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, 2021 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, 2022.
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 the development
of programmed cellular immunotherapies for patients with cancer. We are
developing first-in-class cell therapy product candidates based on a simple
notion: we believe that better cell therapies start with better cells.
To create better cell therapies, we use a therapeutic approach that we generally
refer to as cell programming. We use human induced pluripotent stem cells
(iPSCs) to generate a clonal master iPSC line having preferred biological
properties, and we direct the fate of the clonal master iPSC line to create our
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 as a renewable source for
manufacturing cell therapy products which are well-defined and uniform in
composition, can be repeatedly mass produced at significant scale in a
cost-effective manner, and can be delivered off-the-shelf to treat many
patients. Utilizing these therapeutic approaches, we program cells of the blood
and immune system and are advancing a pipeline of programmed cellular
immunotherapies, including off-the-shelf natural killer (NK) and T-cell product
candidates derived from clonal master iPSC lines for the treatment of cancer.
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 with Ono
Pharmaceutical Co. Ltd. (Ono) for the joint development and commercialization of
off-the-shelf, iPSC-derived chimeric antigen receptor (CAR) T-cell product
candidates (Ono Agreement) for the treatment of cancer.
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.
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;
•
conduct 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
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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 agreements with Janssen and 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;
•
establish business operations at our new corporate headquarters, including
internal GMP production capabilities;
•
hire additional clinical, manufacturing, regulatory, quality control and
technical personnel to advance our product candidates;
•
hire additional scientific personnel to advance our research and development
efforts;
•
hire additional personnel to build out our commercialization, marketing and
medical teams; and
•
hire general and administrative personnel to 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 product sales or royalty revenue
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
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.
Due to the global outbreak of SARS-CoV-2, the strain of coronavirus that causes
Coronavirus disease 2019 (COVID-19), we continued to experience impacts on
certain aspects of our business, including our clinical trial, manufacturing,
and research and development activities, during the three months ended March 31,
2022. For example, with the lifting of governmental stay-at-home orders, we have
reopened each of our business locations for work onsite, but have also
implemented flexible work arrangements in the interests of maintaining the
health and safety of our employees. In addition, the COVID-19 pandemic has
impacted the timing of our ongoing clinical studies, with slower site
activation, patient enrollment and treatment in our clinical studies as a result
of precautionary measures taken by some clinical trial sites to protect both
site staff and patients from possible COVID-19 exposure. We have also
experienced delays in obtaining equipment, materials, and supplies needed to
maintain our operations and manufacture our product candidates as a result of
production shortages experienced by our suppliers as a result of the COVID-19
pandemic. The scope and duration of these delays and disruptions, and the
ultimate impacts of the COVID-19 pandemic on our operations, are currently
unknown, and depend on continuously changing circumstances, including the
emergence of new variants of the virus, such as the Delta and Omicron BA.1 and
BA.2 variants. We are continuing to actively monitor the situation and may take
further precautionary and preemptive actions as may be required by federal,
state or local authorities or that we determine are in the best interests of
public health and safety and that of our patient community, employees, partners,
and stockholders. We cannot predict the effects that such actions, or the impact
of the ongoing COVID-19 pandemic, including the emergence of new variants of the
virus, on global business operations and economic conditions, may have on our
business, strategy, collaborations, or financial and operating results.
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. Fate Therapeutics, Inc. owns 100% of the voting shares of Tfinity
Therapeutics, Inc. (Tfinity), incorporated in the United States, 100% of the
voting shares of Fate Therapeutics Ltd. (Fate Ltd.), incorporated in the United
Kingdom, and 100% of the voting shares of Fate Therapeutics B.V. (Fate B.V.),
incorporated in the Netherlands. The following information is presented on a
consolidated basis to include the accounts of Fate Therapeutics, Inc., Tfinity,
Fate B.V., and Fate Ltd. To date, the aggregate operations of our subsidiaries
have not been significant and all intercompany transactions and balances have
been eliminated in consolidation.
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Collaboration Revenue
To date, we have not generated any revenues from therapeutic product sales. Our
revenues have been derived from collaboration agreements and government grants.
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 is an upfront cash payment and $50.0 million is 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.
We concluded that Janssen represented a customer, and in accordance with
Accounting Standards Codification Topic 606, Revenue from Contracts with
Customers (ASC 606), we determined that the initial transaction price under the
Janssen Agreement equals $66.0 million, consisting of the upfront,
non-refundable and non-creditable payment of $50.0 million and the Equity
Premium of $16.0 million. In addition, we identified our potential performance
obligations under the Janssen Agreement, including our grant to Janssen of a
license to certain of our intellectual property subject to certain conditions,
our conduct of research and development services, and our participation in
various joint oversight committees. We determined that our grant of a license to
Janssen and our conduct of research and development services should be accounted
for as one combined performance obligation, and that the combined performance
obligation is transferred over the expected term of the conduct of the research
and development services, which is estimated to be four years. Additionally, we
determined that participation in the various joint oversight committees did not
constitute a performance obligation as our participation in the various joint
oversight committees does not transfer a service.
During the three months ended March 31, 2022, we achieved a second pre-defined
research milestone under the Janssen Agreement and recorded a $3.0 million
receivable.
During the three months ended March 31, 2022, we recognized $15.9 million of
collaboration revenue under the Janssen Agreement. During the three months ended
March 31, 2021, we recognized $8.6 million of collaboration revenue under the
Janssen Agreement, respectively. As of March 31, 2022, aggregate deferred
revenue related to the Janssen Agreement was $45.1 million.
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 are estimated to be $20.0
million in aggregate.
We concluded that Ono represented a customer 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.
On December 4, 2020, we entered into a letter agreement (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 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, together with Ono, we agreed to the termination of the Ono
Agreement with respect to Candidate 1. We retain all rights, in our sole
discretion, to research, develop and commercialize Candidate 1 throughout the
world without any obligation to Ono.
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During the three months ended March 31, 2022, we recognized $2.5 million of
collaboration revenue under the Ono Agreement. During the three months ended
March 31, 2021, 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 the manufacture of our product candidates, research and develop our iPSC
product platform, and perform our obligations under collaboration agreements
including under our agreements with Janssen, 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 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;
•
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 agreements with Janssen and Ono.
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 the ongoing 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 the COVID-19 pandemic or the ongoing
conflict in Ukraine, 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 and
maintaining our intellectual property; and other costs and fees, including
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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 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 (the 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).
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, 2021
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, 2022.
See Note 1 to the unaudited condensed consolidated financial statements for a
summary of critical accounting policies and information related to recent
accounting pronouncements.
Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The following table summarizes the results of our operations for the three
months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended March 31, Increase/
2022 2021 (Decrease)
Collaboration revenue $ 18,414 $ 11,142 $ 7,272
Research and development expense 72,139 44,852 27,287
General and administrative expense 20,742 12,500 8,242
Total other income 8,777 1,121 7,656
Collaboration Revenue. During the three months ended March 31, 2022 and 2021, we
recognized revenue of $18.4 million and $11.1 million, respectively, under our
collaboration agreements with Janssen and Ono.
Research and development expenses. Research and development expenses were $72.1
million for the three months ended March 31, 2022, compared to $44.9 million for
the three months ended March 31, 2021. The increase in research and development
expenses was attributable primarily to the following:
•
$11.8 million increase in employee compensation and benefits expense, including
$4.1 million increase in employee stock-based compensation expense;
•
$7.6 million increase 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
•
$3.9 million increase in third-party professional consultant and clinical trial
related expense.
General and administrative expenses. General and administrative expenses were
$20.7 million for the three months ended March 31, 2022, compared to $12.5
million for the three months ended March 31, 2021. The increase in general and
administrative expenses was attributable primarily to a $5.0 million increase in
employee compensation and benefits expense, including $2.2 million increase in
employee stock-based compensation expense, and a $1.1 million increase in
facility lease and related expenses.
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Other income (expense), net. Other income (expense), net was $8.8 million and
$1.1 million for the three months ended March 31, 2022 and 2021, respectively.
During the three months ended March 31, 2022, we recorded $8.4 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, 2022 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, 2021, we recorded $0.7 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, 2021 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, 2022, we had an accumulated deficit of $834.8 million and we
anticipate that we will continue to incur net losses for the foreseeable future.
Operating Activities
During the three months ended March 31, 2022, cash used in operating activities
was $64.6 million compared to cash used in operating activities of $21.7 million
during the three months ended March 31, 2021. The primary driver of this change
in cash used in operating activities was our increase in net loss. The change in
cash from the period is also attributed to the increase in prepaid expenses and
decrease in accrued liabilities.
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
taken together, we received $100.0 million as of the Janssen Agreement Effective
Date, of which $50.0 million is an upfront cash payment and $50.0 million is 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.
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. Additionally, we are 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 are further
eligible to receive double-digit tiered royalties ranging up to the mid-teens on
net sales of Collaboration Candidates that are commercialized by Janssen under
the Janssen Agreement, subject to reduction under certain circumstances.
During the three months ended March 31, 2022, we achieved a second pre-defined
research milestone under the Janssen Agreement and recorded a $3.0 million
receivable. As of March 31, 2022, no royalties have been paid to us.
In connection with the Janssen Agreement, we have incurred $14.0 million in
sublicense fees to certain of our existing licensors, all of which has been paid
as of March 31, 2022. The $14.0 million in sublicense consideration represents
an asset under ASC 340, Other Assets and Deferred Costs.
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.
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Pursuant to the Ono Agreement, we and Ono are jointly conducting research and
development activities under a joint development plan, with the goal of
advancing Candidate 2 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
Candidate 2 in all territories of the world, with us retaining the right to
co-develop and co-commercialize Candidate 2 in the United States and Europe
under a joint arrangement whereby it is eligible to share at least 50% of the
profits and losses.
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.
Subject to Ono's exercise of its options to obtain exclusive licenses to develop
and commercialize Candidate 2 and to the achievement of certain clinical,
regulatory and commercial milestones in specified territories, we are eligible
to receive an aggregate of up to $885.0 million in milestone payments for
Candidate 2, with the applicable milestone payments for Candidate 2 for the
United States and Europe subject to reduction by 50% if we elect to co-develop
and co-commercialize Candidate 2 as described above. As of March 31, 2022, we
have not received any milestone payments other than the $10.0 million associated
with the Ono Letter Agreement in December 2020. We are also eligible to receive
tiered royalties ranging from the mid-single digits to the low-double digits
based on annual net sales by Ono for Candidate 2 in specified territories, with
such royalties subject to certain reductions. As of March 31, 2022, no royalties
have been paid to us.
In connection with the Ono Agreement and the Ono Letter Agreement, we have
incurred $4.0 million in sublicense fees to certain of our existing licensors.
The $4.0 million in sublicense consideration represents an asset under ASC 340,
Other Assets and Deferred Costs. As of March 31, 2022, all such consideration
has been paid.
Memorial Sloan Kettering Cancer Center License Agreement
On May 15, 2018, we entered into the Amended MSK License with MSK. The Amended
MSK License amends and restates 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 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 the 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.
As of March 31, 2022, we recorded a liability of $15.8 million associated with
the stock price appreciation milestones for the Amended MSK License. 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
payment to MSK of $20.0 million during the year ended December 31, 2021.
Investing Activities
During the three months ended March 31, 2022, investing activities used cash of
$7.0 million compared to cash used by investing activities of $471.9 million
during the three months ended March 31, 2021. The change was primarily
attributable to a decrease in the purchases of investments of $132.2 million
during the three months ended March 31, 2022 compared to the purchase of
investments of $529.9 million during the three months ended March 31, 2021. All
other investing activities for the periods presented were attributable to the
purchase of property and equipment.
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Financing Activities
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.
For the three months ended March 31, 2021, financing activities provided cash of
$438.1 million, which consisted of $432.4 million of net proceeds from our
January 2021 public offering of common stock and issuance of pre-funded warrants
and $5.6 million received from the issuance of common stock from equity
incentive plans pursuant to the exercise of employee stock options.
From our inception through March 31, 2022, 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, 2022, we had aggregate cash and cash equivalents and
investments of $641.7 million.
Public Offering of Common Stock
In January 2021, we completed a public offering of common stock in which
investors, certain of which are affiliated with a director of ours, purchased
5.1 million shares of our common stock at a price of $85.50 per share under a
shelf registration statement. In addition, we issued pre-funded warrants, in
lieu of common stock to certain investors, to purchase 257,310 shares of our
common stock (Pre-Funded Warrants). The purchase price of for the Pre-Funded
Warrants was $85.499 per Pre-Funded Warrant, which equals the per share public
offering price for the shares of common stock less the $0.001 exercise price for
each such Pre-Funded Warrant. See Note 8 for additional detail. Gross proceeds
from the public offering and the issuance of the Pre-Funded Warrants were $460.0
million. After giving effect to $27.6 million in underwriting discounts,
commissions and expenses related to the public offering and the issuance of
Pre-Funded Warrants, net proceeds were $432.4 million.
California Institute for Regenerative Medicine Award
On April 5, 2018, we executed an award agreement with the 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). Pursuant to the terms of the Award,
we are eligible to receive five disbursements in varying amounts totaling $4.0
million throughout the project period of the Award. In November 2019, we
submitted an IND application for FT516 in advanced solid tumors. As of March 31,
2022, we have received aggregate disbursements under the Award in the amount of
$4.0 million.
The Award is subject to certain co-funding requirements by us. We, in our sole
discretion, have the option to treat the Award either as a loan or as a grant.
In the event we elect to treat the Award as a loan, we will be obligated to
repay i) 60%, ii) 80%, iii) 100% or iv) 100% plus interest at 7% plus LIBOR, of
the total Award to CIRM, where such repayment rate is dependent upon the phase
of clinical development of FT516 at the time of our election. If we do not elect
to treat the Award as a loan within 10 years of the date of the Award, the Award
will be considered a grant and we will be obligated to pay to CIRM a royalty on
commercial sales of FT516 until such royalty payments equal nine times the total
amount awarded to us under the Award.
Registration Statement 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 agreements with Janssen and Ono. Our product
candidates have not yet achieved regulatory approval and we may not be
successful in achieving commercialization of our product candidates.
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We believe our existing cash and cash equivalents and investments as of March
31, 2022 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. 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 the COVID-19 pandemic 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, while the full impact of 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, the pandemic has caused significant disruptions and created
uncertainties in the global financial markets, and the economic impacts of the
pandemic 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;
•
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 agreements
with Ono and Janssen, 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;
•
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.
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In addition, we are closely monitoring ongoing developments in connection with
the COVID-19 pandemic 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 fees. The 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 surrounding our lease obligations.
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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