Fate Therapeutics, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance-sheet comparisons are to December 31, 2016. Fate is a clinical-stage biopharmaceutical company developing programmed cellular immunotherapies. It had no therapeutic-product sales; reported revenue came from collaboration activities and grants.
Financial results and position
| Metric | Q1 2017 | Q1 2016 / prior period |
|---|---|---|
| Collaboration revenue | $1.027 million | $1.322 million |
| Research and development expense | $7.966 million | $6.636 million |
| General and administrative expense | $3.032 million | $2.602 million |
| Operating loss | $9.971 million | $7.916 million |
| Net loss | $10.126 million | $8.377 million |
| Net loss per share, basic and diluted | $0.24 | $0.29 |
| Cash used in operating activities | $7.455 million | $7.252 million |
- At March 31, cash and cash equivalents were $40.608 million and short-term investments were $41.692 million, totaling $82.3 million. Total assets were $85.329 million; stockholders’ equity was $63.858 million.
- Balance-sheet debt carrying amounts were approximately $8.7 million, including $7.620 million current and $1.081 million long-term. The loans carry fixed rates of 6.94% and 7.07%, mature in 2018, and are secured by substantially all assets except certain intellectual property.
- Accumulated deficit was $185.972 million. No gross margin is presented; revenue is collaboration-based and the company remains loss-making.
Changes versus the prior comparable period
- Revenue declined $0.295 million, while R&D expense rose $1.330 million and G&A expense rose $0.430 million. Management attributed the R&D increase primarily to higher third-party clinical and research services and compensation costs.
- Net loss increased by $1.749 million. Loss per share improved to $0.24 from $0.29, reflecting a higher weighted-average share count as well as the reported results.
- Operating cash use rose modestly by $0.203 million. Cash and cash equivalents fell from $88.609 million at year-end, while short-term investments increased from $3.503 million, largely reflecting purchases of U.S. Treasuries.
- Debt declined from the prior year-end as the company made $2.011 million of principal payments during the quarter.
Outlook, risks and notable items
- Management expects operating losses and expenses to increase as it advances ProTmune, FATE-NK100 and preclinical iPSC-derived programs. It stated that existing cash, cash equivalents and short-term investments should fund projected operating requirements for at least the next 12 months, while also noting that future capital will be required and may not be available on acceptable terms.
- Planned work includes the Phase 1/2 ProTmune trial, support for the investigator-initiated FATE-NK100 first-in-human trial and further clinical, preclinical, manufacturing and process-development activities. The filing gives no quantitative earnings or revenue guidance.
- Key risks include clinical and regulatory uncertainty, patient-enrollment and manufacturing challenges, reliance on third-party cell-processing facilities and suppliers, and the need for additional financing. The company had no approved products and no therapeutic-product revenue.
- Under its Juno collaboration, Fate recognized $1.027 million of Q1 revenue and reported $4.4 million of deferred revenue at quarter-end. Juno payments for selection fees, milestones and royalties had not been received as of March 31. Future payments depend on development, regulatory and commercial events; the agreement also carries termination and exclusivity risks.
- Future minimum operating-lease payments were approximately $13.9 million. The company reported no material legal proceedings and no off-balance-sheet arrangements; management concluded there was no substantial doubt about its ability to continue as a going concern for the assessed period.
- Subsequent event: on May 2, 2017, stockholders approved issuance of up to 14,097,745 common shares upon conversion of outstanding Class A preferred stock. As of May 12, 41,401,422 common shares were issued and outstanding. Preferred-stock conversion and registered resale shares could increase dilution and affect ownership.
Investor verification points
- Track quarterly cash burn, investment balances and whether the stated minimum 12-month funding runway remains supportable as development spending increases.
- Verify clinical progress, enrollment, safety and regulatory requirements for ProTmune and FATE-NK100, as well as the timing and costs of iPSC-derived program development.
- Review Juno collaboration funding, termination rights, target selections and any achievement of milestone or royalty triggers.
- Monitor outstanding debt repayments, loan covenants, lease commitments and the company’s ability to secure additional capital without material dilution or restrictive terms.
- Assess the potential effects of preferred-stock conversion, resale registrations and concentrated ownership on dilution, voting control and share liquidity.