Fate Therapeutics, Inc. — Q1 2014 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2014. Fate is a clinical-stage biopharmaceutical company developing adult stem-cell modulation therapies, including ProHema and Wnt7a analogs. It has not generated revenue from product sales and remains in the development stage.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $0 | $472,000 |
| Research and development expense | $4.522 million | $2.531 million |
| General and administrative expense | $2.415 million | $1.297 million |
| Operating loss | $6.937 million | $3.356 million |
| Net loss | $6.980 million | $3.548 million |
| Operating cash used | $5.255 million | $3.933 million |
There is no meaningful gross margin reported: the company had no revenue in the quarter. Cash and cash equivalents were $47.881 million at March 31, down from $54.036 million at December 31, 2013. Current assets were $48.263 million and current liabilities $4.354 million. Debt was entirely current: $1.25 million gross principal, or $1.24 million net of discount. The company reported an accumulated deficit of $93.489 million.
Changes versus the prior comparable period
Revenue fell from $472,000 to zero after the U.S. Army grant was fully expended in May 2013 and the BD collaboration’s three-year development period ended in September 2013; no significant future revenue under either arrangement was expected. R&D expense increased $1.991 million, principally for personnel, ProHema Phase 2 preparation and a Verio milestone. G&A expense rose $1.118 million, including public-company costs. Operating cash use increased $1.322 million.
Outlook, commentary, risks and unusual items
- Management expected continued and increasing losses and planned higher R&D spending. 2014 plans included advancing the adult ProHema Phase 2 PUMA study, initiating a pediatric ProHema trial and an LSD trial, and conducting IND-enabling studies for a Wnt7a analog.
- Management believed existing cash would fund projected operating requirements for at least 12 months, but said it would not be sufficient to complete advanced clinical development, including Phase 3 ProHema trials. Additional financing may be needed; availability and terms are uncertain.
- Key execution risks include clinical efficacy and safety, FDA requirements and possible delays, enrollment in small patient populations, consistent ProHema manufacturing across clinical sites, and reliance on third-party suppliers and service providers. Wnt7a analogs remained preclinical.
- A $0.4 million noncash R&D charge reflected 38,462 shares deemed earned for a Verio preclinical milestone. The company also reported $871,000 in stock-based compensation. No material legal proceedings or off-balance-sheet arrangements were reported; management said disclosure controls were effective.
Important facts for investors to verify
- Whether PUMA enrollment progresses and whether ProHema’s NRM formulation and multicenter manufacturing meet regulatory requirements.
- Whether planned pediatric and LSD trials, and Wnt7a IND-enabling work, proceed on the stated schedule.
- Cash burn and runway relative to development spending; management’s 12-month estimate is forward-looking and does not cover advanced clinical development.
- Availability and terms of additional financing, and the potential effect of future equity or debt financing on shareholders.
- Potential remaining Verio milestone shares: up to 365,380 additional shares, subject to contractual milestones.