Fate Therapeutics, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. The company is a clinical-stage biopharmaceutical developer of programmed cellular immunotherapies. It has no therapeutic-product sales; reported revenue comes from collaborations and grants. Financial figures below are in U.S. dollars; amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Collaboration revenue | $2.63 | $1.03; up $1.61, or about 157% |
| Research and development expense | $17.73 | $11.48; up $6.25 |
| General and administrative expense | $5.35 | $3.60; up $1.75 |
| Operating loss | ($20.45) | ($14.05) |
| Net loss | ($19.76) | ($14.14) |
| Basic and diluted loss per share | ($0.30) | ($0.27) |
| Net cash used in operating activities | ($17.49) | ($12.55) |
Cash and cash equivalents were $183.03 million at March 31, 2019, down from $190.51 million at year-end; restricted cash was $0.23 million. The company had no short-term investments at quarter-end. Current assets were $186.43 million and current liabilities $29.14 million. Management said existing cash was expected to fund projected operating requirements for at least the next 12 months, while warning that actual cash needs could be higher. The filing does not provide a formal revenue or earnings outlook.
Long-term debt had $15.0 million principal outstanding, with a $14.90 million carrying amount; $4.0 million of principal was classified as current. The SVB loan carried an 8.25% interest rate at quarter-end and matures January 2022. Operating lease liabilities totaled $27.72 million; undiscounted future fixed lease payments were $40.62 million over a remaining term of about 9.8 years. No gross margin is presented, and it is not a meaningful product-sales measure given the company’s collaboration-based revenue.
Material changes and business developments
- Operating expenses increased as the company expanded clinical development, manufacturing and research activities, increased staffing and stock-based compensation, and expanded its laboratory and office space.
- Stock-based compensation rose to $3.87 million from $1.38 million. Property and equipment purchases were $1.75 million, versus $0.18 million a year earlier.
- Cash provided by investing activities was $8.75 million, mainly from $10.5 million of investment maturities, partly offset by equipment purchases. Financing activities provided $1.26 million, primarily from employee option exercises.
- The company adopted lease accounting guidance on January 1, 2019, recognizing right-of-use assets and lease liabilities; adoption increased liabilities by $18.2 million.
- FT516’s IND for relapsed/refractory hematologic malignancies was allowed by the FDA in February 2019. The CIRM award supporting FT516 development for advanced solid tumors was suspended pending submission of an IND for that indication; $0.5 million of potential funding remained available at suspension.
- The four-year initial research term under the Juno collaboration ended May 4, 2019, after the quarter. The company expected the agreement to terminate after receipt of a final $0.2 million quarterly research payment; no further funding was expected beyond that payment.
Outlook, risks and contingencies
Management expects losses and research and development spending to continue increasing as it advances ProTmune, FATE-NK100, FT500, FT516 and iPSC-derived programs, conducts trials and builds manufacturing capabilities. The company expects to need additional capital over time and may seek equity, debt, grants or collaborations; financing may not be available on acceptable terms and equity issuance could dilute shareholders. The company stated it had no going-concern substantial doubt for at least 12 months from issuance of the financial statements.
Key risks include uncertain clinical and regulatory outcomes, patient enrollment and trial delays, novel cell-therapy safety and approval requirements, manufacturing scale-up and quality challenges, dependence on third-party manufacturers and suppliers, and reliance on collaborators. The Ono agreement offers research fees and potential option, milestone and royalty payments, but these contingent amounts depend on development progress and Ono’s option decisions. No Ono milestone or royalty payments had been received by March 31, 2019. The $3.5 million received under the CIRM award is recorded as a liability; repayment or royalties may apply depending on the company’s election and future product development or sales. The SVB debt is secured by substantially all company assets except certain intellectual property and includes covenants that could accelerate repayment upon default.
The filing reports no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of March 31, 2019.
Important facts for investors to verify
- Whether the stated cash runway remains adequate as clinical, manufacturing and facility spending grows, and whether additional financing is required.
- Progress, enrollment, safety and results for clinical programs, particularly FT516 following FDA clearance and the status of the suspended CIRM award.
- Ono collaboration execution, including research-fee receipts, option periods and the conditions for contingent milestone and royalty payments.
- Juno’s final payment and termination status after the research term ended in May 2019.
- Debt amortization after the interest-only period ends July 31, 2019, covenant compliance, and the long-term lease commitment.
- Potential dilution and available financing capacity, including the $50 million at-the-market program and remaining shelf-registration capacity described in the filing.