Fate Therapeutics, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. The company is a clinical-stage biopharmaceutical developer of programmed cellular immunotherapies and has not generated revenue from product sales; reported revenue comes from collaborations and grants.
Financial results and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Collaboration revenue | $1.0 million | $1.0 million | $3.4 million | $1.4 million |
| Research and development | $6.8 million | $5.0 million | $20.2 million | $14.4 million |
| General and administrative | $2.6 million | $2.4 million | $7.5 million | $7.8 million |
| Net loss | $8.7 million | $6.9 million | $25.5 million | $22.5 million |
| Basic and diluted loss per share | $0.27 | $0.24 | $0.85 | $0.92 |
For Q3, operating expenses rose 28% year over year, mainly from higher clinical, research-service and personnel costs. Revenue was unchanged, and net loss widened. For the nine-month period, revenue increased by $2.0 million, primarily with increased Juno research activity, while R&D expense rose by $5.8 million. G&A declined modestly. The filing does not present product gross margins; revenue is collaboration-based.
- Cash and liquidity: Cash and cash equivalents were $37.1 million at September 30, down from $64.8 million at December 31, 2015. Short-term U.S. Treasury investments were $9.5 million, bringing cash and investments to $46.6 million. Current assets were $47.4 million and current liabilities $14.7 million.
- Cash flow: Nine-month operating cash use was $22.3 million versus $11.4 million in 2015. Investing used $10.1 million, including net Treasury purchases; financing provided $4.7 million, including $10.2 million net proceeds from an August private placement, partly offset by $5.7 million of debt principal payments. Cash declined by $27.7 million.
- Debt: Debt principal was $12.7 million at quarter-end, with $8.1 million classified as current. The Silicon Valley Bank loans bear fixed interest of 6.94% and 7.07% and mature in 2018. They are secured by substantially all company assets, excluding certain intellectual property.
- Equity: The August 2016 private placement issued 5.25 million shares at $1.96 per share for $10.2 million net proceeds. Shares outstanding were 34.1 million at September 30, versus 28.7 million at December 31, 2015.
Business developments, outlook and risks
- The lead clinical program is ProTmune, in Phase 1/2 development for prevention of graft-versus-host disease and cytomegalovirus infection in patients undergoing hematopoietic cell transplantation. Other programs include preclinical NK- and T-cell cancer therapies and immuno-regulatory programs.
- Under the Juno collaboration, Juno funds research with minimum annual payments of $2.0 million during the initial four-year term, which began in 2015. Fate recognized $3.4 million of related revenue in the first nine months of 2016 and reported $5.5 million of Juno-related deferred revenue at quarter-end. Contingent selection fees, milestones and royalties had not been received.
- Management said existing cash and short-term investments were expected to fund projected operations for at least the next 12 months. The company expects continuing and increasing operating losses, higher R&D spending, and a need for additional capital; funding may not be available on acceptable terms.
- Key risks include clinical and regulatory uncertainty, patient enrollment, manufacturing consistency and reliance on transplant-center facilities and third-party suppliers, including mobilized peripheral blood; further financing and dilution; and dependence on Juno for collaboration funding and potential contingent payments. Juno’s milestone and royalty amounts are conditional, not assured revenue.
- The company extended its facilities lease through June 2023 and added approximately 24,000 square feet; aggregate future minimum lease payments were $14.5 million. Management reported effective disclosure controls and no material legal proceedings.
Important facts for investors to verify
- Whether the ProTmune Phase 1/2 trial progresses on schedule and produces safety and efficacy results sufficient to support further development.
- Whether the stated 12-month cash runway remains realistic given operating cash use, planned R&D increases, debt repayments and lease commitments.
- Current cash, investment balances, debt repayment schedule and compliance with Silicon Valley Bank loan covenants.
- Juno collaboration research funding, continuation or extension decisions, and whether any target-selection, milestone or royalty payments become achievable.
- Potential dilution from registered resale shares, future financing and the company’s shelf registration statement.