Fate Therapeutics, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. All financial amounts below are in U.S. dollars; amounts are rounded to millions unless stated otherwise. The company is a clinical-stage biopharmaceutical developer of iPSC-derived cell therapies and has no therapeutic product sales.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Collaboration revenue | $13.4M | $5.5M | $24.6M | $8.0M |
| Research and development expense | $48.0M | $26.7M | $92.9M | $55.9M |
| General and administrative expense | $12.2M | $7.5M | $24.7M | $15.2M |
| Operating loss | $46.8M | $28.7M | $93.0M | $63.2M |
| Net loss | $55.1M | $28.1M | $100.2M | $61.6M |
| Net loss per share, basic and diluted | $0.58 | $0.35 | $1.07 | $0.79 |
- Collaboration revenue was principally from Janssen and Ono. The company reported no product-sales revenue; product gross margin is therefore not applicable.
- At June 30, cash and cash equivalents were $76.7M; short- and long-term investments were $768.4M. Combined cash, cash equivalents and investments were $845.1M. Restricted cash of $15.2M was separate.
- Current assets were $713.3M and current liabilities $105.6M. The balance sheet reports no conventional borrowings; it includes $110.5M of operating lease liabilities, a $55.7M MSK stock-price milestone liability, and a $4.0M CIRM award liability.
- For the six months, operating activities used $59.2M, investing activities used $473.3M, and financing activities provided $441.8M. Financing included $432.4M net proceeds from the January 2021 public offering and pre-funded warrants. Capital expenditures were $17.6M.
Material changes versus the prior comparable period
- Six-month collaboration revenue increased $16.6M year over year, while R&D expense increased $36.9M and G&A expense increased $9.4M. Net loss widened by $38.6M.
- Management attributed higher R&D costs mainly to employee compensation, clinical development and manufacturing, and laboratory materials and supplies. Higher G&A reflected employee compensation, facilities, and insurance and professional fees.
- Operating cash flow shifted from $12.2M provided in the first half of 2020 to $59.2M used in the first half of 2021, primarily reflecting a larger net loss and lower deferred revenue.
- The January 2021 equity offering materially strengthened liquidity but increased shares outstanding: the company issued 5.1M common shares and pre-funded warrants for 257,310 shares, generating $432.4M net proceeds.
Outlook, commentary, risks and unusual items
- Management expects losses and expenses to increase as it advances clinical and preclinical programs, expands manufacturing capabilities, and performs collaboration work. It does not expect meaningful product sales or royalties until product candidates are developed and receive regulatory approval.
- The company stated that its cash, cash equivalents and investments at June 30, 2021 should fund projected operating requirements for at least the next 12 months. It also cautioned that development costs and timing are uncertain and additional capital may be needed; future financing may dilute shareholders or be unavailable on acceptable terms.
- COVID-19 caused delays or disruption to some R&D activities and clinical trials. Further impacts on trial execution, staffing, manufacturing, supply chains and financing were uncertain.
- In July 2021, after quarter-end, a clinical milestone under the MSK license was achieved and the stock-price threshold for the first payment was exceeded, making MSK eligible for a $20.0M payment. The filing reports the associated fair-value impact in other income or expense. The MSK liability was $55.7M at June 30; total potential stock-price-based payments under the license are up to $75.0M.
- The company recorded $8.7M of Q2 expense and $8.0M of first-half expense from remeasurement of the MSK stock-price milestones. This Level 3 valuation depends on assumptions including stock price, volatility, term and probability of clinical milestone achievement.
- The $4.0M CIRM award is recorded as a liability until the company elects loan treatment or the award becomes a grant; grant treatment would entail royalties on FT516 commercial sales until payments reach nine times the award.
- Key business risks include clinical and regulatory failure, manufacturing scale-up and quality challenges, reliance on collaborators and third-party suppliers, intellectual-property risks, and continued capital needs. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether clinical progress, trial enrollment and manufacturing scale-up align with management’s plans, particularly given reported COVID-19 disruptions.
- How quickly the $845.1M cash-and-investment balance is consumed, and whether the stated minimum 12-month runway remains supportable as spending grows.
- The timing and accounting impact of the $20.0M MSK payment and potential additional stock-price milestone obligations.
- Whether Janssen and Ono collaboration research, option and milestone opportunities advance; contingent milestones and royalties are not assured revenue.
- The effects of ongoing losses, stock-based compensation and equity financing on cash needs and shareholder dilution.