Fate Therapeutics, Inc. — Q3 2018 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2018. Fate is a clinical-stage cell therapy company developing programmed immunotherapies for cancer and immune disorders. It has no therapeutic product sales; revenue to date comes from collaborations and grants. The company reported no material legal proceedings and stated its disclosure controls were effective.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data. Losses are shown in parentheses.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $1.0 | $1.0 | $3.1 | $3.1 |
| Research and development expense | $13.6 | $8.6 | $41.9 | $24.5 |
| General and administrative expense | $4.1 | $2.8 | $11.5 | $8.5 |
| Operating loss | ($16.7) | ($10.3) | ($50.4) | ($29.9) |
| Net loss | ($16.8) | ($10.7) | ($50.6) | ($30.5) |
| Net loss per share, basic and diluted | ($0.31) | ($0.26) | ($0.95) | ($0.74) |
| Operating cash used | — | $27.6 | $26.1 |
Revenue was entirely from the Juno collaboration. Product gross margins are not applicable because Fate has no product sales. R&D spending rose substantially, with management attributing the increase chiefly to licensing and intellectual property costs, external development and manufacturing services, employee costs, and laboratory spending. G&A also increased, primarily due to employee and advisory costs.
- Cash and liquidity: At September 30, cash and cash equivalents were $183.2 million and short-term investments were $27.9 million, totaling $211.2 million. Total current assets were $213.9 million and current liabilities were $22.7 million.
- Financing: A September public offering of 10.65 million shares at $13.50 per share generated $134.9 million net proceeds. Shares outstanding were 64.5 million at September 30, versus 52.6 million at December 31, 2017.
- Debt: The SVB term loan had $15.0 million gross principal outstanding, with an 8.25% interest rate at quarter-end and maturity in January 2022. Principal repayments were scheduled to begin after the interest-only period ending January 2019, subject to a milestone-based extension option. The debt is secured by substantially all assets other than specified intellectual property and carries operating covenants.
- Other obligations: The amended office and laboratory lease runs approximately through 2028 and has $40.5 million of future minimum payments. The company recorded $2.1 million received under the CIRM award as a liability; repayment or future royalties may be due depending on its election and FT516 development.
Material developments and comparison with prior period
- Revenue was unchanged from 2017, while nine-month net loss increased from $30.5 million to $50.6 million. Operating cash use increased by $1.5 million year over year for the nine-month period.
- In September, Fate signed an agreement with Ono for joint development of two iPSC-derived CAR T-cell candidates. Ono paid a $10.0 million non-refundable upfront amount; the agreement also provides for an estimated $20.0 million of research fees, up to $40.0 million in preclinical milestone and option fees, and potential clinical, regulatory and commercial milestones and royalties. No Ono revenue was recognized through September 30; the upfront amount was deferred over an estimated four-year service period. Fate received an additional $5.0 million research prepayment in October.
- Fate amended its MSK license and issued 500,000 shares valued at $4.8 million, plus a $0.5 million upfront cash fee. It also entered a Gladstone license, issuing 100,000 shares valued at $1.3 million and paying a $0.1 million upfront fee. These license-related costs contributed to higher R&D expense.
- The May 2018 lease amendment added approximately 24,000 square feet, bringing total leased space to about 72,000 square feet, and extended the lease term. The company also received $2.1 million of a potential $4.0 million CIRM award for FT516.
Outlook, commentary and risks
Management expects continued operating losses and increased R&D spending as it advances ProTmune and FATE-NK100 clinical programs and develops iPSC-derived candidates. It said existing cash, cash equivalents and short-term investments were expected to fund projected operating requirements for at least the next 12 months. This is a forward-looking estimate; management noted that trial, manufacturing, regulatory and other costs could exceed expectations and that additional capital may be needed.
- Key risks include clinical trial delays or failure, patient enrollment challenges, unexpected safety events, regulatory uncertainty, and difficulty manufacturing cell therapies consistently at clinical or commercial scale.
- Fate relies on third-party cell-processing facilities, suppliers, investigators and collaborators. A failure or delay by these parties could affect trial timelines and product development.
- Ono’s options and termination rights, and Juno’s ability to extend or terminate its collaboration, affect potential future funding and commercialization economics. Milestone payments and royalties are contingent and uncertain.
- Additional financing may dilute shareholders or impose debt obligations and restrictive covenants. The SVB facility is subject to covenants; the company reported compliance as of the filing.
- The CIRM award may ultimately be treated as a loan or grant with royalties, and the lease represents a substantial long-term commitment. The company reported no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether cash burn and planned clinical, manufacturing and facility spending remain consistent with management’s stated 12-month-plus liquidity expectation.
- Progress, costs and timing of ProTmune, FATE-NK100, FT516 and other iPSC-derived programs, including trial enrollment, safety data and regulatory requirements.
- Ono and Juno collaboration milestones, research funding, option decisions, termination rights, and any resulting revenue recognition or payments.
- Future R&D and licensing costs, the terms and accounting of the CIRM award, and the company’s lease and debt repayment obligations.
- Share dilution and potential overhang from the September offering, equity compensation, convertible preferred stock and any future financing.