FATE THERAPEUTICS, INC. 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 endedDecember 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 theSecurities and Exchange Commission onFebruary 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
InSeptember 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. InJune 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 Amendment, Ono agreed to provide novel binding domains targeting a second solid tumor antigen under the collaboration. InApril 2020 , we entered into a collaboration and option agreement withJanssen 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 inDelaware in 2007, and are headquartered inSan 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: 26 --------------------------------------------------------------------------------
•
conduct our ongoing and planned clinical trials of our product candidates, which may include higher clinical trial expenses associated with arrangements we enter into with clinical research organizations (CROs) for the execution and management of certain clinical trials, including trials outside ofthe United States ;
•
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 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;
•
build out business operations at our 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, royalty revenue, 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 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 nine months endedSeptember 30, 2022 . For example, the COVID-19 pandemic has continued to impact the timing of our ongoing clinical studies, with slower site activation, patient enrollment and treatment in certain of 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 also continue to experience delays in obtaining equipment, materials, and supplies needed to conduct our clinical trials, 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, remain uncertain, and depend on continuously changing circumstances, including the emergence of new variants of the virus. 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 throughFate Therapeutics, Inc. , aDelaware corporation, at our facilities headquartered inSan 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. 27 --------------------------------------------------------------------------------
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
OnApril 2, 2020 (the Janssen Agreement Effective Date), we entered into a Collaboration and Option Agreement (the Janssen Agreement) withJanssen 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) withJohnson & 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 certain units of account within the Janssen Agreement represented a customer relationship, 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 nine months ended
During the nine months endedSeptember 30, 2022 , Janssen elected to exercise a commercial option for a development candidate with respect to a particular Janssen Antigen (as defined under the Janssen Agreement), and as a result, we earned and received an Option Exercise Payment (as defined under the Janssen Agreement) of$10.0 million cash under the Janssen Agreement. During the period, Janssen also provided their intent to exercise a second commercial option for a development candidate with respect to a particular Janssen Antigen. This option exercise is subject to Competition Law Filings, and therefore the exercise effective date will be deemed to be the Clearance Date. After the exercise effective date, Janssen will owe us an Option Exercise Payment of$10.0 million under the Janssen Agreement. During the three and nine months endedSeptember 30, 2022 , we recognized$14.2 million and$48.3 million , respectively, of collaboration revenue under the Janssen Agreement. During the three and nine months endedSeptember 30, 2021 , we recognized$11.2 million and$30.7 million , respectively, of collaboration revenue under the Janssen Agreement, respectively. As ofSeptember 30, 2022 , aggregate deferred revenue related to the Janssen Agreement was$47.2 million .
Agreement with Ono Pharmaceutical Co., Ltd.
OnSeptember 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 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. 28 -------------------------------------------------------------------------------- OnDecember 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. OnJune 28, 2022 , we entered into an amendment to the Ono Agreement (the Ono Amendment). Pursuant to the Ono Amendment, the scope of the collaboration was expanded to include the research and development of CAR-targeted natural killer (NK) cell candidates derived from engineered master induced pluripotent stem cells (iPSC). Additionally, pursuant to the Ono Amendment, Ono will contribute novel binding domains targeting a second solid tumor antigen (Candidate 3). We will continue to receive committed research and development funding from Ono throughSeptember 2024 , and we are jointly conducting research and development activities under a joint development plan, with the goal of advancing collaboration candidates targeting such solid tumor antigen to a pre-defined preclinical milestone. 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. During the three and nine months endedSeptember 30, 2022 , we recognized$0.8 million and$3.7 million , respectively, of collaboration revenue under the Ono Agreement. During the three and nine months endedSeptember 30, 2021 , we recognized$3.0 million and$8.1 million , respectively, 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 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;
29
--------------------------------------------------------------------------------•
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 inUkraine 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 inUkraine , 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 andSEC 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 datedMay 15, 2018 (the Amended MSK License) withMemorial 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 withUnited 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 endedDecember 31, 2021 continue to be our critical accounting policies and there have been no other material changes to our critical accounting policies during the nine months endedSeptember 30, 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.
30
--------------------------------------------------------------------------------Results of Operations
Comparison of the Three Months Ended
The following table summarizes the results of our operations for the three
months ended
Three Months Ended
2022 2021 (Decrease)
Collaboration revenue $ 14,981 $ 14,225 $ 756
Research and development expense 79,817 53,130 26,687
General and administrative expense 21,555 15,718 5,837
Total other income (expense) 2,828 11,315 (8,487 )
Collaboration Revenue. During the three months ended
Research and development expenses. Research and development expenses were$79.8 million for the three months endedSeptember 30, 2022 , compared to$53.1 million for the three months endedSeptember 30, 2021 . The increase in research and development expenses was attributable primarily to the following:
•
•
•
General and administrative expenses. General and administrative expenses were$21.6 million for the three months endedSeptember 30, 2022 , compared to$15.7 million for the three months endedSeptember 30, 2021 . The increase in general and administrative expenses was attributable primarily to a$3.6 million increase in employee compensation and benefits expense, including a$2.1 million increase in employee stock-based compensation expense, and a$2.3 million increase in patent and legal expenses. Other income (expense), net. Other income (expense), net was$2.8 million and$11.3 million for the three months endedSeptember 30, 2022 and 2021, respectively. During the three months endedSeptember 30, 2022 , we recorded$0.9 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 endedSeptember 30, 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 endedSeptember 30, 2021 , we recorded$11.0 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 endedSeptember 30, 2021 also consisted of interest income earned on cash and cash equivalents and interest income from investments (including the amortization of discounts and premiums).
Comparison of the Nine Months Ended
The following table summarizes the results of our operations for the nine months
ended
Nine Months Ended
2022 2021 (Decrease)
Collaboration revenue $ 51,944 $ 38,777 $ 13,167
Research and development expense 233,263 146,004 87,259
General and administrative expense 62,648 40,385 22,263
Total other income (expense) 18,609 4,082 14,527
Collaboration Revenue. During the nine months endedSeptember 30, 2022 and 2021, we recognized revenue of$51.9 million and$38.8 million , respectively, under our collaboration agreements with Janssen and Ono. 31 -------------------------------------------------------------------------------- Research and development expenses. Research and development expenses were$233.3 million for the nine months endedSeptember 30, 2022 , compared to$146.0 million for the nine months endedSeptember 30, 2021 . The increase in research and development expenses was attributable primarily to the following:
•
•
•
$21.1 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. General and administrative expenses. General and administrative expenses were$62.6 million for the nine months endedSeptember 30, 2022 , compared to$40.4 million for the nine months endedSeptember 30, 2021 . The increase in general and administrative expenses was attributable primarily to a$12.9 million increase in employee compensation and benefits expense, including$6.6 million increase in employee stock-based compensation expense, and$3.5 million increase in patent and legal expenses. Other income (expense), net. Other income (expense), net was$18.6 million and$4.1 million for the nine months endedSeptember 30, 2022 and 2021, respectively. During the nine months endedSeptember 30, 2022 we recorded$15.1 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 nine months endedSeptember 30, 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 nine months endedSeptember 30, 2021 , we recorded$3.1 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 nine months endedSeptember 30, 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 ofSeptember 30, 2022 , we had an accumulated deficit of$994.4 million and we anticipate that we will continue to incur net losses for the foreseeable future.
Operating Activities
During the nine months endedSeptember 30, 2022 , cash used in operating activities was$172.8 million compared to cash used in operating activities of$92.6 million during the nine months endedSeptember 30, 2021 . The primary driver of this change in cash used in operating activities was our increase in net loss, partially offset by an increase in non-cash stock-based compensation expense.
Agreement with
OnApril 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 firstJanssen 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 firstJanssen 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 applicableJanssen 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 inthe 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 nine months endedSeptember 30, 2022 , we achieved two additional research milestones under the Janssen Agreement and received a$3.0 million cash payment per milestone, for a total of$6.0 million . Additionally, during the nine months 32 --------------------------------------------------------------------------------
ended
In connection with the Janssen Agreement, we have incurred
Agreement with Ono Pharmaceutical Co., Ltd.
OnSeptember 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. OnDecember 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 inDecember 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. OnJune 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 inthe United States andEurope under a joint arrangement whereby we are eligible to share at least 50% of the profits and losses (the Option). Under the terms of the Ono Amendment, subject to Ono's exercise of the Option for 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 forthe United States andEurope subject to reduction by 50% if the Company elects to co-develop and co-commercialize the Candidate as described above. As ofSeptember 30, 2022 , we have not received any milestone payments other than the$10.0 million associated with the Ono Letter Agreement inDecember 2020 . 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 ofSeptember 30, 2022 , no royalties have been paid to us. In connection with the Ono Agreement, Ono Letter Agreement, and Ono Amendment, 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 ofSeptember 30, 2022 , all such consideration has been paid.
Memorial Sloan Kettering Cancer Center License Agreement
OnMay 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 onAugust 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 33 -------------------------------------------------------------------------------- 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 ofSeptember 30, 2022 , we recorded a liability of$9.0 million associated with the stock price appreciation milestones for the Amended MSK License. InJuly 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 endedDecember 31, 2021 .
Investing Activities
During the nine months endedSeptember 30, 2022 , investing activities provided cash of$113.6 million compared to cash used by investing activities of$395.3 million during the nine months endedSeptember 30, 2021 . The change was primarily attributable to a decrease in the purchases of investments of$297.7 million during the nine months endedSeptember 30, 2022 compared to the purchase of investments of$794.7 million during the nine months endedSeptember 30, 2021 . All other investing activities for the periods presented were attributable to the purchase of property and equipment.
Financing Activities
For the nine months endedSeptember 30, 2022 , financing activities provided cash of$7.7 million , which primarily consisted of the issuance of common stock from equity incentive plans pursuant to the exercise of employee stock options. For the nine months endedSeptember 30, 2021 , financing activities provided cash of$449.7 million , which consisted of$432.4 million of net proceeds from ourJanuary 2021 public offering of common stock and issuance of pre-funded warrants and$17.3 million received from the issuance of common stock from equity incentive plans pursuant to the exercise of employee stock options. From our inception throughSeptember 30, 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 ofSeptember 30, 2022 , we had aggregate cash and cash equivalents and investments of$519.1 million .
Public Offering of Common Stock
InJanuary 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 .
OnApril 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. InNovember 2019 , we submitted an IND application for FT516 in advanced solid tumors. As ofSeptember 30, 2022 , we have received aggregate disbursements under the Award in the amount of$4.0 million . 34 -------------------------------------------------------------------------------- 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
InNovember 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 withJefferies 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. We believe our existing cash and cash equivalents and investments as ofSeptember 30, 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, inflation rates and global economic conditions, and the ongoing conflict inUkraine . 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, inflation rates, and the ongoing conflict inUkraine 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, rising inflation rates and global economic conditions, or the Ukrainian conflict could materially and adversely affect our ability to raise capital through equity or debt financings in the future. 35 -------------------------------------------------------------------------------- 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, including in our ongoing lawsuits againstShoreline 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 ongoing developments in connection with the COVID-19 pandemic, inflation rates and global economic conditions, and the ongoing conflict inUkraine 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. InJuly 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. 36 -------------------------------------------------------------------------------- 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.
© Edgar Online, source
