Fate Therapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Fate is a clinical-stage biopharmaceutical company developing off-the-shelf, engineered iPSC-derived cell therapies. It has no product sales; revenue to date comes from collaborations and grants.
Financial highlights
Amounts in millions, except per-share data. The filing does not report product gross margins; margins are not meaningful given the collaboration-based revenue and R&D-focused business.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Collaboration revenue | $1.9 | $15.0 | $61.9 | $51.9 |
| Research and development expense | $34.3 | $79.8 | $140.8 | $233.3 |
| General and administrative expense | $18.9 | $21.6 | $63.5 | $62.6 |
| Loss from operations | $(51.3) | $(86.4) | $(142.4) | $(244.0) |
| Net loss | $(45.2) | $(83.6) | $(116.8) | $(225.4) |
| Basic and diluted loss per share | $(0.46) | $(0.86) | $(1.19) | $(2.33) |
- Cash and liquidity: At September 30, cash and cash equivalents were $33.3 million and short-term investments were $316.4 million, totaling $349.7 million in cash, cash equivalents and investments. Restricted cash was an additional $15.2 million. The comparable cash, cash equivalents and investments balance at December 31, 2022 was approximately $441.2 million.
- Cash flow: Operating activities used $95.6 million in the first nine months of 2023, versus $172.8 million in the comparable 2022 period. Investing activities provided $67.3 million and financing activities provided $0.3 million. Cash, cash equivalents and restricted cash ended the period at $48.5 million.
- Balance sheet and debt: Current assets were $364.2 million and current liabilities $41.3 million. No funded debt is shown in the supplied filing text. Operating lease liabilities totaled $105.0 million; undiscounted future lease payments were $166.5 million.
Material changes and business developments
- Q3 collaboration revenue fell $13.0 million year over year, primarily following Janssen’s termination of its collaboration, effective April 3, 2023. No Janssen revenue was recognized in Q3 2023. Nine-month revenue rose $9.9 million, largely because Fate recognized previously deferred Janssen revenue following termination, including $41.2 million of previously deferred amounts.
- R&D expense declined $45.5 million in Q3 and $92.5 million for the first nine months, reflecting lower employee compensation, clinical and consultant costs, and laboratory and manufacturing supplies. G&A was broadly flat for the nine-month period; higher patent and legal costs partly offset lower employee costs.
- In January 2023, Fate reduced its workforce by approximately 60% and discontinued the FT516, FT596, FT538 and FT536 programs to prioritize selected programs. Restructuring costs were $12.9 million for the first nine months and were fully recognized by September 30.
- Janssen’s termination ended development of the collaboration candidates, including two that had been expected to enter clinical development in 2023. Fate continues its Ono collaboration; Ono’s Candidate 3 option is due to expire earlier of September 30, 2024 or a specified preclinical milestone, unless extended under the agreement.
Outlook, risks and unusual items
- Management said existing cash, cash equivalents and investments should fund projected operating requirements for at least the next 12 months. The filing also describes the 2023 restructuring as intended to support operations into the second half of 2025; actual runway depends on development costs, timing, and access to additional funding. Management reported no substantial doubt about the company’s ability to continue as a going concern for at least 12 months from issuance.
- Fate expects continued operating losses and says it will need additional capital for research, manufacturing and development. Financing may be unavailable or dilutive; the company has an ATM program allowing sales of up to $350 million of common stock, subject to its terms and availability.
- Nine-month other income included a $4.0 million CIRM award liability reversal after Fate elected to treat the award as a grant, $5.1 million of employee retention credit income, and $3.2 million of income from remeasurement of MSK stock-price milestones. These items, along with increased interest income, contributed to the lower net loss; they are not equivalent to recurring collaboration revenue.
- Key risks include early-stage clinical programs and uncertain efficacy or safety, complex cell manufacturing and supply dependencies, patient enrollment and regulatory delays, and reliance on collaboration partners. The company also disclosed ongoing litigation: an appeal of a summary judgment ruling against Fate and Whitehead in patent litigation with Shoreline; a securities class action related to Janssen disclosures; and a related derivative case that is stayed pending the securities case motion to dismiss.
Important facts for investors to verify
- Cash burn and the assumptions supporting management’s stated runway, including anticipated clinical and manufacturing spending.
- Which prioritized programs are advancing and their clinical, regulatory and manufacturing milestones, particularly after the Janssen termination and program discontinuations.
- Ono funding, progress and option decisions, including Candidate 3 timing and the economics of any future development.
- Potential financing and dilution, including any use of the ATM program and the conversion and dilution implications of outstanding preferred stock and equity awards.
- Developments in the Shoreline appeal and the securities and derivative litigation, including any potential financial or operational impact.