Fate Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. Fate Therapeutics is a clinical-stage biopharmaceutical company developing adult stem-cell modulators; it had no therapeutic product sales and remained a development-stage company.
Financial performance and position
Amounts below are in millions of dollars except per-share data.
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | 2013: $0.209; 2012: $0.528 | 2013: $0.971; 2012: $2.027 |
| Research and development expense | 2013: $3.378; 2012: $3.315 | 2013: $8.976; 2012: $8.596 |
| General and administrative expense | 2013: $1.979; 2012: $0.863 | 2013: $4.768; 2012: $2.944 |
| Operating loss | 2013: $5.148; 2012: $3.650 | 2013: $12.773; 2012: $9.513 |
| Net loss | 2013: $6.073; 2012: $4.113 | 2013: $15.155; 2012: $10.084 |
| Basic and diluted net loss per share | 2013: $4.81; 2012: $3.51 | 2013: $12.24; 2012: $9.52 |
- At September 30, cash and cash equivalents were $19.082 million, versus $9.087 million at December 31, 2012. Current assets were $19.386 million and current liabilities $9.491 million.
- Net cash used in operating activities was $10.795 million for the first nine months, compared with $9.880 million in 2012. Investing activities used $0.088 million; financing activities provided $20.878 million.
- Accumulated development-stage deficit was $80.770 million. No product gross margin was reported; the filing provides no meaningful product-sales margin because there were no therapeutic sales.
- Debt at quarter-end included $2.250 million of bank debt and approximately $23.7 million principal of convertible notes (shown as $23.481 million net of discount on the balance sheet). The notes accrued interest at 2%; bank debt carried a fixed 7% rate.
Material changes and subsequent events
- Nine-month revenue declined by about $1.056 million year over year. The TATRC grant was fully expended in May 2013, and the 2012 collaboration revenue included a $0.5 million milestone that did not recur. The BD/Corning joint-development period ended in September 2013; management did not anticipate significant revenue from that agreement thereafter.
- For the nine months, R&D increased $0.380 million, while G&A increased $1.824 million, including higher compensation, stock-based compensation, intellectual-property and public-company readiness costs. Other expense increased to $2.382 million, primarily from remeasurement of the Verio exchangeable-share liability.
- On October 4, 2013, after quarter-end, the company completed its IPO, selling 7,666,667 shares at $6.00 each. The filing reports estimated net cash impact of IPO-related transactions of about $40.045 million; elsewhere it reports net IPO proceeds of approximately $40.4 million after offering costs. Pro forma September 30 cash was presented as $59.127 million.
- In connection with the IPO, preferred stock converted into 7,229,590 common shares; $22.1 million of note principal and accrued interest converted into 3,679,401 shares, and $1.7 million was repaid. Warrants and exchangeable-share liabilities were also reclassified to additional paid-in capital.
Outlook, commentary and key risks
- Management expected existing cash and IPO proceeds to fund projected operations through at least the end of 2014, but anticipated continued and increasing losses and substantial additional funding needs. Management cautioned that actual cash needs and runway could differ from estimates.
- Management planned to resume enrollment in the ProHema Phase 2 trial in the first half of 2014, subject to supplying product data for the improved nutrient-rich media formulation and FDA requirements; it targeted primary and major secondary endpoint data in mid-2015.
- Plans included a 2014 clinical trial of an HSC candidate for pediatric lysosomal storage disorders and IND filing in 2014 for a Wnt7a analog, subject to successful preclinical and regulatory work. These are plans, not assured milestones.
- Key execution risks include clinical efficacy and safety, FDA requirements and trial timing, enrollment in small patient populations, consistent ProHema manufacturing at clinical sites, and dependence on third-party suppliers and service providers. Wnt7a analogs remained preclinical.
- Other material risks include no approved products or product-sales revenue, uncertain future financing, reliance on licensed intellectual property, competition, and the possibility that products may not obtain regulatory approval or market acceptance. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the IPO cash figures: approximately $40.045 million estimated net cash impact in the subsequent-events disclosure versus approximately $40.4 million net proceeds in the use-of-proceeds section; confirm final cash received and use of proceeds.
- Track ProHema enrollment resumption, FDA acceptance of the NRM manufacturing data and protocol, and progress toward the stated mid-2015 data target.
- Monitor operating cash burn, spending growth, and whether the stated runway through at least 2014 remains achievable.
- Confirm the post-IPO treatment of convertible notes and remaining bank debt, and assess potential dilution from converted notes, equity awards and outstanding warrants.
- Assess whether the ended BD/Corning development period and exhausted TATRC grant leave meaningful replacement collaboration or grant funding.