Fate Therapeutics(US:FATE)2021-11-03 16:00PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (unaudited) The unaudited financial statements for Q3 2021 show increased assets and collaboration revenue, but also a wider net loss due to higher operating expenses Condensed Consolidated Balance Sheets Total assets increased to $984.6 million by September 30, 2021, driven by financing activities, nearly doubling stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2021 (unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $129,180 | $167,347 | | Short-term & Long-term investments | $674,398 | $315,569 | | Total assets | $984,571 | $622,457 | | Liabilities & Equity | | | | Total liabilities | $254,239 | $238,012 | | Total stockholders' equity | $730,332 | $384,445 | | Total liabilities and stockholders' equity | $984,571 | $622,457 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q3 2021 saw collaboration revenue rise to $14.2 million and a reduced net loss, while the nine-month period showed higher revenue but a wider net loss of $143.5 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Collaboration revenue | $14,225 | $7,558 | $38,777 | $15,538 | | Research and development | $53,130 | $30,694 | $146,004 | $86,641 | | General and administrative | $15,718 | $8,351 | $40,385 | $23,583 | | Loss from operations | ($54,623) | ($31,487) | ($147,612) | ($94,686) | | Net loss | ($43,308) | ($58,684) | ($143,530) | ($120,276) | | Net loss per common share | ($0.45) | ($0.68) | ($1.52) | ($1.49) | Condensed Consolidated Statements of Cash Flows Net cash used in operations significantly increased to $92.6 million for the nine months, offset by $449.7 million from financing activities, primarily a public offering Cash Flow Summary for the Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 (unaudited) | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($92,577) | ($18,565) | | Net cash provided by (used in) investing activities | ($395,301) | $4,953 | | Net cash provided by financing activities | $449,711 | $277,928 | | Net change in cash, cash equivalents and restricted cash | ($38,167) | $264,316 | Notes to Condensed Consolidated Financial Statements (unaudited) Notes detail accounting policies, collaboration revenues, MSK license terms with stock-price-contingent payments, and $432.4 million net proceeds from a January 2021 public offering - The company is a clinical-stage biopharmaceutical firm focused on developing off-the-shelf natural killer (NK) and T-cell product candidates from clonal master engineered induced pluripotent stem cell (iPSC) lines22 - The company's revenues to date have been derived from collaboration agreements and government grants, with no revenue from therapeutic product sales23 - In January 2021, the company raised net proceeds of $432.4 million from a public offering of common stock and pre-funded warrants24 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses iPSC platform development, increased collaboration revenue and operating expenses, and strong liquidity of $803.6 million from a public offering - The company is a clinical-stage biopharmaceutical company developing off-the-shelf NK and T-cell product candidates derived from clonal master iPSC lines for cancer treatment129130 - Key strategic collaborations for developing and commercializing iPSC-derived CAR NK- and CAR T-cell product candidates are in place with Janssen and Ono Pharmaceutical132133 - The company expects expenses to increase substantially due to ongoing and planned clinical trials, GMP production activities, and establishing operations at its new corporate headquarters135137 - The COVID-19 pandemic has caused some delays and disruptions in clinical trials and research activities, with the ultimate impact remaining unknown139 Results of Operations Q3 2021 saw collaboration revenue increase to $14.2 million, with R&D and G&A expenses rising significantly, leading to a wider operating loss for the nine-month period Comparison of Operating Results (in millions) | Period | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | :--- | | Q3 | Collaboration Revenue | $14.2 | $7.6 | +$6.6 | | | R&D Expense | $53.1 | $30.7 | +$22.4 | | | G&A Expense | $15.7 | $8.4 | +$7.3 | | Nine Months | Collaboration Revenue | $38.8 | $15.5 | +$23.3 | | | R&D Expense | $146.0 | $86.6 | +$59.4 | | | G&A Expense | $40.4 | $23.6 | +$16.8 | - The primary drivers for increased R&D expenses were higher employee compensation (including stock-based compensation), increased third-party consultant and clinical trial costs, and greater expenditures for laboratory materials and supplies163164165 - Other income for Q3 2021 was $11.3 million, compared to an expense of ($27.2) million in Q3 2020, primarily due to a positive change in the fair value of stock price appreciation milestones related to the Amended MSK License166 Liquidity and Capital Resources The company maintains strong liquidity with $803.6 million in cash and investments, bolstered by $449.7 million from financing activities, including a public offering - The company held $803.6 million in cash, cash equivalents, and investments as of September 30, 2021184 - Financing activities in the first nine months of 2021 provided $449.7 million, mainly from the January 2021 public offering which yielded net proceeds of $432.4 million181186 - In July 2021, the company achieved a clinical milestone under the Amended MSK License, triggering a $20.0 million payment obligation to MSK, which was recorded as a current liability179198 Quantitative and Qualitative Disclosures About Market Risk Primary market risks include low interest rate risk and significant stock price sensitivity due to MSK license milestone payments contingent on stock performance - Interest rate risk is low due to the low-risk profile of the company's investment portfolio201 - The company has significant market risk related to its own stock price due to the MSK license agreement, which has milestone payments contingent on stock price appreciation. As of September 30, 2021, the estimated fair value of the remaining milestone liability was $24.6 million, in addition to a $20.0 million payment already triggered202 Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021205 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls206 PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings, with no expected material adverse effects from ordinary course claims - As of the filing date, the company is not a party to any material legal proceedings208 Risk Factors Significant risks include unproven iPSC/gene-editing technologies, manufacturing complexities, clinical trial delays, reliance on third parties, IP protection, and commercialization uncertainties Risks Related to Discovery, Development, and Regulation Risks include the unproven nature of iPSC/gene-editing technologies, manufacturing complexities, clinical trial delays, and an uncertain regulatory pathway for novel therapies - Product candidates represent a novel therapeutic approach using iPSC and gene-editing technologies, which are unproven and make it difficult to predict development time, cost, and regulatory approval success212213257 - The company may face delays in initiating or completing clinical trials due to challenges in patient enrollment, which could be exacerbated by the COVID-19 pandemic214236 - The manufacture and distribution of iPSC-derived cell product candidates are complex, subject to a multitude of risks, and could be delayed or restricted by additional FDA requirements216242 Risks Related to Reliance on Third Parties High dependence on third-party CMOs, sole-source suppliers, and strategic partners like Janssen and Ono poses risks of delays and financial harm - Reliance on third-party CMOs for manufacturing entails risks related to regulatory compliance, quality assurance, and potential termination of services, which could disrupt supply for clinical trials298300 - The company relies on third-party suppliers, including sole-source suppliers, for essential reagents, materials, and equipment, making it vulnerable to supply chain disruptions302309 - The company depends on strategic partnerships, such as those with Janssen and Ono, for the development and commercialization of certain product candidates. Unsuccessful collaborations could materially harm results221303 Risks Related to Intellectual Property Success hinges on obtaining and maintaining patent protection, facing risks of uncertain patent scope, infringement, and loss of rights under license agreements - The company's commercial success depends on obtaining and maintaining patent protection for its technology and product candidates, which is uncertain in the complex and evolving field of biotechnology223323 - Failure to comply with obligations under license agreements, such as the one with MSK which includes significant stock-price contingent payments, could result in the loss of rights to key technologies223327 - The company may face litigation for infringing on the intellectual property rights of others, which could be costly and prevent or delay product development and commercialization333 Risks Related to Commercialization Commercialization risks include lack of marketing experience, uncertain market acceptance, challenges in pricing and reimbursement, and potential negative impacts from healthcare reform - The company has no experience in marketing, sales, or distribution, and its ability to successfully commercialize approved products is unproven224357 - Commercial success is dependent on market acceptance by physicians, patients, and third-party payers, which is uncertain for novel cell therapies225359 - Failure to obtain or maintain adequate insurance coverage and reimbursement for product candidates from government and private payors could severely limit product revenues363364 Risks Related to Business and Industry Business risks include reliance on evolving cellular immunotherapy, intense competition, loss of key personnel, growth management challenges, COVID-19 disruptions, and operational liabilities - The success of the company's product candidates is highly dependent on developments in the novel field of cellular immunotherapy, particularly those using pluripotent or genome-edited cells225378 - The company faces intense competition from other biotechnology and pharmaceutical companies that may have greater financial and operational resources225381 - The ongoing COVID-19 pandemic could adversely impact business operations, including research, manufacturing, clinical trial conduct, and financial condition219386 Risks Related to Financial Condition and Stock Ownership Financial risks include a history of losses, need for additional funding, stock price volatility, significant control by principal stockholders, and potential future dilution - The company has a limited operating history with significant losses ($700.5 million accumulated deficit as of Sep 30, 2021) and anticipates continued losses, requiring substantial additional funding for development232414421 - The company's stock price is subject to high volatility and may trigger financial obligations, such as the milestone payments to MSK which are contingent on stock price increases424426 - Executive officers, directors, and 5% stockholders beneficially own approximately 42.0% of the company's voting stock, enabling them to exercise significant control over corporate matters226427 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - There were no unregistered sales of equity securities in the reported period460 Defaults Upon Senior Securities No defaults upon senior securities were reported - None461 Mine Safety Disclosures This item is not applicable to the company - Not applicable462 Other Information No other information was reported for this item - None463 Exhibits This section lists exhibits filed with Form 10-Q, including corporate documents and officer certifications - Lists various corporate documents and certifications filed as exhibits, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act465