Fate Therapeutics, Inc. — 2017 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2017, Fate Therapeutics was a clinical-stage biopharmaceutical company developing programmed cellular immunotherapies for cancer and immune disorders. Its pipeline included donor-derived therapies and preclinical, off-the-shelf cell candidates made from induced pluripotent stem cells (iPSCs). The company had no therapeutic-product sales; reported revenue came from collaborations. The financial statements received an unqualified audit opinion from Ernst & Young LLP.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue, primarily Juno collaboration | $4.1 million | $4.4 million |
| Research and development expense | $34.4 million | $26.5 million |
| General and administrative expense | $11.9 million | $9.9 million |
| Operating loss | $42.1 million | $32.0 million |
| Net loss | $43.0 million | $33.5 million |
| Net loss per share, basic and diluted | $1.02 | $1.05 |
| Cash used in operating activities | $36.9 million | $29.8 million |
Revenue was collaboration-based, so commercial margins were not meaningful; no gross margin was reported. R&D expense rose by $7.9 million, principally from external development and manufacturing services, employee costs, facility expansion, and laboratory spending. G&A increased by $2.0 million, including higher intellectual-property costs.
At year-end, cash and cash equivalents were $89.0 million and short-term investments were $12.0 million, totaling $100.9 million. Working capital was $91.5 million. Debt was $15.0 million principal, reported net of discounts as $14.8 million long-term debt; the 2017 balance sheet showed no current debt portion. The company reported $77.2 million of stockholders’ equity and an accumulated deficit of $218.8 million. Management believed available cash and investments would fund operations for at least 12 months from the financial-statement issuance date, while warning that additional capital would be needed.
Fourth-quarter 2017 revenue was $1.027 million, compared with $1.027 million in Q4 2016. Q4 operating expenses rose to $13.271 million from $8.681 million, and net loss widened to $12.497 million from $7.940 million. Quarterly diluted loss per share was $0.29 versus $0.21.
Material changes and financing
- Annual net loss increased by $9.5 million, while operating cash use increased by $7.1 million year over year.
- In December 2017, a public stock offering generated approximately $43.0 million in estimated net proceeds and issued 10.95 million shares. Common shares outstanding increased to 52.65 million at year-end from 41.39 million a year earlier.
- In July, the company refinanced its prior Silicon Valley Bank debt with a $15.0 million term loan, used partly to repay existing debt. The loan matures January 2022, carries a floating rate of 7.25% to 8.25% (8.00% at year-end), and has interest-only payments through January 2019, subject to a possible extension. It is secured by substantially all assets other than certain intellectual property and includes restrictive covenants.
- Cash from financing activities was $47.4 million, mainly from the stock offering and loan proceeds. Investing cash use was $10.2 million, including purchases of U.S. Treasury securities and equipment.
Outlook, clinical developments and risks
- Management expected operating losses and expenses to increase as it advanced ProTmune and FATE-NK100 trials, developed iPSC-derived programs, and expanded manufacturing and research. It provided no revenue or earnings guidance.
- ProTmune’s Phase 1 PROTECT cohort included seven patients. At Day 100, all seven were reported alive and relapse-free, with no graft failures or ProTmune-related serious adverse events; three experienced acute GvHD and responded to standard steroid treatment. In follow-up data available through November 29, 2017, two subjects had subsequently died from non-relapse mortality. The trial was ongoing, and the reported results were preliminary. The Phase 2 study was randomized and planned to enroll up to 60 subjects.
- FATE-NK100 was being evaluated in three Phase 1 studies. In the first two VOYAGE cohorts, no dose-limiting toxicities were reported; one patient had a morphologic leukemia-free state after treatment, but the response was not durable. APOLLO had treated its first patient by December 2017. DIMENSION’s first treatment was announced in February 2018.
- FT500 and FT516 remained preclinical at year-end. The company was preparing an FT500 IND and expected to file an FT516 IND; it reported FDA pre-IND feedback and manufacturing work for both. FT819, an iPSC-derived CAR19 T-cell candidate, was announced in December 2017. In February 2018, California’s CIRM awarded a $4.0 million grant to advance FT516 toward a first-in-human trial.
- Key risks include early-stage clinical uncertainty, small and difficult-to-enroll patient populations, novel and complex cell manufacturing, reliance on third-party facilities and suppliers, donor-material availability, regulatory uncertainty, competition, intellectual-property challenges, and the need for further financing. The company had no approved products and relied on Juno for collaboration revenue; Juno could terminate its agreement, and contingent milestones and royalties had not been received as of year-end.
- Additional considerations include potential dilution from equity issuance and conversion of 2.82 million non-voting preferred shares into up to 14.10 million common shares, as well as SVB covenant and repayment risks. The company reported no material legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Current clinical-trial status, patient enrollment, safety, durability of responses, and whether early ProTmune findings are confirmed in the controlled Phase 2 trial.
- Actual cash burn and funding runway relative to management’s stated 12-month estimate, including the timing and terms of any future financing.
- Manufacturing readiness, regulatory requirements, and third-party supply and facility capacity for clinical and potential commercial production.
- Potential dilution from outstanding options, warrants, preferred-stock conversion, and future equity offerings; also review the loan covenants and maturity schedule.
- Whether Juno collaboration research funding continues and whether any target-selection fees, milestones, or royalties become payable; assess the effect of Juno’s announced Celgene transaction.