Fate Therapeutics, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; filed March 12, 2015. The filing also reports unaudited fourth-quarter results. Fate Therapeutics is a clinical-stage biopharmaceutical company developing programmed cellular therapeutics. Its lead candidate, ProHema, was in Phase 2 development; the company had no approved products or therapeutic sales.
Financial performance and position
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $0 | $971,000 |
| Research and development expense | $16.4 million | $12.0 million |
| General and administrative expense | $8.5 million | $6.6 million |
| Operating loss | $24.9 million | $17.7 million |
| Net loss | $25.9 million | $20.9 million |
| Net loss per share, basic and diluted | $1.27 | $3.54 |
| Cash used in operating activities | $22.4 million | $15.4 million |
- For fourth-quarter 2014, revenue was zero, operating expenses were $5.9 million, and net loss was $6.2 million, or $0.30 per share.
- At year-end, cash and cash equivalents were $49.1 million, working capital was $45.3 million, total assets were $51.2 million, and stockholders’ equity was $28.3 million. The company reported an accumulated deficit of $112.4 million.
- Year-end debt was $20.0 million principal, reported at $19.6 million net of discount; $1.5 million was current. Operating cash burn increased year over year. No meaningful profit margin is applicable given zero revenue and ongoing losses.
- Financing cash flow was $18.4 million, primarily reflecting $20.0 million of SVB borrowings and $1.8 million of principal payments. Investing cash outflow was $0.9 million.
Material changes versus the prior year
- Revenue fell from $971,000 to zero because the government grant ended in May 2013 and the three-year BD collaboration development period concluded in September 2013. The company did not expect significant future revenue from those arrangements.
- R&D expense rose $4.4 million, mainly due to increased staffing and clinical-trial preparation and execution; G&A expense rose $1.9 million, largely reflecting public-company and staffing costs.
- Net loss increased by $5.0 million, while other expense declined to $1.0 million from $3.2 million, primarily because 2013 included a $2.4 million exchangeable-share fair-value charge.
- Cash declined $4.9 million during 2014, compared with a $44.9 million increase in 2013, when the IPO and convertible-note financing provided substantial proceeds.
Outlook, development, risks and unusual items
- Management said available cash at December 31, 2014 was expected to fund operations for at least 12 months, but stated that additional capital would be required to advance development. Management expected continuing losses and increasing expenses.
- Planned work included the Phase 2 PUMA study of ProHema in adults, Phase 1b PROMPT and PROVIDE pediatric studies, and preparation for a 2015 IND filing for FT1050/FT4145-programmed mobilized peripheral blood. These were forward-looking plans, not assured outcomes.
- In a December 2014 interim safety review, the PUMA data monitoring committee supported continuing the trial. Among 12 ProHema recipients reviewed, six of nine engrafting subjects engrafted before the study’s applicable historical control threshold; two early deaths before engraftment were attributed to conditioning-regimen toxicity. The company cautioned that interim, small-sample results may not predict final outcomes. Primary efficacy data were expected in the second half of 2015.
- Key risks include clinical and regulatory uncertainty, limited trial enrollment, product-manufacturing standardization and consistency, dependence on transplant-center facilities and third-party suppliers, and the possibility of needing further studies or financing. ProHema requires same-day preparation near the treatment site; the company did not operate its own manufacturing facilities and lacked long-term supply agreements for certain components.
- The SVB facility is secured by substantially all assets other than certain intellectual property and includes restrictive covenants. The loans carry fixed stated rates of 6.94% and 7.07%, mature in 2018, and require final payment fees. Contractual obligations for debt, interest and fees and operating leases totaled $25.9 million at year-end.
- Unusual items included a $432,000 loss on extinguishment of debt and issuance of warrants for 98,039 shares to SVB in connection with the Term B borrowing. The filing reported no material legal proceedings or off-balance-sheet arrangements.
- The financial statements received an unqualified audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation because of the emerging-growth-company exemption.
Investor facts to verify
- Progress, enrollment, safety and final efficacy results from PUMA, and whether the stated 2015 data timing was achieved.
- Whether planned pediatric studies and the FT1050/FT4145 IND proceeded as expected, and whether regulators required additional data or protocol changes.
- Cash use, current liquidity and financing needs against management’s stated minimum 12-month runway; assess debt service, covenants and potential dilution from future fundraising.
- Manufacturing reproducibility, clinical-site readiness, availability of cord-blood units and critical supplies, and any changes in regulatory requirements.
- Potential milestone, royalty and sublicensing obligations under the company’s intellectual-property licenses, as well as restrictions on use of tax-loss carryforwards.