
Changes versus comparable periods
- Q2 collaboration revenue increased to $2.8 million from $1.0 million, primarily reflecting Ono revenue; H1 revenue rose to $5.4 million from $2.1 million.
- Operating expenses and net losses increased. Management attributed higher R&D costs mainly to employee compensation, clinical-development and manufacturing service providers, laboratory supplies and facility expansion. The increases were partly offset by the absence of a $5.3 million MSK license-related expense recorded in 2018.
- Stock-based compensation rose to $8.3 million in H1 2019 from $2.9 million in H1 2018. The company also expanded its office and laboratory space.
- Cash and cash equivalents declined from $190.5 million at year-end 2018 to $71.4 million, while short-term investments increased from $10.5 million to $90.6 million. Total cash, cash equivalents and investments declined from approximately $201.0 million to $162.0 million.
Outlook, commentary, risks and unusual items
- Management expects continued and increasing operating losses and higher R&D spending as it advances clinical and preclinical programs, develops manufacturing capabilities and performs collaboration work. No specific revenue or earnings guidance was provided.
- Programs discussed include ProTmune, FATE-NK100, FT500 and FT516. FT516’s IND for relapsed/refractory hematologic malignancies was allowed by the FDA in February 2019. The CIRM award supporting FT516 was suspended pending an IND submission for advanced solid tumors; $0.5 million remained available when suspended.
- The Ono collaboration covers two iPSC-derived CAR T-cell candidates. Fate recognized $2.5 million of Ono revenue in Q2 and $4.1 million in H1; $10.3 million of Ono-related deferred revenue remained at quarter-end. Potential option, milestone and royalty payments depend on future events and were not included in the recognized transaction price. Juno’s four-year research term ended in May 2019, and no further funding or revenue is expected under that agreement.
- The $3.5 million received under the CIRM award is recorded as a liability. Depending on the company’s election and development outcomes, repayment terms could apply; if not treated as a loan within 10 years, the award converts to a grant with royalties on FT516 sales until payments reach nine times the award amount.
- Key risks include clinical-trial delays or failure, patient enrollment, novel cell-therapy regulatory uncertainty, manufacturing scale-up and quality, reliance on third parties and collaborators, and the need for future capital. Additional financing may dilute shareholders or be unavailable on acceptable terms. The company reported no substantial doubt about its ability to continue as a going concern for at least 12 months from issuance.
- Other notable items: adoption of lease accounting in 2019 added $16.6 million of right-of-use assets and $18.2 million of liabilities at adoption; the filing reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether clinical progress, enrollment, safety and efficacy data support the company’s development timelines and spending plans.
- How quickly operating cash use changes as clinical trials and internal manufacturing activities expand, and whether the stated cash runway remains adequate.
- Whether Ono exercises its options and whether related preclinical milestones, future funding and other contingent payments are achieved.
- How and when the CIRM award is resolved, including potential repayment or future royalty obligations.
- Debt repayment requirements after the interest-only period and the effect of the secured-loan covenants on financial flexibility.