Fate Therapeutics, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Fate is a clinical-stage biopharmaceutical company developing off-the-shelf, iPSC-derived NK- and T-cell cancer immunotherapies. It has no therapeutic-product sales; revenue is from collaborations and grants.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Collaboration revenue | $15.0m | $14.2m | $51.9m | $38.8m |
| Research and development | $79.8m | $53.1m | $233.3m | $146.0m |
| General and administrative | $21.6m | $15.7m | $62.6m | $40.4m |
| Operating loss | $86.4m | $54.6m | $244.0m | $147.6m |
| Net loss | $83.6m | $43.3m | $225.4m | $143.5m |
| Net loss per share, basic and diluted | $0.86 | $0.45 | $2.33 | $1.52 |
- Cash flow: Operating cash use was $172.8m for the first nine months, versus $92.6m in 2021. Investing activities provided $113.6m, primarily reflecting investment maturities; financing activities provided $7.7m.
- Liquidity: Cash and cash equivalents were $82.1m and investments were $437.0m, totaling $519.1m at September 30. Current assets were $535.3m and current liabilities $103.9m. Management stated available cash and investments should fund projected operating requirements for at least 12 months.
- Debt and obligations: No conventional borrowings are reported in the presented balance sheet. Operating lease liabilities totaled $110.9m, with $181.6m of undiscounted future lease payments. The $4.0m CIRM award remains recorded as a liability pending the company’s choice to repay it or treat it as a grant subject to royalties.
- Equity: Stockholders’ equity was $518.0m, down from $678.8m at December 31, 2021; accumulated deficit was $994.4m. Stock-based compensation was $59.3m for the nine-month period.
- Margins: The company reported operating losses, not positive operating margins; operating expenses substantially exceeded collaboration revenue. Product gross margin is not applicable because there were no product sales.
Changes versus the prior comparable period
- Nine-month collaboration revenue increased $13.2m, while R&D expense rose $87.3m and G&A expense rose $22.3m. The net loss widened by $81.8m.
- Q3 revenue increased modestly, but R&D and G&A expenses rose by $26.7m and $5.8m, respectively; Q3 net loss nearly doubled.
- R&D cost increases reflected employee compensation, clinical and consultant costs, and laboratory materials and supplies. G&A increases included compensation and patent and legal costs.
- Cash and investments totaled $519.1m, down from $716.6m at year-end 2021. Operating cash use increased, while 2021 financing had included $432.4m of net proceeds from a public offering; there was no comparable offering in 2022.
Outlook, commentary, risks and unusual items
- Management expects losses and expenses to continue increasing as clinical development, manufacturing, research, and collaboration work advance. No specific revenue or earnings guidance was provided.
- Janssen paid $6.0m for two research milestones and $10.0m for one option exercise during the nine-month period; the company had not recognized revenue for that option exercise by quarter-end. A second $10.0m option payment was contingent on regulatory clearance. The Janssen collaboration generated $48.3m of nine-month revenue.
- A June 2022 Ono amendment expanded collaboration work to CAR-NK candidates and increased estimated aggregate research and development fees to $29.3m; committed funding is stated to continue through September 2024. The company recognized $3.7m of Ono revenue for the first nine months.
- A $15.1m nine-month gain from remeasurement of MSK stock-price appreciation milestones increased other income; the related liability was $9.0m at quarter-end. The gain is non-operating and valuation-sensitive. The comparable 2021 nine-month period included a $3.1m loss on this item.
- COVID-19-related site activation, enrollment, treatment, and supply delays continued. The filing also identifies inflation, labor and supply costs, and the Ukraine conflict as potential operational and financing risks.
- Key risks include early-stage and novel iPSC/genome-editing technologies, clinical safety and efficacy uncertainty, manufacturing scale and consistency, patient enrollment and supply availability, dependence on collaborators and suppliers, need for future capital, and potential dilution. Management reported no substantial doubt about the company’s ability to continue as a going concern for at least 12 months from issuance.
- Two lawsuits filed in May 2022 against Shoreline Biosciences and its founders—one alleging contractual and related claims and another alleging patent infringement—remained pending and in early stages. The company is seeking monetary damages.
Important facts for investors to verify
- Whether clinical-trial progress, enrollment, safety, and product data support the company’s development plans; preliminary results may change as more data become available.
- Whether the stated cash runway remains achievable given operating cash use, planned R&D and manufacturing spending, and the absence of product revenue.
- Timing and conditions for Janssen and Ono option exercises, research funding, milestones, and any future royalties; milestone amounts are contingent, not assured revenue.
- Manufacturing capacity, quality, supplier availability—including fludarabine and other trial components—and the effect of any disruptions on clinical timelines.
- Potential future MSK payments, the CIRM award’s eventual treatment, and the financial and operational consequences of the Shoreline litigation.
- Potential share dilution from equity financing, employee awards, and conversion of preferred stock; the filing reports 27.3m potentially dilutive securities excluded from diluted loss per share because the company was loss-making.