Fate Therapeutics, Inc. — 2013 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2013. Fate Therapeutics is a clinical-stage biotechnology company developing adult stem-cell therapies for orphan diseases. Its lead candidate, ProHema, is in clinical development for hematologic malignancies; Wnt7a protein analogs for muscular dystrophies remain preclinical. The company had no therapeutic-product sales and operated as one reportable segment.
Financial results and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $0.971 million | $2.670 million |
| Research and development expense | $12.007 million | $11.999 million |
| General and administrative expense | $6.639 million | $4.228 million |
| Operating loss | $17.675 million | $13.557 million |
| Net loss | $20.894 million | $14.239 million |
| Cash used in operating activities | $15.373 million | $13.274 million |
| Cash and cash equivalents at year-end | $54.036 million | $9.087 million |
| Working capital at year-end | $50.051 million | $4.943 million |
Revenue consisted of collaboration and grant income, not product sales. Revenue fell about 64%, primarily because the government grant ended and a $0.5 million collaboration milestone received in 2012 did not recur. Operating expenses rose about 15%, driven mainly by higher public-company and administrative costs; R&D expense was essentially flat. Net loss widened about 47%, including $3.219 million of net other expense, notably a $2.421 million charge from remeasuring exchangeable shares. Profit margins are not meaningful given the absence of product sales and continuing losses.
Financing activities provided $60.560 million in 2013, including $40.480 million of net IPO proceeds. The IPO raised $46.0 million gross; $22.1 million of convertible-note principal and accrued interest converted into common shares, and $1.7 million was repaid in cash. At year-end, reported current liabilities were $4.600 million; debt was classified as current, with $1.750 million principal outstanding ($1.732 million net of discount). Contractual debt payments including interest were $2.011 million, due within one year. Total contractual debt and operating-lease obligations were $4.345 million. The company reported no off-balance-sheet arrangements.
Management said year-end cash was expected to fund operations for at least 12 months at the then-current planned spending level, but would not fund ProHema’s anticipated advanced development, including Phase 3, or the clinical development of Wnt analogs. Additional capital would therefore be required. The company had an accumulated deficit of $86.509 million and expected continuing losses.
Material developments and program outlook
- ProHema’s Phase 2 adult trial was paused in May 2013 to qualify an improved nutrient-rich media (NRM) manufacturing formulation. Enrollment resumed in March 2014, after the reporting year. The randomized trial was planned to enroll 60 additional adults, with full primary and major secondary endpoint data expected in mid-2015.
- In the small Phase 1b ProHema-01 study, the 12-patient ProHema cohort had median neutrophil engraftment of 17.5 days, 100% 100-day survival, and statistically significant improvement in time to engraftment versus historical controls. The study was designed primarily for safety, and these early results do not establish efficacy in later trials.
- NRM improved several potency measures in laboratory and animal studies, but its clinical benefit remained unproven. FDA review of manufacturing and product data could require additional studies or impose requirements that delay development.
- Management planned a pediatric hematologic-malignancy trial and an initial pediatric lysosomal-storage-disorder trial in 2014, subject to regulatory steps. A Phase 1 Wnt7a-analog trial was planned for 2015, conditional on successful preclinical and IND-enabling work.
- The BD iPSC collaboration’s three-year development period ended in September 2013. The company did not expect significant future revenue under that agreement.
Risks, contingencies, and unusual items
- Key risks include clinical-trial failure or delay, small-patient-population enrollment challenges, evolving cell-therapy regulation, and difficulty standardizing ProHema production across transplant-center facilities.
- The company relied on third parties for manufacturing and clinical operations, including a single supplier for FT1050 at the time, and lacked commercial supply agreements for certain materials. Supply or facility problems could delay trials.
- Additional funding may be needed sooner than projected; financing could dilute shareholders or impose restrictive terms. Research, development, and commercialization timelines and costs were uncertain.
- Patent protection depended partly on licensed rights and pending applications. Future license milestones, royalties, and sublicense payments were contingent and not included in the contractual-obligations table.
- The IPO triggered conversion of preferred stock and notes into common shares and reclassification of certain liabilities to equity. The 2013 net loss also included non-cash fair-value and stock-compensation effects.
- No material legal proceedings were reported. The financial statements received an unqualified independent audit opinion; the auditor did not express an opinion on internal-control effectiveness, and management’s ICFR assessment was not included under the newly public company transition rules.
Important facts for investors to verify
- Current cash, spending rate, and financing runway against management’s 12-month estimate and development plans.
- ProHema-03 enrollment, FDA feedback on NRM and manufacturing controls, and whether the trial meets its prespecified endpoints.
- Whether planned pediatric ProHema studies and Wnt7a IND-enabling work progressed on schedule, and what additional regulatory or clinical requirements arose.
- Availability and qualification of FT1050, NRM components, cord-blood units, and capable clinical-site manufacturing facilities.
- Potential dilution from equity awards and the remaining 403,842 shares issuable upon Verio-related milestones, as well as future capital-raising needs.