Fate Therapeutics, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing also reports fourth-quarter results. Fate is a clinical-stage biopharmaceutical company developing programmed cellular immunotherapies for cancer and immune disorders. It had no therapeutic product sales; reported revenue came from collaborations and grants.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Collaboration revenue | $10.7 million | $4.7 million |
| Research and development expense | $87.8 million | $56.0 million |
| General and administrative expense | $23.6 million | $15.8 million |
| Operating loss | $100.7 million | $67.1 million |
| Net loss | $98.1 million | $66.6 million |
| Basic and diluted loss per share | $1.44 | $1.19 |
| Net cash used in operating activities | $83.2 million | $38.7 million |
- Revenue increased about 125%; management attributed the increase chiefly to Ono collaboration revenue. R&D expense rose about 57%, and G&A expense about 50%, reflecting increased staffing, laboratory materials, clinical development and manufacturing activity.
- Fourth-quarter 2019 revenue was $2.8 million and net loss was $28.3 million, versus $1.7 million revenue and $16.0 million net loss in fourth-quarter 2018.
- At year-end, cash and cash equivalents were $99.8 million; short- and long-term investments totaled $161.1 million. Combined cash and investments were $260.9 million, versus $201.0 million at December 31, 2018. Working capital was $199.3 million.
- Fate reported no long-term debt at year-end after repaying its Silicon Valley Bank facility in November 2019. The payoff used $14.2 million, including principal, final fee and interest.
- The company raised $162.4 million net in a September 2019 common-stock offering of 9.89 million shares. Common shares outstanding increased from 64.7 million to 75.7 million during 2019. No dividends were paid.
- Operating lease obligations were $38.2 million at year-end. A new headquarters/manufacturing lease signed in January 2020 carries $157.6 million of future minimum payments, beginning in 2021, and was not included in the 2019 obligations table.
- Operating and net margins are not representative of a commercial business: revenue was collaboration-based, with no product sales, and the company incurred substantial development losses.
Business developments and changes
- The pipeline centered on off-the-shelf, iPSC-derived NK- and T-cell therapies. FT500 and FT516 were in Phase 1 clinical development; ProTmune’s Phase 2 PROTECT trial was fully enrolled. FT596 was planned to enter Phase 1 enrollment in early 2020. Other iPSC candidates, including FT538, FT576 and FT819, remained preclinical.
- In interim Phase 1 data for FT500, 12 patients had been treated by the November 2019 cutoff. No dose-limiting toxicities or FT500-related Grade 3 or higher adverse events were reported; stable disease was reported in some patients. These early results do not establish efficacy.
- The FDA allowed FT516’s solid-tumor IND in December 2019, in addition to its hematologic-malignancy investigation. Management planned further FT516 and FT596 clinical work in 2020 and IND submissions for FT538, FT576 and FT819.
- Fate discontinued further development of FATE-NK100 in 2019 as it advanced engineered iPSC-derived NK candidates.
- Ono collaboration revenue rose, while the Juno research collaboration ended in May 2019; no further Juno funding or revenue was expected. Ono’s potential milestone and royalty payments remain conditional and had not been received at year-end.
Outlook, risks and notable items
- Management expected losses and R&D spending to continue rising as clinical programs, manufacturing capabilities and research advance. It stated year-end cash, cash equivalents and investments were expected to fund projected operations for at least 12 months; future capital needs remain dependent on development costs, timelines and results.
- Key risks include early-stage clinical uncertainty, patient enrollment and trial delays, novel regulatory requirements, complex cell manufacturing and scale-up, reliance on third-party suppliers and facilities, and the possibility that candidates fail to demonstrate safety or benefit. The company had no approved products or product-sales experience.
- The company opened a cGMP-compliant manufacturing facility in San Diego in September 2019, but noted that manufacturing processes were still developing and some materials were research-grade or sourced from third parties, including sole-source suppliers.
- The $4.0 million CIRM award for FT516 is accounted for as a liability until Fate elects whether to treat it as a loan or grant. A loan election could require repayment; a grant election entails royalties on commercial sales up to the contractual cap.
- Adoption of lease accounting in 2019 added $16.6 million of right-of-use assets and $18.2 million of liabilities at adoption. The auditor issued unqualified opinions on the financial statements and internal control; the identified critical audit matter concerned estimates of total costs under the Ono collaboration used in revenue recognition.
- No material legal proceedings were reported. The filing states there were no conditions raising substantial doubt about the company’s ability to continue as a going concern at issuance.
Important facts for investors to verify
- Whether subsequent clinical data support meaningful safety and efficacy, particularly for FT500, FT516, FT596 and the fully enrolled ProTmune Phase 2 trial.
- Whether trial, IND and manufacturing milestones occurred on management’s stated schedules, and whether the new manufacturing facility can supply consistent clinical-grade product.
- Cash burn and remaining runway, including the effects of expanded trials, lease commitments and any additional equity financing or dilution.
- Ono option exercises, collaboration funding and any milestone or royalty receipts; these potential payments are contingent, not assured revenue.
- The eventual CIRM award classification and any repayment or royalty obligation, and the timing and costs associated with the new headquarters lease.