Fate Therapeutics, Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Fate is a clinical-stage biopharmaceutical company developing stem-cell therapies; it has no approved products and has not generated revenue from product sales.
Financial results and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $0 | $0.2 million | $0 | $1.0 million |
| Research and development | $4.1 million | $3.4 million | $12.6 million | $9.0 million |
| General and administrative | $1.9 million | $2.0 million | $6.4 million | $4.8 million |
| Net loss | $6.6 million | $6.1 million | $19.7 million | $15.2 million |
| Net loss per share | $0.32 | $4.81 | $0.96 | $12.24 |
| Cash used in operating activities | — | $16.3 million | $10.8 million |
At September 30, cash and cash equivalents were $45.5 million, down from $54.0 million at December 31, 2013. Total assets were $47.0 million; stockholders’ equity was $33.6 million. Long-term debt was $10.0 million, including $0.6 million current and $9.4 million noncurrent. Current liabilities totaled $3.9 million. The filing reports no material off-balance-sheet arrangements. No gross or operating margin is meaningful because the company reported no revenue in the 2014 periods.
Changes versus the prior comparable periods
- Revenue fell to zero after the BD/Corning joint-development period ended in September 2013 and the TATRC grant was fully expended in May 2013.
- Nine-month R&D expense rose $3.6 million, primarily from increased staffing, clinical-trial service costs and laboratory spending. G&A rose $1.6 million, including public-company, staffing and insurance costs.
- Nine-month net loss increased by $4.5 million. Other expense was lower than in 2013, chiefly because the prior period included a $2.0 million fair-value charge on exchangeable shares.
- Per-share losses are not directly comparable: weighted-average shares increased substantially following the October 2013 IPO and related conversions.
- Operating cash use increased by $5.5 million year over year. Financing provided $8.4 million in the first nine months of 2014, mainly from a $10.0 million bank term loan, offset partly by debt repayments.
Outlook, financing, and key risks
- Management expects continued losses and higher spending as it advances ProHema and other programs. It believes September 30 cash can fund projected operations for at least 12 months, but says substantial additional capital will be needed for further development, including later-stage trials. This funding estimate is subject to uncertainty.
- Planned development includes the Phase 2 PUMA trial of ProHema and planned pediatric PROMPT and PROVIDE trials, plus preclinical work on iPSC-derived cell therapeutics and Wnt7a-based muscle-regeneration programs. The filing provides no quantified revenue or earnings guidance.
- The July 2014 Silicon Valley Bank agreement provides a funded $10.0 million Term A loan and up to $10.0 million more, conditional on a specified ProHema Phase 2 clinical milestone and available through December 31, 2014. Term A bears 6.94% interest, includes a 7.5% final payment fee, and is secured by substantially all assets except certain intellectual property. The company recorded a $0.4 million debt-extinguishment loss.
- Key risks include clinical efficacy and safety uncertainty, patient enrollment and trial delays, FDA requirements and ProHema manufacturing consistency, reliance on third-party suppliers and transplant-center processing facilities, and the need for additional financing. Failure to obtain funding could force delays, scaling back or discontinuation of programs.
- A further $0.4 million of R&D expense was recorded for Verio acquisition milestone shares earned in the first nine months. Up to 365,379 additional shares may be issued if further contractual milestones are achieved.
- The company reported no material legal proceedings. Management concluded disclosure controls were effective as of September 30, 2014.
Important facts for investors to verify
- Current PUMA trial progress and safety data, and whether the clinical milestone for access to additional Term B borrowing was achieved.
- Cash-burn trajectory and whether management’s stated minimum 12-month funding horizon remains supportable as trial spending increases.
- Trial start-up and enrollment progress for PROMPT and PROVIDE, and FDA requirements for pediatric formulations and manufacturing.
- Availability and terms of additional funding, including the contingent bank facility, and the impact of debt fees, collateral and covenants.
- Potential dilution from future financing, stock awards, and remaining Verio milestone shares.