The following discussion and analysis should be read in conjunction with our
financial statements and accompanying notes included in this Quarterly Report on
Form 10-Q and the financial statements and accompanying notes thereto for the
fiscal year ended December 31, 2022 and the related Management's Discussion and
Analysis of Financial Condition and Results of Operations, which are contained
in our Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 28, 2023.
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act). Such
forward-looking statements, which represent our intent, belief, or current
expectations, involve risks and uncertainties and other factors that could cause
actual results and the timing of certain events to differ materially from future
results expressed or implied by such forward-looking statements. In some cases
you can identify forward-looking statements by terms such as "may," "will,"
"expect," "anticipate," "estimate," "intend," "plan," "predict," "potential,"
"believe," "should" and similar expressions. Factors that could cause or
contribute to differences in results include, but are not limited to, those set
forth under "Risk Factors" under Item 1A of Part II below. Except as required by
law, we undertake no obligation to update these forward-looking statements to
reflect events or circumstances after the date of this report or to reflect
actual outcomes.
Overview
We are a clinical-stage biopharmaceutical company dedicated to bringing a
first-in-class pipeline of programmed cellular immunotherapies to patients with
cancer and autoimmune disorders. Our development of first-in-class cell therapy
product candidates is based on a simple notion: we believe that better cell
therapies start with better cells.
To create better cell therapies, we have pioneered a therapeutic approach that
we generally refer to as cell programming: we create and engineer human induced
pluripotent stem cells (iPSCs) to incorporate novel synthetic controls of cell
function; we generate a clonal master iPSC line for use as a renewable source of
cell manufacture; and we direct the fate of the clonal master iPSC line to
produce our first-in-class cell therapy product candidate. Analogous to master
cell lines used to manufacture biopharmaceutical drug products such as
monoclonal antibodies, we believe clonal master iPSC lines can be used to mass
produce multiplexed-engineered cellular immunotherapies which are well-defined
and uniform in composition, can be stored in inventory for off-the-shelf
availability, can be combined and administered with other therapies, and can
have broader patient reach.
Utilizing this therapeutic approach, we are advancing a cell therapy pipeline
comprised of off-the-shelf, multiplexed-engineered, iPSC-derived natural killer
(NK) and T-cell product candidates that are selectively designed, incorporate
novel synthetic controls of cell function, and are intended to deliver multiple
mechanisms of therapeutic importance to patients for the treatment of cancer and
autoimmune diseases.
We have entered into a research collaboration and license agreement with the
Regents of the University of Minnesota to develop off-the-shelf, engineered
NK-cell cancer immunotherapies derived from clonal master iPSC lines.
Additionally, we have entered into a research collaboration and license
agreement with Memorial Sloan Kettering Cancer Center (MSK) to develop
off-the-shelf, engineered T-cell cancer immunotherapies derived from clonal
master iPSC lines.
In September 2018, we entered into a collaboration and option agreement (Ono
Agreement) with Ono Pharmaceutical Co. Ltd. (Ono) for the joint development and
commercialization of off-the-shelf, iPSC-derived CAR T-cell product candidates
for the treatment of cancer. In June 2022, we entered into an amendment (Ono
Amendment) to the Ono Agreement to expand the collaboration to include the
research and development of off-the-shelf, iPSC-derived CAR NK-cell product
candidates, and pursuant to the Ono Agreement, Ono agreed to provide novel
binding domains targeting a second solid tumor antigen under the collaboration.
In April 2020, we entered into a collaboration and option agreement with Janssen
Biotech, Inc. (Janssen), part of the Janssen Pharmaceutical Companies of Johnson
& Johnson (Janssen Agreement), for the development and commercialization of
off-the-shelf, iPSC-derived CAR NK and CAR T-cell product candidates for the
treatment of cancer. Through the period ending December 31, 2022, Janssen had
exercised a commercial option for two collaboration candidates: an iPSC-derived,
CAR-targeted NK cell product candidate for the treatment of B-cell lymphoma, for
which the U.S. Food and Drug Administration (FDA) allowed an Investigational New
Drug (IND) application in December 2022; and an iPSC-derived, CAR-targeted NK
cell product candidate for the treatment of multiple myeloma, for which the
companies were preparing to submit an IND application to the FDA in early 2023.
On January 3, 2023, we received notice of termination from Janssen of the
Janssen Agreement. The termination of the Janssen Agreement took effect on April
3, 2023, and during the three months ended March 31, 2023, we performed wind
down activities, including discontinuing development of all collaboration
product candidates, including two product candidates that were expected to enter
the clinic in 2023.
In January 2023, we announced the discontinuation of our FT516, FT596, FT538,
and FT536 NK cell programs to focus our resources on advancing our most
innovative and differentiated programs.
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We were incorporated in Delaware in 2007, and are headquartered in San Diego,
CA. Since our inception in 2007, we have devoted substantially all of our
resources to our cell programming approach and the research and development of
our product candidates, the creation, licensing and protection of related
intellectual property, and the provision of general and administrative support
for these activities. To date, we have funded our operations primarily through
the public and private sale of common stock, the private placement of preferred
stock and convertible notes, commercial bank debt and revenues from
collaboration activities and grants.
We have never been profitable and have incurred net losses in each year since
inception. Substantially all of our net losses resulted from costs incurred in
connection with our research and development programs and from general and
administrative costs associated with our operations. We expect to continue to
incur operating losses for at least the foreseeable future. Our net losses may
fluctuate significantly from quarter to quarter and year to year. We expect our
expenses will increase substantially in connection with our ongoing and planned
activities as we:
•
conduct our ongoing and planned clinical trials of our product candidates, which
may include higher clinical trial expenses associated with arrangements we may
enter into with clinical research organizations (CROs) for the execution and
management of certain clinical trials, including trials outside of the United
States;
•
conduct Good Manufacturing Practice (GMP) production, including through the use
of contract manufacturing organizations (CMOs) for the conduct of some or all of
the activities required for manufacturing our iPSC-derived cell product
candidates, process and scale-up development and technology transfer activities
for the manufacture of our product candidates, including those undergoing
clinical investigation and IND-enabling preclinical development;
•
procure laboratory equipment, materials and supplies for the manufacture of our
product candidates and the conduct of our research activities;
•
conduct preclinical and clinical research to investigate the therapeutic
activity of our product candidates;
•
continue our research, development and manufacturing activities, including under
our sponsored research and collaboration agreement with Ono;
•
maintain, prosecute, protect, expand and enforce our intellectual property
portfolio;
•
engage with regulatory authorities for the development of, and seek regulatory
approvals for, our product candidates;
•
build out business operations at our corporate headquarters, including internal
GMP production capabilities;
•
continue to implement the corporate restructuring and reduction in force that we
announced in January 2023; and
•
continue operating as a public company and support our operations and develop
commercial infrastructure for potential commercialization of our product
candidates.
We do not expect to generate any meaningful revenues from product sales,
royalties, or sales milestones unless and until we successfully complete
development and obtain regulatory approval for one or more of our product
candidates, which we expect will take a number of years. If we obtain regulatory
approval for any of our product candidates, we expect to incur significant
commercialization expenses related to product sales, marketing, manufacturing
and distribution. Accordingly, we will seek to fund our operations through
public or private equity or debt financings, collaboration arrangements, or
other sources. However, we may be unable to raise additional funds or enter into
such other arrangements when needed on favorable terms or at all. Our failure to
raise capital or enter into such other arrangements when needed would have a
negative effect on our financial condition and ability to develop our product
candidates.
Financial Operations Overview
We conduct substantially all of our activities through Fate Therapeutics, Inc.,
a Delaware corporation, at our facilities headquartered in San Diego,
California. The results of operations include the operations of the Company and
its subsidiaries. To date, the aggregate operations of our subsidiaries have not
been significant and all intercompany transactions and balances have been
eliminated in consolidation.
Collaboration Revenue
To date, we have not generated any revenues from therapeutic product sales or
royalties. Our revenues have been derived from collaboration agreements and
government grants.
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Agreement with Janssen Biotech, Inc.
On April 2, 2020 (the Janssen Agreement Effective Date), we entered into a
Collaboration and Option Agreement (the Janssen Agreement) with Janssen Biotech,
Inc. (Janssen), part of the Janssen Pharmaceutical Companies of Johnson &
Johnson. Additionally, on the Janssen Agreement Effective Date, we entered into
a Stock Purchase Agreement (the Stock Purchase Agreement) with Johnson & Johnson
Innovation - JJDC, Inc. (JJDC). Under the terms of the Janssen Agreement and the
Stock Purchase Agreement taken together, we received $100.0 million, of which
$50.0 million was an upfront cash payment and $50.0 million was in the form of
an equity investment by JJDC. Additionally, we are entitled to receive fees for
the conduct of all research, preclinical development and IND-enabling activities
performed by us under the Janssen Agreement.
We determined the common stock purchase by JJDC represented a premium of $9.93
per share, or $16.0 million in aggregate (the Equity Premium), and the remaining
$34.0 million was recorded as issuance of common stock in shareholders' equity.
On January 3, 2023, we received notice of termination from Janssen of the
Janssen Agreement. The termination will take effect on April 3, 2023, and during
the three months ending March 31, 2023, we performed wind down activities,
including discontinuing development of all collaboration product candidates
under the Janssen Agreement. We expect to be reimbursed for all wind down
activities associated with the termination of the Janssen Agreement in the
second quarter of this year. Under the terms of the Janssen Agreement, in
connection with the termination, (i) all licenses and other rights granted to
either party pursuant to the Janssen Agreement have terminated, subject to
limited exceptions set forth in the Janssen Agreement; (ii) both parties have
wound down all development, commercialization and manufacturing activities under
the Janssen Agreement; (iii) neither party has any right to continue to develop,
manufacture or commercialize any collaboration candidate or collaboration
product or use the other party's materials; and (iv) neither party is restricted
from independently developing, manufacturing, or commercializing any product,
including any products directed to the same antigens as those of any
collaboration candidate or collaboration product.
During the three months ended March 31, 2023, we recognized $52.3 million of
collaboration revenue under the Janssen Agreement, of which $41.2 million was
previously deferred. During the three months ended March 31, 2022, we recognized
$15.9 million of collaboration revenue under the Janssen Agreement.
Agreement with Ono Pharmaceutical Co., Ltd.
On September 14, 2018, we entered into a Collaboration and Option Agreement (the
Ono Agreement) with Ono for the joint development and commercialization of two
off-the-shelf iPSC-derived CAR T-cell product candidates (Candidate 1 and
Candidate 2). Pursuant to the terms of the Ono Agreement, we received an
upfront, non-refundable and non-creditable payment of $10.0 million.
Additionally, we are entitled to receive fees for the conduct of research and
development under a joint development plan, which fees were estimated to be
$20.0 million in aggregate.
We concluded that certain units of account within the Ono Agreement represented
a customer relationship and in accordance with ASC 606, we determined that the
initial transaction price under the Ono Agreement equals $30.0 million,
consisting of the upfront, non-refundable and non-creditable payment of $10.0
million and the aggregate estimated research and development fees of $20.0
million. In addition, we identified our performance obligations under the Ono
Agreement, including our grant to Ono of a license to certain of our
intellectual property subject to certain conditions, our conduct of research
services, and our participation in a joint steering committee. We determined
that all performance obligations should be accounted for as one combined
performance obligation since no individual performance obligation is distinct,
and that the combined performance obligation is transferred over the expected
term of the conduct of the research services, which is estimated to be four
years.
In December 2020, we entered into a letter agreement with Ono pursuant to which
Ono delivered proprietary antigen binding domains targeting an antigen expressed
on certain solid tumors for incorporation into Candidate 2 and paid the Company
a milestone fee of $10.0 million for further research and development of
Candidate 2. In addition, Ono terminated all further research and development
with respect to Candidate 1, and we retained all rights to research, develop and
commercialize Candidate 1 throughout the world without any obligation to Ono.
In June 2022, we entered into an amendment with Ono to the Ono Agreement (the
Ono Amendment). Pursuant to the Ono Amendment, the companies agreed to designate
an additional antigen expressed on certain solid tumors for research and
preclinical development, and Ono agreed to contribute proprietary antigen
binding domains targeting such additional solid tumor antigen (Candidate 3). In
addition, for both Candidate 2 and Candidate 3, the companies expanded the scope
of the collaboration to include the research and development of iPSC-derived CAR
NK cell product candidates (in addition to iPSC-derived CAR T-cell product
candidates) targeting the designated solid tumor antigens. Similar to Candidate
2, we granted to Ono, during a specified period of time, a preclinical option to
obtain an exclusive license under certain intellectual property rights, subject
to payment of an option exercise fee to us by Ono, to develop and commercialize
Candidate 3 in all territories of the world, where we retain rights to
co-develop and co-commercialize Candidate 3 in the United States and Europe
under a joint arrangement with Ono under which we are eligible to share at least
50% of the profits and losses. We maintained worldwide rights of manufacture for
Candidate 3. The preclinical option expires upon the earlier of: (a) September
30, 2024, or (b) the achievement of the pre-defined preclinical milestone under
the joint development plan for Candidate 3. Subject to payment of an extension
fee by Ono, Ono may choose to defer its
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decision to exercise the preclinical option until no later than June 2026. Under
the Ono Amendment, aggregate estimated research and development fees have been
increased by approximately $9.3 million, for a total estimated $29.3 million in
aggregate research and development fees over the course of the joint development
plan.
In November 2022, Ono exercised its preclinical option to Candidate 2, and we
exercised our preclinical option to co-develop and co-commercialize (CDCC
Option) in the United States and Europe under a joint arrangement with Ono. As a
result, we received an option exercise fee of $12.5 million from Ono.
During the three months ended March 31, 2023, we recognized $6.7 million of
collaboration revenue and $1.0 million of contra-research and development
expense under the Ono Agreement. During the three months ended March 31, 2022,
we recognized $2.5 million of collaboration revenue under the Ono Agreement.
Research and Development Expenses
Research and development expenses consist of costs associated with the research,
preclinical development, process and scale-up development, manufacture and
clinical development of our product candidates, the research and development of
our cell programming technology including our iPSC product platform, and the
performance of research and development activities under our collaboration
agreements. These costs are expensed as incurred and include:
•
salaries and employee-related costs, including stock-based compensation;
•
costs incurred under clinical trial agreements with investigative sites;
•
costs to acquire, develop and manufacture preclinical study and clinical trial
materials, including our product candidates;
•
costs associated with conducting our preclinical, process and scale-up
development, manufacturing, clinical and regulatory activities, including fees
paid to third-party professional consultants, service providers and suppliers;
•
costs incurred for our research, development and manufacturing activities,
including under our collaboration agreements;
•
costs for laboratory equipment, materials and supplies for the manufacture of
our product candidates and the conduct of our research activities;
•
costs incurred to license and maintain intellectual property; and
•
facilities, depreciation and other expenses including allocated expenses for
rent and maintenance of facilities.
We plan to increase our current level of research and development expenses for
the foreseeable future as we continue the clinical and preclinical development
and manufacture of our product candidates, research and develop our iPSC product
platform, and perform our obligations under collaboration agreements including
under our agreements with Ono, University of Minnesota and MSK. Our current
planned research and development activities over the next twelve months consist
primarily of the following:
•
conducting clinical trials of our product candidates, including through the
engagement of CROs to manage various aspects of our clinical trials;
•
conducting GMP production, including through the use of CMOs for the conduct of
some or all of the activities required for manufacturing our iPSC-derived cell
product candidates, process and scale-up development and technology transfer
activities for the manufacture of our product candidates, including those
undergoing clinical investigation and IND-enabling preclinical development;
•
procuring laboratory equipment, materials and supplies for the manufacture of
our product candidates and the conduct of our research activities;
•
conducting preclinical and clinical research to investigate the therapeutic
activity of our product candidates; and
•
conducting research, development and manufacturing activities, including under
our sponsored research and collaboration agreement with Ono.
26
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Due to the inherently unpredictable nature of preclinical and clinical
development and manufacture, and given our novel therapeutic approach and the
current stage of development of our product candidates, we cannot determine and
are unable to estimate with certainty the timelines we will require and the
costs we will incur for the development and manufacture of our product
candidates. Clinical and preclinical development and manufacturing timelines and
costs, and the potential of development and manufacturing success, can differ
materially from expectations. In addition, we cannot forecast which product
candidates may be subject to future collaborations, when such arrangements will
be secured, if at all, and to what degree such arrangements would affect our
development and manufacturing plans and capital requirements. We cannot predict
the effects of the impact of global economic and market conditions, the COVID-19
pandemic and the ongoing conflict in Ukraine on our business and operations, and
our expenditures may be increased by delays or disruptions due to these or other
factors, including as a result of actions we take in the near term to ensure
business continuity and protect against possible supply chain shortages.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and
employee-related costs, including stock-based compensation, for our employees in
executive, operational, finance and human resource functions; professional fees
for accounting, legal and tax services; costs for obtaining, prosecuting,
maintaining, and enforcing our intellectual property; and other costs and fees,
including director and officer insurance premiums, to support our operations as
a public company. We anticipate that our general and administrative expenses
will increase in the future as we increase our research and development
activities, maintain compliance with exchange listing and SEC requirements,
protect and enforce our intellectual property, and continue to operate as a
public company.
Other Income (Expense)
Other income (expense) consists of changes in the fair value of stock price
appreciation milestones associated with the Amended and Restated Exclusive
License Agreement dated May 15, 2018 (Amended MSK License) with Memorial Sloan
Kettering Cancer Center (MSK), interest income earned on cash and cash
equivalents and interest income from investments (including the amortization of
discounts and premiums).
California Institute for Regenerative Medicine Award
On April 5, 2018, we executed an award agreement with the California Institute
for Regenerative Medicine (CIRM) pursuant to which CIRM awarded us $4.0 million
to advance our FT516 product candidate into a first-in-human clinical trial (the
Award). In November 2019, we submitted an IND application for FT516 in advanced
solid tumors. As of March 31, 2023, we have received aggregate disbursements
under the Award in the amount of $4.0 million.
Pursuant to the terms of the Award, we, in our sole discretion, have the option
to treat the Award either as a loan or as a grant. In connection with our
decision to discontinue our FT516 program during the first quarter of 2023, we
reversed the liability associated with the Award, and recorded such amount in
other income during the three months ended March 31, 2023.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our unaudited condensed consolidated financial
statements, which have been prepared in accordance with United States generally
accepted accounting principles. The preparation of these unaudited condensed
consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues, and expenses
and the disclosure of contingent assets and liabilities in our financial
statements. On an ongoing basis, we evaluate our estimates and judgments,
including those related to the fair value of the stock price appreciation
milestones for the Amended MSK License, contracts containing leases, accrued
expenses, stock-based compensation, and the estimated total costs expected to be
incurred under our collaboration agreements. We base our estimates on historical
experience, known trends and events, financial models, and various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
The estimates and judgments involved in our accounting policies as described in
Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022,
continue to be our critical accounting policies and there have been no other
material changes to our critical accounting policies during the three months
ended March 31, 2023.
See Note 1 to the unaudited condensed consolidated financial statements for a
summary of critical accounting policies and information related to recent
accounting pronouncements.
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Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table summarizes the results of our operations for the three
months ended March 31, 2023 and 2022 (in thousands):
Three Months Ended March 31, Increase/
2023 2022 (Decrease)
Collaboration revenue $ 58,980 $ 18,414 $ 40,566
Research and development expense 65,629 72,139 (6,510 )
General and administrative expense 21,943 20,742 1,201
Total other income 9,711 8,777 934
Collaboration Revenue. During the three months ended March 31, 2023 and 2022, we
recognized revenue of $59.0 million and $18.4 million, respectively, under our
collaboration agreements with Janssen and Ono. The increase in collaboration
revenue was attributable to recognition of deferred revenue balances associated
to the Janssen contract termination.
Research and development expenses. Research and development expenses were $65.6
million for the three months ended March 31, 2023, compared to $72.1 million for
the three months ended March 31, 2022. The decrease in research and development
expenses was attributable primarily to the following:
•
$10.4 million decrease in expenditures for laboratory materials and supplies
relating to the manufacture of our product candidates and the conduct of our
research activities, including under our collaboration agreements; and
•
$6.5 million decrease in employee compensation and benefits expense, including
$7.6 million decrease in employee stock-based compensation expense.
General and administrative expenses. General and administrative expenses were
$21.9 million for the three months ended March 31, 2023, compared to $20.7
million for the three months ended March 31, 2022. The increase in general and
administrative expenses was attributable primarily to a $3.4 million increase in
patent and legal expenses.
Other income (expense), net. Other income (expense), net was $9.7 million and
$8.8 million for the three months ended March 31, 2023 and 2022, respectively.
During the three months ended March 31, 2023, we recorded $4.0 million in income
attributable to the CIRM Award, and $1.7 million in income attributable to the
change in fair value of the stock price appreciation milestones under the
Amended MSK License. Other income (expense), net for the three months ended
March 31, 2023 also consisted of interest income earned on cash and cash
equivalents and interest income from investments (including the amortization of
discounts and premiums).
During the three months ended March 31, 2022, we recorded $8.4 million in other
expense attributable to the change in fair value of the stock price appreciation
milestones under the Amended MSK License. Other income (expense), net for the
three months ended March 31, 2022 also consisted of interest income earned on
cash and cash equivalents and interest income from investments (including the
amortization of discounts and premiums).
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations since inception.
As of March 31, 2023, we had an accumulated deficit of $1.1 billion and we
anticipate that we will continue to incur net losses for the foreseeable future.
Operating Activities
During the three months ended March 31, 2023, cash used in operating activities
was $28.9 million compared to cash used in operating activities of $64.6 million
during the three months ended March 31, 2022. The primary driver of this change
in cash used in operating activities was our decrease in net loss.
Agreement with Janssen Biotech, Inc.
On April 2, 2020 (the Janssen Agreement Effective Date), we entered into the
Janssen Agreement with Janssen to develop iPSC-derived CAR NK- and CAR T-cell
product candidates for the treatment of cancer. Additionally, on the Janssen
Agreement Effective Date, we entered into the Stock Purchase Agreement with
JJDC. Under the terms of the Janssen Agreement and the Stock Purchase Agreement
collectively, we received $100.0 million as of the Janssen Agreement Effective
Date, of which $50.0 million was an upfront cash payment and $50.0 million was
in the form of an equity investment by JJDC. Of the $50.0 million equity
investment, $16.0 million represented a premium over the fair value of our
common stock and was classified under operating activities.
28
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We were entitled to receive fees for the conduct of all research, preclinical
development and IND-enabling activities performed by us under the Janssen
Agreement. Additionally, we were eligible to receive (i) with respect to the
first Janssen Cancer Target, payments of up to $898.0 million upon the
achievement of specified development, regulatory and sales milestones (the
Janssen Milestone Payments) for the first Collaboration Candidate, and up to
$460.0 million in Janssen Milestone Payments for each additional Collaboration
Candidate, directed to the first Janssen Cancer Target; and (ii) with respect to
each of the second, third and fourth Janssen Cancer Targets, payments of up to
$706.0 million in Janssen Milestone Payments for each of the first Collaboration
Candidates, and up to $340.0 million in Janssen Milestone Payments for each
additional Collaboration Candidate, directed to the applicable Janssen Cancer
Target, where certain Janssen Milestone Payments are subject to reduction in the
event we elect to co-commercialize and share equally in the profits and losses
in the United States of a respective Collaboration Candidate. We were further
eligible to receive double-digit tiered royalties ranging up to the mid-teens on
net sales of Collaboration Candidates commercialized by Janssen under the
Janssen Agreement, subject to reduction under certain circumstances.
On January 3, 2023, we received notice of termination from Janssen of the
Janssen Agreement. The termination will take effect on April 3, 2023, and during
the three months ending March 31, 2023, we performed wind down activities with
Janssen, including discontinuing development of all collaboration product
candidates under the Janssen Agreement. Under the terms of the Janssen
Agreement, in connection with the termination, (i) all licenses and other rights
granted to either party pursuant to the Janssen Agreement will terminate,
subject to limited exceptions set forth in the Janssen Agreement; (ii) both
parties will wind down any development, commercialization and manufacturing
activities under the Janssen Agreement; (iii) neither party will have any right
to continue to develop, manufacture or commercialize any collaboration candidate
or collaboration product or use the other party's materials; and (iv) neither
party is restricted from independently developing, manufacturing, or
commercializing any product, including any products directed to the same
antigens as those of any collaboration candidate or collaboration product.
In connection with the Janssen Agreement, we have incurred $17.1 million in
sublicense fees to certain of our existing licensors, of which $15.6 million has
been paid as of March 31, 2023. The $17.1 million in sublicense consideration
represents an asset under ASC 340, Other Assets and Deferred Costs and has been
amortized to research and development expense ratably with our revenue
recognition under the Janssen Agreement.
Agreement with Ono Pharmaceutical Co., Ltd.
On September 14, 2018, we entered into the Ono Agreement with Ono for the joint
development and commercialization of two off-the-shelf, iPSC-derived CAR T-cell
product candidates (each a Candidate and collectively the Candidates). Under the
terms of the Ono Agreement, Ono paid to us an upfront, non-refundable and
non-creditable payment of $10.0 million. Additionally, as consideration for our
conduct of research and preclinical development under a joint development plan,
Ono pays us annual research and development fees set forth in the annual budget
included in the joint development plan, which fees are estimated to be $20.0
million in aggregate over the course of the joint development plan. Further,
under the terms of the Ono Agreement, Ono had agreed to pay us up to an
additional $40.0 million, subject to the achievement of a preclinical milestone
and the exercise by Ono of its options to obtain exclusive licenses to develop
and commercialize the Candidates. Such fees are in addition to the upfront
payment and research and development fees.
On December 4, 2020, we entered into the Ono Letter Agreement with Ono in
connection with the Ono Agreement. Pursuant to the Ono Letter Agreement, Ono
delivered to us proprietary antigen binding domains targeting an antigen
expressed on certain solid tumors and nominated such antigen binding domains as
the Ono Antigen Binding Domain for incorporation into Candidate 2. In connection
with such nomination, Ono paid us a milestone fee of $10.0 million in December
2020 for further research and development of Candidate 2 under the Ono
Agreement, and Ono continues to maintain its option to Candidate 2 under the Ono
Agreement. In addition, the Ono Letter Agreement terminated further development
with respect to Candidate 1.
On June 28, 2022, we entered into the Ono Amendment, which expanded the scope of
the collaboration to include the research and development of CAR-targeted NK
cells, and pursuant to which Ono agreed to contribute novel binding domains
targeting a second solid tumor antigen (Candidate 3). Under the Ono Amendment,
aggregate estimated research and development fees have been increased by
approximately $9.3 million, for a total estimated $29.3 million in aggregate
research and development fees over the course of the joint development plan,
subject to Ono exercising its option to continue the research term for a
candidate targeting the second solid tumor antigen.
Pursuant to the Ono Amendment, we and Ono are jointly conducting research and
development activities under a joint development plan, with the goal of
advancing Candidate 2 and Candidate 3 to a pre-defined preclinical milestone. We
have granted to Ono, during a specified period of time, an option to obtain an
exclusive license under certain intellectual property rights to develop and
commercialize each remaining candidate in all territories of the world, with us
retaining the right to co-develop and co-commercialize in the United States and
Europe under a joint arrangement whereby we are eligible to share at least 50%
of the profits and losses (the Option).
On November 7, 2022, Ono exercised its option for continued development of
Candidate 2 (as defined under the Ono Agreement). We elected our CDCC Option for
Candidate 2. As a result, we received an Option Exercise Payment (as defined
under the Ono Agreement) of $12.5 million. We determined the exercise
represented an option with no material right under the Ono
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Agreement. We have completed our performance obligations with respect to the
exercise of the option and accordingly, recognized the Option Exercise Payment
as revenue for the year ended December 31, 2022.
Subject to Ono's exercise of its options to obtain exclusive licenses to develop
and commercialize Candidate 2 or Candidate 3 and to the achievement of certain
clinical, regulatory and commercial milestones (the Ono Milestones) with respect
to the Candidate in specified territories, we are entitled to receive an
aggregate of up to $843.0 million in additional milestone payments for each
Candidate, with the applicable milestone payments for the United States and
Europe subject to reduction by 50% if we elect to co-develop and
co-commercialize the Candidate as described above. As of March 31, 2023, we have
not received any milestone payments other than the $10.0 million associated with
the Ono Letter Agreement in December 2020 and $12.5 million associated with the
option exercise in November 2022. We are also eligible to receive tiered
royalties (Royalties) ranging from the mid-single digits to the low-double
digits based on annual net sales by Ono for each Candidate in specified
territories, with such royalties subject to certain reductions. As of March 31,
2023, no royalties have been paid to us under the Ono Agreement, the Ono Letter
Agreement or the Ono Amendment.
As a direct result of our entry into the Ono Agreement, the Ono Letter Agreement
and the Ono Amendment, we incurred an aggregate of $7.8 million in sublicense
consideration to certain of our existing licensors, all of which has been paid
as of March 31, 2023. The $7.8 million in sublicense consideration represents an
asset under ASC 340, Other Assets and Deferred Costs and is amortized to
research and development expense ratably with our revenue recognition under the
Ono Agreement
Memorial Sloan Kettering Cancer Center License Agreement
On May 15, 2018, we entered into the Amended MSK License with MSK. The Amended
MSK License amended and restated the Exclusive License Agreement entered into
between us and MSK on August 19, 2016, pursuant to which we entered into an
exclusive license agreement with MSK for rights relating to compositions and
methods covering iPSC-derived cellular immunotherapy, including T-cells and
NK-cells derived from iPSCs engineered with CARs.
Pursuant to the Amended MSK License, MSK granted us additional licenses to
certain patents and patent applications relating to new CAR constructs and
off-the-shelf CAR T-cells, including the use of clustered regularly interspaced
short palindromic repeat (CRISPR) and other innovative technologies for their
production, in each case to research, develop, and commercialize licensed
products in the field of all human therapeutic uses worldwide. We have the right
to grant sublicenses to certain licensed rights in accordance with the terms of
the Amended MSK License, in which case we are obligated to pay MSK a percentage
of certain sublicense income received.
In the event a licensed product achieves a specified clinical milestone, MSK is
then eligible to receive certain milestone payments totaling up to $75.0 million
based on the price of our common stock, where the amount of such payments owed
to MSK is contingent upon certain increases in the price of our common stock
following the date of achievement of such clinical milestone. These payments are
based on common stock price multiples, with the numerator being the fair value
of the ten-trading day trailing average closing price of our common stock and
the denominator being the ten-trading day trailing average closing price of our
common stock as of the effective date of the Amended MSK License, adjusted for
any stock splits, cash dividends, stock dividends, other distributions,
combinations, recapitalizations, or similar events. Under the terms of the
Amended MSK License, upon a change of control of our company, in certain
circumstances, we may be required to pay a portion of these payments to MSK
based on the price of our common stock in connection with such change of
control.
In July 2021, we achieved a specified clinical milestone for a licensed product
under the Amended MSK License and our ten-trading day trailing average common
stock price exceeded the first, pre-specified threshold. As a result, we
remitted the first milestone payment of $20.0 million to MSK during the year
ended December 31, 2021. As of March 31, 2023, we recorded a liability of $2.1
million associated with the remaining stock price appreciation milestones for
the Amended MSK License.
Investing Activities
During the three months ended March 31, 2023, investing activities provided cash
of $9.3 million compared to cash used by investing activities of $7.0 million
during the three months ended March 31, 2022. The change was primarily
attributable to a decrease in the purchases of investments of $114.5 million
during the three months ended March 31, 2023 compared to the purchase of
investments of $132.2 million during the three months ended March 31, 2022. All
other investing activities for the periods presented were attributable to the
purchase of property and equipment.
Financing Activities
For the three months ended March 31, 2023, financing activities provided cash of
$0.2 million, which primarily consisted of the issuance of common stock from
equity incentive plans pursuant to the exercise of employee stock options.
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For the three months ended March 31, 2022, financing activities provided cash of
$2.8 million, which primarily consisted of the issuance of common stock from
equity incentive plans pursuant to the exercise of employee stock options.
From our inception through March 31, 2023, we have funded our consolidated
operations primarily through the public and private sale of common stock, the
issuance of warrants, the private placement of preferred stock and convertible
notes, commercial bank debt and revenues from collaboration activities and
grants. As of March 31, 2023, we had aggregate cash and cash equivalents and
investments of $412.8 million.
Registration Statements on Form S-3
In November 2021, we filed an automatic shelf registration statement (File No.
333-260772), which became effective upon filing. The shelf registration
statement allows us to issue certain securities, including shares of our common
stock, from time to time. The specific terms of any offering under the automatic
shelf registration statement are established at the time of such offering.
Additionally, we entered into a sales agreement with Jefferies Group LLC
(Jefferies) with respect to an at-the-market offering program, under which we
may offer and sell, from time to time at our sole discretion, shares of our
common stock having an aggregate offering price of up to $350.0 million through
Jefferies as the sales agent, pursuant to this automatic shelf registration
statement.
Operating Capital Requirements
We anticipate that we will continue to incur losses for the foreseeable future,
and we expect the losses to increase as we continue the research, manufacture
and development of, and seek regulatory approvals for, our product candidates
and conduct additional research, manufacturing and development activities
pursuant to our collaboration agreement with Ono. Our product candidates have
not yet achieved regulatory approval and we may not be successful in achieving
commercialization of our product candidates.
We believe our existing cash and cash equivalents and investments as of March
31, 2023, will be sufficient to fund our projected operating requirements for at
least the next twelve months. However, we are subject to all the risks and
uncertainties incident in the research, manufacture and development of
therapeutic products, and cell therapy product candidates in particular. For
example, the FDA or other regulatory authorities may require us to generate
additional data or conduct additional preclinical studies, manufacturing
activities, or clinical trials, or may impose other requirements beyond those
that we currently anticipate. Additionally, it is possible for a product
candidate to show promising results in preclinical studies or in clinical
trials, but fail to establish sufficient safety and efficacy data necessary to
obtain regulatory approvals. As a result of these and other risks and
uncertainties and the probability of success, the duration and the cost of our
research, manufacturing and development activities required to advance a product
candidate cannot be accurately estimated and are subject to considerable
variation. We may encounter difficulties, complications, delays and other
unknown factors and unforeseen expenses in the course of our research,
manufacturing and development activities, any of which may significantly
increase our capital requirements and could adversely affect our liquidity.
We will require additional capital for the research, manufacture and development
of our product candidates and to perform our obligations under our collaboration
agreements, and we may need to seek additional funds sooner than expected due to
any changes in our business, operations, financial condition or prospects,
including any impacts of inflation rates and global economic conditions, and the
ongoing conflict in Ukraine. We expect to finance our capital requirements in
the foreseeable future through the sale of public or private equity or debt
securities. However, additional capital may not be available to us on reasonable
terms, if at all. If we are unable to raise additional capital in sufficient
amounts or on terms acceptable to us, we may have to significantly delay, scale
back or discontinue the research, manufacture or development of one or more of
our product candidates. If we do raise additional funds through the issuance of
additional equity or debt securities, it could result in dilution to our
existing stockholders, increased fixed payment obligations and the existence of
securities with rights that may be senior to those of our common stock.
Additionally, if we incur indebtedness, we may become subject to financial or
other covenants that could adversely restrict, impair or affect our ability to
conduct our business, such as requiring us to relinquish rights to certain of
our product candidates or technologies or limiting our ability to acquire, sell
or license intellectual property rights or incur additional debt. Any of these
events could significantly harm our business, operations, financial condition
and prospects. In addition, the full impact of rising inflation rates, global
political and economic instability, the COVID-19 pandemic, and the ongoing
conflict in Ukraine on our business, operations, financial condition and
prospects, and on the global economy, are currently unknown and difficult to
predict, and these events could materially and adversely affect our ability to
raise capital through equity or debt financings in the future.
Our forecast of the period of time through which our existing cash and cash
equivalents and investments will be adequate to support our operations is a
forward-looking statement and involves significant risks and uncertainties. We
have based this forecast on assumptions that may prove to be wrong, and actual
results could vary materially from our expectations, which may adversely affect
our capital resources and liquidity. We could utilize our available capital
resources sooner than we currently expect. The amount and timing of future
funding requirements, both near- and long-term, will depend on many factors,
including, but not limited to:
•
the initiation, timing, progress, size, duration, costs and results of our
clinical trials and preclinical studies for our product candidates;
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•
the number and the nature of product candidates that we pursue;
•
the time to and cost of establishing internal GMP production capabilities to
support the clinical and potential commercial manufacture of our product
candidates at our new corporate headquarters;
•
the cost of GMP production, process and scale-up development and technology
transfer activities for the manufacture of our product candidates, including the
cost of laboratory equipment, materials and supplies to support these
activities;
•
the time, cost and outcome of seeking and obtaining regulatory approvals;
•
the extent to which we are required to pay milestone or other payments under our
existing in-license agreements and any in-license agreements that we may enter
into in the future, and the timing of such payments, including payments owed to
MSK in connection with the stock price appreciation milestones;
•
the extent to which milestones are achieved under our collaboration agreement
with Ono, and any other strategic partnership or collaboration agreements that
we may enter into in the future, and the time to achievement of such milestones
and our receipt of any associated milestone payments;
•
the cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights, including in our ongoing lawsuits against
Shoreline Biosciences, Inc. (Shoreline) and Dr. Dan S. Kaufman (Kaufman), and
the cost of enforcing any of our other contractual rights;
•
the cost of our research and development activities, including our need and
ability to hire additional employees and procure additional equipment, materials
and supplies;
•
the establishment and continuation of collaborations and strategic alliances;
•
the timing and terms of future in-licensing and out-licensing transactions; and
•
the cost of establishing sales, marketing, manufacturing and distribution
capabilities for, and the pricing and reimbursement of, any products for which
we may receive regulatory approval.
In addition, we are closely monitoring inflation rates and global political and
economic conditions, and the ongoing conflict in Ukraine, and evaluating
adjustments to our business and operations, which may negatively impact our
financial condition and prospects and our operating results. We will continue to
assess our operating capital requirements and may make adjustments to our
business and operations if circumstances warrant. If we cannot continue or
expand our research, manufacturing and development operations, or otherwise
capitalize on our business opportunities, because we lack sufficient capital,
our business, operations, financial condition and prospects could be materially
adversely affected.
Contractual Obligations and Commitments
We lease certain office, laboratory, and manufacturing space under
non-cancelable operating leases. In addition to rent, our leases are subject to
certain fixed amenities fees. These leases are also subject to additional
variable charges for common area maintenance, property taxes, property insurance
and other variable costs. See Note 7 of the unaudited condensed consolidated
financial statements for additional detail.
We entered into a license agreement with MSK under which we obtained rights
relating to compositions and methods covering iPSC-derived cellular
immunotherapy, including T-cells and NK-cells derived from iPSCs engineered with
CARs. In the event a licensed product achieves a specified clinical milestone,
MSK is then eligible to receive certain milestone payments totaling up to $75.0
million based on the price of our common stock, where the amount of such
payments owed to MSK are contingent upon certain increases in the price of our
common stock following the date of achievement of such clinical milestone. In
July 2021, we achieved the specified clinical milestone for a licensed product
under the Amended MSK License and our ten-trading day trailing average common
stock price exceeded the first, pre-specified threshold. As a result, we
remitted payment to MSK for the first milestone payment of $20.0 million. See
Note 2 of the unaudited condensed consolidated financial statements for
additional detail surrounding our stock price appreciation milestone
obligations.
We have no material contractual obligations not fully recorded on our unaudited
condensed consolidated balance sheets or fully disclosed in the notes to the
financial statements.
Inflation
Inflation has increased during the periods covered by this Quarterly Report, and
is expected to continue to increase for the near future. Inflationary factors,
such as increases in the prices of material, interest rates and cost of labor
may adversely affect our operating results. Although we do not believe that
inflation has had a material impact on our financial position or results of
operations to date, we may experience some effect in the near future, especially
if inflation rates continue to rise.
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