Fate Therapeutics, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. The company is a clinical-stage biopharmaceutical developer of programmed cell therapies for cancer and immune disorders. It had no therapeutic product sales; reported revenue came from collaborations.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Collaboration revenue | $2.4 million | $1.0 million | $7.9 million | $3.1 million |
| Research and development expense | $23.2 million | $13.6 million | $62.6 million | $41.9 million |
| General and administrative expense | $6.3 million | $4.1 million | $17.0 million | $11.5 million |
| Operating loss | $27.1 million | $16.7 million | $71.6 million | $50.4 million |
| Net loss | $26.6 million | $16.8 million | $69.8 million | $50.6 million |
| Basic and diluted loss per share | $0.40 | $0.31 | $1.06 | $0.95 |
Margins are not meaningful to the company’s product-development business, and the filing does not report a gross margin. Revenue was collaboration-based, not product sales.
Liquidity, cash flow and debt
- At September 30, 2019, cash and cash equivalents were $249.6 million and short-term investments were $53.2 million, totaling $302.8 million in cash, equivalents and investments. Working capital was approximately $265.0 million.
- Cash used in operating activities was $57.6 million for the first nine months of 2019, versus $27.6 million in the comparable 2018 period. Investing activities used $46.9 million; financing activities provided $163.7 million.
- The company raised $162.4 million net in a September 2019 public offering of 9.89 million shares at $17.50 per share. Common shares outstanding increased from 64.7 million at year-end 2018 to 75.4 million at September 30, 2019.
- Long-term debt had $14.0 million principal outstanding at quarter-end and was classified as current because the company intended to repay it within 12 months. On November 1, 2019, it notified Silicon Valley Bank that it would prepay; repayment of approximately $14.1 million, including the final payment fee, was expected in November.
- Operating lease liabilities totaled $27.3 million; undiscounted future lease payments were $39.1 million. The company reported no material off-balance-sheet arrangements.
Changes and management outlook
- Year-over-year, Q3 collaboration revenue increased $1.4 million, while R&D expense rose $9.6 million and G&A expense rose $2.3 million. For the nine-month period, revenue increased $4.8 million, R&D expense $20.6 million and G&A expense $5.5 million. The higher spending primarily reflected increased personnel, laboratory and manufacturing activity, clinical-development services, and facilities costs.
- Ono collaboration revenue was $2.4 million in Q3 and $6.5 million for the nine months. The agreement provides estimated research fees of $20 million over the plan and potential option, milestone and royalty payments; these contingent amounts had not been received. Deferred revenue under the agreement was $7.9 million at quarter-end.
- The Juno research term ended in May 2019. The company recognized $1.4 million of Juno revenue in the first nine months of 2019 and expects no further revenue under that agreement.
- Management expects operating losses and expenses to continue rising as it advances clinical programs, including ProTmune, FT500, FT516 and FT596, and builds manufacturing capabilities. It stated that quarter-end cash and investments were expected to fund projected requirements for at least 12 months, while warning that development needs or delays could accelerate cash use and require additional financing.
- The $4.0 million CIRM award for FT516 was suspended pending an IND submission for advanced solid tumors; $0.5 million remained available at suspension. Depending on the company’s election and development outcome, the award may require repayment or royalties on commercial sales.
Risks, contingencies and unusual items
- The company has never been profitable, had an accumulated deficit of $355.2 million, and stated that it expects losses for the foreseeable future. Management concluded there was no substantial doubt about its ability to continue as a going concern for at least 12 months from issuance.
- Key risks include clinical-trial delays or failure, uncertain safety and efficacy of early-stage cell therapies, manufacturing scale-up and consistency, reliance on third-party suppliers and clinical facilities, regulatory uncertainty, and the need for additional capital.
- The company adopted lease accounting guidance in 2019, recognizing right-of-use assets and lease liabilities. This increased assets and liabilities at adoption but had no material impact on reported operating results.
- The filing reports no material legal proceedings. Disclosure controls were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether clinical progress and manufacturing scale-up match management’s plans and spending assumptions.
- Actual cash burn and remaining liquidity after the planned November 2019 debt prepayment.
- Ono program progress, option decisions, and the timing and conditions for any contingent payments.
- Potential dilution from equity compensation, convertible preferred shares, or future equity offerings.
- How the suspended CIRM award will be treated and whether future funding or repayment obligations arise.