You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and related notes included under Item 8 of this Annual Report on Form 10-K. The
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those expressed
or implied in any forward-looking statements as a result of various factors,
including those set forth under the caption "Item 1A. Risk Factors."
This section of this Form 10-K generally discusses 2022 and 2021 items and
year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and
year-to-year comparisons between 2021 and 2020 that are not included in this
Form 10-K can be found in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II, Item 7 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with
the Securities and Exchange Commission on February 28, 2022 and incorporated
herein by reference.
Overview
We are a clinical-stage biopharmaceutical company dedicated to bringing a
first-in-class pipeline of programmed cellular immunotherapies to patients with
cancer and autoimmune disorders. Our development of first-in-class cell therapy
product candidates is based on a simple notion: we believe that better cell
therapies start with better cells.
To create better cell therapies, we have pioneered a therapeutic approach that
we generally refer to as cell programming: we create and engineer human induced
pluripotent stem cells (iPSCs) to incorporate novel synthetic controls of cell
function; we generate a clonal master iPSC line for use as a renewable source of
cell manufacture; and we direct the fate of the clonal master iPSC line to
produce our first-in-class cell therapy product candidate. Analogous to master
cell lines used to manufacture biopharmaceutical drug products such as
monoclonal antibodies, we believe clonal master iPSC lines can be used to mass
produce multiplexed-engineered cellular immunotherapies which are well-defined
and uniform in composition, can be stored in inventory for off-the-shelf
availability, can be combined and administered with other therapies, and can
have broader patient reach.
Utilizing this therapeutic approach, we are advancing a cell therapy pipeline
comprised of off-the-shelf, multiplexed-engineered, iPSC-derived natural killer
(NK) and T-cell product candidates that are selectively designed, incorporate
novel synthetic controls of cell function, and are intended to deliver multiple
mechanisms of therapeutic importance to patients for the treatment of cancer and
autoimmune disease.
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 CAR T-cell product candidates (Ono Agreement) for
the treatment of cancer. In June 2022, we entered into an amendment (Ono
Amendment) to the Ono Agreement to expand the collaboration to include the
research and development of off-the-shelf, iPSC-derived CAR NK-cell product
candidates and pursuant to the Ono Agreement, Ono agreed to provide novel
binding domains targeting a second solid tumor antigen under the collaboration.
In April 2020, we entered into a collaboration and option agreement with Janssen
Biotech, Inc. (Janssen), part of the Janssen Pharmaceutical Companies of Johnson
& Johnson (Janssen Agreement), for the development and commercialization of
off-the-shelf, iPSC-derived CAR NK and CAR T-cell product candidates for the
treatment of cancer. On January 3, 2023, we received notice of termination from
Janssen of the Janssen Agreement. During 2022, Janssen had exercised a
commercial option for two collaboration candidates: an iPSC-derived,
CAR-targeted NK cell product candidate for the treatment of B-cell lymphoma, for
which the U.S. Food and Drug Administration (the FDA) allowed an Investigational
New Drug (IND) application in December 2022; and an iPSC-derived, CAR-targeted
NK cell product candidate for the treatment of multiple myeloma, for which the
companies were preparing to submit an IND application to the FDA in early 2023.
In addition, the companies were researching and preclinically developing two
iPSC-derived, CAR-targeted T-cell programs for the treatment of solid tumors.
The termination of the Janssen Agreement will take effect on April 3, 2023 and,
during the first quarter of 2023, we will wind down our activities with Janssen,
including discontinuing development of all collaboration products.
As a result of the termination of the Janssen collaboration and the NK cell
program prioritization, during the first quarter of 2023 we are reducing our
workforce to approximately 220 employees. We expect that we will incur charges
of approximately $12 million to $16 million for severance and other employee
termination-related costs in the first quarter of 2023. The restructuring is
expected to extend our cash runway into the second half of 2025.
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
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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
into with clinical research organizations (CROs) for the execution and
management of certain clinical trials, including trials outside of the United
States;
•
conduct Good Manufacturing Practice (GMP) production, including through the use
of contract manufacturing organizations (CMOs) for the conduct of some or all of
the activities required for manufacturing our iPSC-derived cell product
candidates, process and scale-up development and technology transfer activities
for the manufacture of our product candidates, including those undergoing
clinical investigation and IND-enabling preclinical development;
•
procure laboratory equipment, materials and supplies for the manufacture of our
product candidates and the conduct of our research activities;
•
conduct preclinical and clinical research to investigate the therapeutic
activity of our product candidates;
•
continue our research, development and manufacturing activities, including under
our sponsored research and collaboration agreement with Ono;
•
maintain, prosecute, protect, expand and enforce our intellectual property
portfolio;
•
engage with regulatory authorities for the development of, and seek regulatory
approvals for, our product candidates;
•
build out business operations at our corporate headquarters, including internal
GMP production capabilities;
•
continue to implement the corporate restructuring and reduction in force that we
announced in January 2023; and
•
continue operating as a public company and support our operations and develop
commercial infrastructure for potential commercialization of our product
candidates.
We do not expect to generate any meaningful revenues from product sales,
royalties, or sales milestones unless and until we successfully complete
development and obtain regulatory approval for one or more of our product
candidates, which we expect will take a number of years. If we obtain regulatory
approval for any of our product candidates, we expect to incur significant
commercialization expenses related to product sales, marketing, manufacturing
and distribution. Accordingly, we will seek to fund our operations through
public or private equity or debt financings, collaboration arrangements, or
other sources. However, we may be unable to raise additional funds or enter into
such other arrangements when needed on favorable terms or at all. Our failure to
raise capital or enter into such other arrangements when needed would have a
negative effect on our financial condition and ability to develop our product
candidates.
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 year ended December 31,
2022. For example, 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 in connection with 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 continue to monitor the impact of the COVID-19 pandemic on our
business 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. For more information regarding the risks
and uncertainties associated with the evolving effects of COVID-19 on our
business, our preclinical and clinical development and regulatory efforts, refer
to Part I Item 1A. Risk Factors.
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Financial Operations Overview
We conduct substantially all of our activities through Fate Therapeutics, Inc.,
a Delaware corporation, at our facilities headquartered in San Diego,
California. The results of operations include the operations of the Company and
its subsidiaries. To date, the aggregate operations of our subsidiaries have not
been significant and all intercompany transactions and balances have been
eliminated in consolidation.
Collaboration Revenue
To date, we have not generated any revenues from therapeutic product sales or
royalties. Our revenues have been derived from collaboration agreements and
government grants.
Agreement with Janssen Biotech, Inc.
On April 2, 2020 (the Janssen Agreement Effective Date), we entered into a
Collaboration and Option Agreement (the Janssen Agreement) with Janssen Biotech,
Inc. (Janssen), part of the Janssen Pharmaceutical Companies of Johnson &
Johnson. Additionally, on the Janssen Agreement Effective Date, we entered into
a Stock Purchase Agreement (the Stock Purchase Agreement) with Johnson & Johnson
Innovation - JJDC, Inc. (JJDC). Under the terms of the Janssen Agreement and the
Stock Purchase Agreement taken together, we received $100.0 million, of which
$50.0 million was an upfront cash payment and $50.0 million was in the form of
an equity investment by JJDC. Additionally, we are entitled to receive fees for
the conduct of all research, preclinical development and IND-enabling activities
performed by us under the Janssen Agreement.
We determined the common stock purchase by JJDC represented a premium of $9.93
per share, or $16.0 million in aggregate (the Equity Premium), and the remaining
$34.0 million was recorded as issuance of common stock in shareholders' equity.
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 year ended December 31, 2022, we achieved two pre-defined research
milestones under the Janssen Agreement and received a cash payment of $3.0
million per milestone achieved, for a total of $6.0 million received.
During the year ended December 31, 2022, Janssen elected to exercise a
commercial option for two separate development candidates with respect to two
particular Janssen Antigens (as defined under the Janssen Agreement), and as a
result, we received one of the Option Exercise Payments (as defined under the
Janssen Agreement) of $10.0 million cash, and are entitled to receive an
additional Option Exercise Payment (as defined under the Janssen Agreement) of
$10.0 million.
During the year ended December 31, 2022, we filed an IND for the second antigen,
development candidate, which was cleared by the FDA on December 15, 2022.
Accordingly, we achieved a pre-defined clinical development milestone under the
Janssen Agreement and are entitled to receive a $3.0 million payment from
Janssen.
During the year ended December 31, 2022, we recognized $79.7 million of
collaboration revenue under the Janssen Agreement. During the year ended
December 31, 2021, we recognized $43.7 million of collaboration revenue under
the Janssen Agreement. As of December 31, 2022, aggregate deferred revenue
related to the Janssen Agreement was $41.2 million.
On January 3, 2023, we received notice of termination from Janssen of the
Janssen Agreement. The termination will take effect on April 3, 2023 and, during
the first quarter of 2023, we will wind down our activities with Janssen,
including discontinuing development of all collaboration products. Under the
terms of the Janssen Agreement, in connection with the termination, (i) all
licenses and other rights granted to either party pursuant to the Janssen
Agreement will terminate, subject to limited exceptions set forth in the Janssen
Agreement; (ii) both parties will wind down any development, commercialization
and manufacturing activities under the Janssen Agreement; (iii) neither party
will have any right to continue to develop, manufacture or commercialize any
collaboration candidate or collaboration product or use the other party's
materials; and (iv) neither party is restricted from independently developing,
manufacturing, or commercializing any product, including any products directed
to the same antigens as those of any collaboration candidate or collaboration
product. We expect to recognize the remaining amount of deferred revenue of
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$41.2 million and any payments from Janssen for wind down activities, which
cannot currently be estimated, during the first quarter of 2023.
Agreement with Ono Pharmaceutical Co., Ltd.
On September 14, 2018, we entered into a Collaboration and Option Agreement (the
Ono Agreement) with Ono for the joint development and commercialization of two
off-the-shelf iPSC-derived CAR T-cell product candidates (Candidate 1 and
Candidate 2). Pursuant to the terms of the Ono Agreement, we received an
upfront, non-refundable and non-creditable payment of $10.0 million.
Additionally, we are entitled to receive fees for the conduct of research and
development under a joint development plan, which fees were estimated to be
$20.0 million in aggregate.
We concluded that certain units of account within the Ono Agreement represented
a customer relationship and in accordance with ASC 606, we determined that the
initial transaction price under the Ono Agreement equals $30.0 million,
consisting of the upfront, non-refundable and non-creditable payment of $10.0
million and the aggregate estimated research and development fees of $20.0
million. In addition, we identified our performance obligations under the Ono
Agreement, including our grant to Ono of a license to certain of our
intellectual property subject to certain conditions, our conduct of research
services, and our participation in a joint steering committee. We determined
that all performance obligations should be accounted for as one combined
performance obligation since no individual performance obligation is distinct,
and that the combined performance obligation is transferred over the expected
term of the conduct of the research services, which is estimated to be four
years.
In December 2020, we entered into a letter agreement with Ono pursuant to which
Ono delivered proprietary antigen binding domains targeting an antigen expressed
on certain solid tumors for incorporation into Candidate 2 and paid the Company
a milestone fee of $10.0 million for further research and development of
Candidate 2. In addition, Ono terminated all further research and development
with respect to Candidate 1, and we retained all rights to research, develop and
commercialize Candidate 1 throughout the world without any obligation to Ono.
In June 2022, we entered into an amendment with Ono to the Ono Agreement (the
Ono Amendment). Pursuant to the Ono Amendment, the companies agreed to designate
an additional antigen expressed on certain solid tumors for research and
preclinical development, and Ono agreed to contribute proprietary antigen
binding domains targeting such additional solid tumor antigen (Candidate 3). In
addition, for both Candidate 2 and Candidate 3, the companies expanded the scope
of the collaboration to include the research and development of iPSC-derived CAR
NK cell product candidates (in addition to iPSC-derived CAR T-cell product
candidates) targeting the designated solid tumor antigens. Similar to Candidate
2, we granted to Ono, during a specified period of time, a preclinical option to
obtain an exclusive license under certain intellectual property rights, subject
to payment of an option exercise fee to us by Ono, to develop and commercialize
Candidate 3 in all territories of the world, where we retain rights to
co-develop and co-commercialize Candidate 3 in the United States and Europe
under a joint arrangement with Ono under which we are eligible to share at least
50% of the profits and losses. We maintained worldwide rights of manufacture for
Candidate 3. The preclinical option expires upon the earlier of: (a) September
30, 2024, or (b) the achievement of the pre-defined preclinical milestone under
the joint development plan for Candidate 3. Subject to payment of an extension
fee by Ono, Ono may choose to defer its decision to exercise the preclinical
option until no later than June 2026. Under the Ono Amendment, aggregate
estimated research and development fees have been increased by approximately
$9.3 million, for a total estimated $29.3 million in aggregate research and
development fees over the course of the joint development plan.
In November 2022, Ono exercised its preclinical option to Candidate 2, and we
exercised our preclinical option to co-develop and co-commercialize (CDCC
Option) in the United States and Europe under a joint arrangement with Ono. As a
result, we are entitled to an option exercise fee of $12.5 million from Ono.
During the years ended December 31, 2022 and 2021, we recognized $16.6 million
and $12.1 million, respectively, of collaboration revenue under the Ono
Agreement. As of December 31, 2022, aggregate deferred revenue related to the
Ono Agreement and Ono Letter Agreement was $1.1 million.
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;
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•
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 Ono, University of Minnesota, and MSK. Our
current planned research and development activities over the next twelve months
consist primarily of the following:
•
conducting clinical trials of our product candidates, including through the
engagement of CROs to manage various aspects of our clinical trials;
•
conducting GMP production, including through the use of CMOs for the conduct of
some or all of the activities required for manufacturing our iPSC-derived cell
product candidates, process and scale-up development and technology transfer
activities for the manufacture of our product candidates, including those
undergoing clinical investigation and IND-enabling preclinical development;
•
procuring laboratory equipment, materials and supplies for the manufacture of
our product candidates and the conduct of our research activities;
•
conducting preclinical and clinical research to investigate the therapeutic
activity of our product candidates; and
•
conducting research, development and manufacturing activities, including under
our sponsored research and collaboration agreement with Ono.
Due to the inherently unpredictable nature of preclinical and clinical
development and manufacture, and given our novel therapeutic approach and the
current stage of development of our product candidates, we cannot determine and
are unable to estimate with certainty the timelines we will require and the
costs we will incur for the development and manufacture of our product
candidates. Clinical and preclinical development and manufacturing timelines and
costs, and the potential of development and manufacturing success, can differ
materially from expectations. In addition, we cannot forecast which product
candidates may be subject to future collaborations, when such arrangements will
be secured, if at all, and to what degree such arrangements would affect our
development and manufacturing plans and capital requirements. We cannot predict
the effects of the impact of global economic and market conditions, the 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 these or other factors, including as a result of actions we take in the near
term to ensure business continuity and protect against possible supply chain
shortages.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and
employee-related costs, including stock-based compensation, for our employees in
executive, operational, finance and human resource functions; professional fees
for accounting, legal and tax services; costs for obtaining, prosecuting,
maintaining, and enforcing our intellectual property; and other costs and fees,
including director and officer insurance premiums, to support our operations as
a public company. We anticipate that our general and administrative expenses
will increase in the future as we increase our research and development
activities, maintain compliance with exchange listing and SEC requirements,
protect and enforce our intellectual property, and continue to operate as a
public company.
Other Income (Expense)
Other income (expense) consists of changes in the fair value of stock price
appreciation milestones associated with the Amended and Restated Exclusive
License Agreement dated May 15, 2018 (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).
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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 financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these 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, 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.
While our significant accounting policies are described in more detail in the
notes to our financial statements appearing elsewhere in this Annual Report on
Form 10-K, we believe that the following critical accounting policies reflect
the more significant procedures, estimates and assumptions used in the
preparation of our consolidated financial statements.
Collaborative Arrangements
We analyze our collaboration arrangements to assess whether they are within the
scope of ASC Topic 808, Collaborative Arrangements ("ASC 808"), to determine
whether such arrangements involve joint operating activities performed by
parties that are both active participants in the activities and exposed to
significant risks and rewards that are dependent on the commercial success of
such activities. To the extent the arrangement is within the scope of ASC 808,
we assess whether aspects of the arrangement with our collaboration partners are
within the scope of other accounting literature, including ASC Topic 606,
Revenue from Contracts with Customers ("ASC 606"). If it is concluded that some
or all aspects of the arrangement represent a transaction with a customer, we
will account for those aspects of the arrangement within the scope of ASC 606.
ASC 808 provides guidance for the presentation and disclosure of transactions in
collaborative arrangements, but it does not provide recognition or measurement
guidance. Therefore, if we conclude a counterparty to a transaction is not a
customer or otherwise not within the scope of ASC 606, we considers the guidance
in other accounting literature as applicable or by analogy to account for such
transaction. The classification of transactions under our arrangements is
determined based on the nature and contractual terms of the arrangement along
with the nature of the operations of the participants.
Revenue Recognition
We recognize revenue in a manner that depicts the transfer of control of a
product or a service to a customer and reflects the amount of the consideration
we are entitled to receive in exchange for such product or service. In doing so,
we follow a five-step approach: (i) identify the contract with a customer, (ii)
identify the performance obligations in the contract, (iii) determine the
transaction price, (iv) allocate the transaction price to the performance
obligations, and (v) recognize revenue when (or as) the customer obtains control
of the product or service. We consider the terms of a contract and all relevant
facts and circumstances when applying the revenue recognition standard. We apply
the revenue recognition standard, including the use of any practical expedients,
consistently to contracts with similar characteristics and in similar
circumstances.
A customer is a party that has entered into a contract with us, where the
purpose of the contract is to obtain a product or a service that is an output of
our ordinary activities in exchange for consideration. To be considered a
contract, (i) the contract must be approved (in writing, orally, or in
accordance with other customary business practices), (ii) each party's rights
regarding the product or the service to be transferred can be identified, (iii)
the payment terms for the product or the service to be transferred can be
identified, (iv) the contract must have commercial substance (that is, the risk,
timing or amount of future cash flows is expected to change as a result of the
contract), and (v) it is probable that we will collect substantially all of the
consideration to which we are entitled to receive in exchange for the transfer
of the product or the service.
A performance obligation is defined as a promise to transfer a product or a
service to a customer. We identify each promise to transfer a product or a
service (or a bundle of products or services, or a series of products and
services that are substantially the same and have the same pattern of transfer)
that is distinct. A product or a service is distinct if both (i) the customer
can benefit from the product or the service either on its own or together with
other resources that are readily available to the customer and (ii) our promise
to transfer the product or the service to the customer is separately
identifiable from other promises in the contract. Each distinct promise to
transfer a product or a service is a unit of accounting for revenue recognition.
If a promise to transfer a product or a service is not separately identifiable
from other promises in the contract, such promises should be combined into a
single performance obligation.
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The transaction price is the amount of consideration we are entitled to receive
in exchange for the transfer of control of a product or a service to a customer.
To determine the transaction price, we consider the existence of any significant
financing component, the effects of any variable elements, noncash
considerations and consideration payable to the customer. If a significant
financing component exists, the transaction price is adjusted for the time value
of money. If an element of variability exists, we must estimate the
consideration we expect to receive and use that amount as the basis for
recognizing revenue as the product or the service is transferred to the
customer. There are two methods for determining the amount of variable
consideration: (i) the expected value method, which is the sum of
probability-weighted amounts in a range of possible consideration amounts, and
(ii) the mostly likely amount method, which identifies the single most likely
amount in a range of possible consideration amounts.
If a contract has multiple performance obligations, we allocate the transaction
price to each distinct performance obligation in an amount that reflects the
consideration we are entitled to receive in exchange for satisfying each
distinct performance obligation. For each distinct performance obligation,
revenue is recognized when (or as) we transfer control of the product or the
service applicable to such performance obligation.
In those instances where we first receive consideration in advance of satisfying
its performance obligation, we classify such consideration as deferred revenue
until (or as) we satisfy such performance obligation. In those instances where
we first satisfy our performance obligation prior to our receipt of
consideration, the consideration is recorded as accounts receivable.
We expense incremental costs of obtaining and fulfilling a contract as and when
incurred if the expected amortization period of the asset that would be
recognized is one year or less, or if the amount of the asset is immaterial.
Otherwise, such costs are capitalized as contract assets if they are incremental
to the contract and amortized to expense proportionate to revenue recognition of
the underlying contract.
Stock Price Appreciation Milestones
We estimate the fair value of the stock price appreciation milestones under the
Amended MSK License using a Monte Carlo simulation model, which relies on our
current stock price at the end of each quarter as well as significant estimates
and assumptions to determine the estimated liability associated with the
contingent milestone payments. We account for the fair value of the stock price
appreciation milestones in accordance with ASC 815, Derivatives and Hedging,
with fair value marked to market. The assumptions used to calculate the fair
value of the stock price appreciation milestones are subject to a significant
amount of judgment including the assessment of achieving a specified clinical
milestone, the expected volatility of our common stock, the risk-free interest
rate and the estimated term, which is based in part on the last valid patent
claim date. We achieved the specified clinical milestone in July 2021 and met
the first milestone during fiscal 2021. Accordingly, we remitted a payment to
MSK of $20.0 million in the year ended December 31, 2021. We remeasure the fair
value of the remaining stock price appreciation milestones at each balance sheet
date, with changes in fair value recorded in earnings as a non-operating income
or expense.
Accrued Research and Development Expenses
As part of the process of preparing our financial statements, we are required to
estimate our accrued expenses. This process involves reviewing open contracts
and purchase orders, communicating with our personnel to identify services that
have been performed on our behalf and estimating the level of service performed
and the associated cost incurred for the service when we have not yet been
invoiced or otherwise notified of the actual cost. The majority of our service
providers invoice us monthly in arrears for services performed or when
contractual milestones are met. We make estimates of our accrued expenses as of
each balance sheet date in our financial statements based on facts and
circumstances known to us at that time. We periodically confirm the accuracy of
our estimates with the service providers and make adjustments if necessary.
Examples of accrued research and development expenses include amounts owed to
clinical research organizations, to investigative sites in connection with
clinical trials, to sponsored research organizations, to service providers in
connection with preclinical development activities and to service providers
related to product manufacturing, development and distribution of clinical
supplies.
We base our accrued expenses related to clinical trials on our estimates of the
services performed and efforts expended pursuant to our contractual
arrangements, including those with clinical research organizations. The
financial terms of these agreements are sometimes subject to negotiation, vary
from contract to contract and may result in uneven payment flows. There may be
instances in which payments made to our service providers will exceed the level
of services performed and result in a prepayment of the clinical expense.
Payments under some of these contracts depend on factors such as the successful
enrollment of patients and the completion of clinical milestones. In accruing
service fees, we estimate the time period over which services will be performed
and the level of effort to be expended in each period. If the actual timing of
the performance of services or the level of effort varies from our estimate, we
adjust the accrual or prepaid accordingly.
Although we do not expect our estimates to be materially different from expenses
actually incurred, if our estimates of the status and timing of services
performed differs from the actual status and timing of services performed, we
may report amounts that are too
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high or too low in any particular period. To date, there have been no material
differences from our estimates to the amounts actually incurred.
Stock-Based Compensation
Stock-based compensation expense represents the grant date fair value of
employee stock option and restricted stock unit grants recognized over the
requisite service period of the awards (usually the vesting period) on a
straight-line basis. Performance-based stock units/awards represent a right to
receive a certain number of shares of common stock based on the achievement of
corporate performance goals and continued employment during the vesting period.
At each reporting period, and to the extent achievement of one or any of the
performance conditions is probable, we reassess the probability of the
achievement of such corporate performance goals and any increase or decrease in
share-based compensation expense resulting from an adjustment in the estimated
shares to be released is treated as a cumulative catch-up in the period of
adjustment.
We estimate the fair value of stock option grants using the Black-Scholes option
pricing model, with the exception of option grants with both performance-based
milestones and market conditions, which are valued using a lattice-based model.
These models require the use of highly subjective and complex assumptions which
determine the fair value of stock-based awards, (a) the risk-free interest rate,
(b) the expected volatility of our stock, (c) the expected term of the award and
(d) the expected dividend yield. The expected volatility is based on the
historical volatility of our common stock over the most recent period
commensurate with the estimated expected term of our stock options which is
derived from historical experience and anticipated future exercise behavior. The
risk-free interest rates for periods within the expected life of the option are
based on the yields of zero-coupon U.S. Treasury securities. See Note 9 of the
notes to the consolidated financial statements for additional information.
The fair value of our restricted stock units, including performance-based
restricted stock units, is based on the closing price of our common stock as
reported on The NASDAQ Global Market on the date of grant.
Recent Accounting Pronouncements
For a discussion of recently issued accounting pronouncements, please see Note 1
of the notes to the consolidated financial statements.
Results of Operations
Comparison of Years Ended December 31, 2022 and 2021
The following table summarizes the results of our operations for the years ended
December 31, 2022 and 2021:
Years Ended
December 31, Increase/
2022 2021 (Decrease)
(in thousands)
Collaboration revenue $ 96,300 $ 55,846 $ 40,454
Research and development expenses 320,454 215,519 104,935
General and administrative expenses 84,232 57,321 26,911
Total other income, net
26,665 4,843 21,822
Revenue. During the year ended December 31, 2022, we recognized revenue of $96.3
million under our collaboration agreements with Janssen and Ono. During the year
ended December 31, 2021, we recognized revenue of $55.8 million under our
collaboration agreements with Janssen and Ono.
Research and development expenses. Research and development expenses were $320.5
million for the year ended December 31, 2022, compared to $215.5 million for the
year ended December 31, 2021. The increase in research and development expenses
was attributable primarily to the following:
•
$38.3 million increase in employee compensation and benefits expense, which
includes a $16.0 million increase in employee-stock based compensation expense;
•
$31.3 million increase in third-party professional consultant and clinical trial
related expense; and
•
$17.6 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.
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General and administrative expenses. General and administrative expenses were
$84.2 million for the year ended December 31, 2022, compared to $57.3 million
for the year ended December 31, 2021. The increase in general and administrative
expenses was attributable primarily to the following:
•
$14.5 million increase in employee compensation and benefits expense, which
includes a $8.4 million increase in employee stock-based compensation expense;
•
$5.9 million increase in patent and legal expense; and
•
$1.0 million increase in maintenance related expenses.
Other income (expense), net. Other income (expense), net was $26.7 million and
$4.8 million for the years ended December 31, 2022 and 2021, respectively.
During the year ended December 31, 2022, we recorded $20.3 million in other
income attributable to the change in fair value of the stock price appreciation
milestone under the Amended MSK License. Other income (expense), net for the
year ended December 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 year ended December 31,
2021, we recorded $3.5 million in other expense attributable to the fair value
of the stock price appreciation milestones under the Amended MSK License. Other
income (expense), net for the year ended December 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 December 31, 2022, we had an accumulated deficit of $1.05 billion and
anticipate that we will continue to incur net losses for the foreseeable future.
The following table sets forth a summary of the net cash flow activity for each
of the years ended December 31:
2022 2021
(in thousands)
Net cash used in operating activities $ (248,208 ) $ (162,870 )
Net cash used in investing activities 166,751 (324,023 )
Net cash provided by financing activities 9,207 453,129
Net increase (decrease) in cash, cash equivalents and
restricted cash $ (72,250 ) $ (33,764 )
Operating Activities
Cash used in operating activities increased from $162.9 million for the year
ended December 31, 2021 to $248.2 million for the year ended December 31, 2022.
The primary drivers of this change in cash used in operating activities was our
increase of $69.6 million in net loss.
Agreement with Janssen Biotech, Inc.
On April 2, 2020 (the Janssen Agreement Effective Date), we entered into the
Janssen Agreement with Janssen to develop iPSC-derived CAR NK- and CAR T-cell
product candidates for the treatment of cancer. Additionally, on the Janssen
Agreement Effective Date, we entered into the Stock Purchase Agreement with
JJDC. Under the terms of the Janssen Agreement and the Stock Purchase Agreement
taken together, we received $100.0 million as of the Janssen Agreement Effective
Date, of which $50.0 million was an upfront cash payment and $50.0 million was
in the form of an equity investment by JJDC. Of the $50.0 million equity
investment, $16.0 million represented a premium over the fair value of our
common stock and was classified under operating activities.
We were entitled to receive fees for the conduct of all research, preclinical
development and IND-enabling activities performed by us under the Janssen
Agreement. Additionally, we were eligible to receive (i) with respect to the
first Janssen Cancer Target, payments of up to $898.0 million upon the
achievement of specified development, regulatory and sales milestones (the
Janssen Milestone Payments) for the first Collaboration Candidate, and up to
$460.0 million in Janssen Milestone Payments for each additional Collaboration
Candidate, directed to the first Janssen Cancer Target; and (ii) with respect to
each of the second, third and fourth Janssen Cancer Targets, payments of up to
$706.0 million in Janssen Milestone Payments for each of the first Collaboration
Candidates, and up to $340.0 million in Janssen Milestone Payments for each
additional Collaboration Candidate, directed to the applicable Janssen Cancer
Target, where certain Janssen Milestone Payments are subject to reduction in the
event we elect to co-commercialize and share equally in the profits and losses
in the United States of a respective Collaboration Candidate. We were further
eligible to receive double-digit tiered royalties ranging up to the mid-teens on
net sales of Collaboration Candidates commercialized by Janssen under the
Janssen Agreement, subject to reduction under certain circumstances.
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During the year ended December 31, 2022, we achieved two pre-defined research
milestones under the Janssen Agreement and received a cash payment of $3.0
million per milestone, for a total of $6.0 million. During the year ended
December 31, 2022, Janssen elected to exercise two commercial options for two
development candidates, and we received one of the Option Exercise Payments of
$10.0 million during the year. Additionally, during the year ended December 31,
2022, we filed an IND for the second antigen, development candidate, which was
cleared by the FDA on December 15, 2022. Accordingly, we achieved a pre-defined
clinical development milestone under the Janssen Agreement and are entitled to
receive a $3.0 million payment from Janssen. As of December 31, 2022, no
royalties have been paid to us under the Janssen Agreement.
In connection with the Janssen Agreement, we have incurred $17.1 million in
sublicense fees to certain of our existing licensors, of which $15.6 million has
been paid as of December 31, 2022. The $17.1 million in sublicense consideration
represents an asset under ASC 340, Other Assets and Deferred Costs and is
amortized to research and development expense ratably with our revenue
recognition under the Janssen Agreement.
Agreement with Ono Pharmaceutical Co., Ltd.
On September 14, 2018, we entered into the Ono Agreement with Ono for the joint
development and commercialization of two off-the-shelf, iPSC-derived CAR T-cell
product candidates (each a Candidate and collectively the Candidates). Under the
terms of the Ono Agreement, Ono paid to us an upfront, non-refundable and
non-creditable payment of $10.0 million. Additionally, as consideration for our
conduct of research and preclinical development under a joint development plan,
Ono pays us annual research and development fees set forth in the annual budget
included in the joint development plan, which fees are estimated to be $20.0
million in aggregate over the course of the joint development plan. Further,
under the terms of the Ono Agreement, Ono had agreed to pay us up to an
additional $40.0 million, subject to the achievement of a preclinical milestone
and the exercise by Ono of its options to obtain exclusive licenses to develop
and commercialize the Candidates. Such fees are in addition to the upfront
payment and research and development fees.
On December 4, 2020, we entered into the Ono Letter Agreement with Ono in
connection with the Ono Agreement. Pursuant to the Ono Letter Agreement, Ono
delivered to us proprietary antigen binding domains targeting an antigen
expressed on certain solid tumors and nominated such antigen binding domains as
the Ono Antigen Binding Domain for incorporation into Candidate 2. In connection
with such nomination, Ono paid us a milestone fee of $10.0 million in December
2020 for further research and development of Candidate 2 under the Ono
Agreement, and Ono continues to maintain its option to Candidate 2 under the Ono
Agreement. In addition, the Ono Letter Agreement terminated further development
with respect to Candidate 1.
On June 28, 2022, we entered into the Ono Amendment, which expanded the scope of
the collaboration to include the research and development of CAR-targeted NK
cells, and pursuant to which Ono agreed to contribute novel binding domains
targeting a second solid tumor antigen (Candidate 3). Under the Ono Amendment,
aggregate estimated research and development fees have been increased by
approximately $9.3 million, for a total estimated $29.3 million in aggregate
research and development fees over the course of the joint development plan,
subject to Ono exercising its option to continue the research term for a
candidate targeting the second solid tumor antigen.
Pursuant to the Ono Amendment, we and Ono are jointly conducting research and
development activities under a joint development plan, with the goal of
advancing Candidate 2 and Candidate 3 to a pre-defined preclinical milestone. We
have granted to Ono, during a specified period of time, an option to obtain an
exclusive license under certain intellectual property rights to develop and
commercialize each remaining candidate in all territories of the world, with us
retaining the right to co-develop and co-commercialize in the United States and
Europe under a joint arrangement whereby we are eligible to share at least 50%
of the profits and losses (the Option).
On November 7, 2022, Ono exercised its option for continued development of
Collaboration Candidate 2 (as defined under the Ono Agreement). The Company
elected its Co-Development Co-Commercialization option (CDCC Option) for
Collaboration Candidate 2. As a result, we are entitled to receive an Option
Exercise Payment (as defined under the Ono Agreement) of $12.5 million. We
determined the exercise represented an option with no material right under the
Ono Agreement. We have completed our performance obligations with respect to the
exercise of the option and accordingly, recognized the Option Exercise Payment
as revenue for the year ended December 31, 2022.
Subject to Ono's exercise of its options to obtain exclusive licenses to develop
and commercialize Candidate 2 or Candidate 3 and to the achievement of certain
clinical, regulatory and commercial milestones (the Ono Milestones) with respect
to the Candidate in specified territories, we are entitled to receive an
aggregate of up to $843.0 million in additional milestone payments for each
Candidate, with the applicable milestone payments for the United States and
Europe subject to reduction by 50% if we elect to co-develop and
co-commercialize the Candidate as described above. As of December 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 each Candidate in specified territories,
with such royalties subject to certain reductions. As of December 31, 2022, no
royalties have been paid to us under the Ono Agreement, the Ono Letter Agreement
or the Ono Amendment.
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As a direct result of our entry into the Ono Agreement, the Ono Letter Agreement
and the Ono Amendment, we incurred an aggregate of $7.8 million in sublicense
consideration to certain of our existing licensors, of which $4.0 million has
been paid as of December 31, 2022. The $7.8 million in sublicense consideration
represents an asset under ASC 340, Other Assets and Deferred Costs and is
amortized to research and development expense ratably with our revenue
recognition under the Ono Agreement.
Memorial Sloan Kettering Cancer Center License Agreement
On May 15, 2018, we entered into the Amended MSK License with MSK. The Amended
MSK License amended and restated the Exclusive License Agreement entered into
between us and MSK on August 19, 2016, pursuant to which we entered into an
exclusive license agreement with MSK for rights relating to compositions and
methods covering iPSC-derived cellular immunotherapy, including T-cells and
NK-cells derived from iPSCs engineered with CARs.
Pursuant to the Amended MSK License, MSK granted us additional licenses to
certain patents and patent applications relating to new CAR constructs and
off-the-shelf CAR T cells, including the use of clustered regularly interspaced
short palindromic repeat (CRISPR) and other innovative technologies for their
production, in each case to research, develop, and commercialize licensed
products in the field of all human therapeutic uses worldwide. We have the right
to grant sublicenses to certain licensed rights in accordance with the terms of
the Amended MSK License, in which case we are obligated to pay MSK a percentage
of certain sublicense income received.
In the event a licensed product achieves a specified clinical milestone, MSK is
then eligible to receive certain milestone payments totaling up to $75.0 million
based on the price of our common stock, where the amount of such payments owed
to MSK is contingent upon certain increases in the price of our common stock
following the date of achievement of such clinical milestone. These payments are
based on common stock price multiples, with the numerator being the fair value
of the ten-trading day trailing average closing price of our common stock and
the denominator being the ten-trading day trailing average closing price of our
common stock as of the effective date of the Amended MSK License, adjusted for
any stock splits, cash dividends, stock dividends, other distributions,
combinations, recapitalizations, or similar events. Under the terms of the
Amended MSK License, upon a change of control of our company, in certain
circumstances, we may be required to pay a portion of these payments to MSK
based on the price of our common stock in connection with such change of
control.
As of December 31, 2022, we recorded a liability of $3.9 million associated with
the remaining 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 the first milestone payment of $20.0 million to MSK during the year
ended December 31, 2021.
Investing Activities
During the years ended December 31, 2022 and 2021, investing activities provided
cash of $166.8 million and used cash of $324.0 million, respectively. During the
year ended December 31, 2022 we purchased $404.8 million of investments, which
were partially offset by $607.1 million in maturities of investments. During the
year ended December 31, 2021, we purchased $968.2 million of investments, offset
by $694.8 million in maturities of investments. The remaining investing
activities for the periods presented were primarily attributable to the purchase
of property and equipment.
Financing Activities
Financing activities provided cash of $9.2 million for the year ended December
31, 2022, which primarily consisted of $9.2 million received from the issuance
of common stock from equity incentive plans pursuant to the exercise of employee
stock options.
Financing activities provided cash of $453.1 million for the year ended December
31, 2021, which primarily consisted of $432.4 million of net proceeds from our
January 2021 public offering of common stock and issuance of pre-funded warrants
and $20.7 million received from the issuance of common stock from equity
incentive plans pursuant to the exercise of employee stock options.
From our inception through December 31, 2022 we have funded our consolidated
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. As of December 31, 2022,
we had aggregate cash and cash equivalents and investments of $441.2 million.
Private Placement of Common Stock
In June 2020, in connection with the June 2020 public offering of common stock,
we exercised our right to cause an existing shareholder, Johnson & Johnson
Innovation-JJDC, Inc (JJDC) to purchase $50.0 million of our common stock, and
JJDC purchased in a private placement 1.8 million shares of our common stock at
a price of $28.31 per share, for aggregate proceeds of $50.0 million. In
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April 2020, we entered into a Stock Purchase Agreement with JJDC. Under the
Stock Purchase Agreement, we sold 1.6 million shares of our common stock to JJDC
at $31.00 per share, for an aggregate purchase price of $50.0 million. The
shares of common stock purchased as part of these private placements were not
subject to underwriting discounts or commissions.
Public Offerings of Common Stock
In June 2020, we completed a public offering of common stock in which investors,
certain of which are affiliated with one of our directors, purchased 7.1 million
shares of our common stock at a price of $28.31 per share under a shelf
registration statement. Gross proceeds from the offering were $201.3 million.
After giving effect to $12.5 million in underwriting discounts, commissions and
expenses related to the offering, net proceeds were $188.8 million.
In January 2021, we completed a public offering of common stock in which
investors, certain of which are affiliated with one of our directors, 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 9 of the notes to our consolidated
financial statements 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 California Institute
for Regenerative Medicine (CIRM) pursuant to which CIRM awarded us $4.0 million
to advance our FT516 product candidate into a first-in-human clinical trial (the
Award). In November 2019, we submitted an IND application for FT516 in advanced
solid tumors. As of December 31, 2022, we have received all disbursements
available 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 Statements on Form S-3
In November 2021, we filed an automatic shelf registration statement (File No.
333-260772), which became effective upon filing. The shelf registration
statement allows us to issue certain securities, including shares of our common
stock, from time to time. The specific terms of any offering under the automatic
shelf registration statement are established at the time of such offering.
Additionally, we entered into a sales agreement with Jefferies Group LLC
(Jefferies) with respect to an at-the-market offering program, under which we
may offer and sell, from time to time at our sole discretion, shares of our
common stock having an aggregate offering price of up to $350.0 million through
Jefferies as the sales agent, pursuant to this automatic shelf registration
statement.
Operating Capital Requirements
We anticipate that we will continue to incur losses for the foreseeable future,
and we expect the losses to increase as we continue the research, manufacture
and development of, and seek regulatory approvals for, our product candidates
and conduct additional research, manufacturing and development activities
pursuant to our collaboration agreement with Ono. Our product candidates have
not yet achieved regulatory approval and we may not be successful in achieving
commercialization of our product candidates.
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We believe our existing cash and cash equivalents and investments as of December
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, and cell therapy product candidates in particular. For
example, the FDA or other regulatory authorities may require us to generate
additional data or conduct additional preclinical studies, manufacturing
activities, or clinical trials, or may impose other requirements beyond those
that we currently anticipate. Additionally, it is possible for a product
candidate to show promising results in preclinical studies or in clinical
trials, but fail to establish sufficient safety and efficacy data necessary to
obtain regulatory approvals. As a result of these and other risks and
uncertainties and the probability of success, the duration and the cost of our
research, manufacturing and development activities required to advance a product
candidate cannot be accurately estimated and are subject to considerable
variation. We may encounter difficulties, complications, delays and other
unknown factors and unforeseen expenses in the course of our research,
manufacturing and development activities, any of which may significantly
increase our capital requirements and could adversely affect our liquidity.
We will require additional capital for the research, manufacture and development
of our product candidates and to perform our obligations under our existing
collaboration agreements and any additional collaboration agreements that we may
enter into, 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 or other global pandemics or
epidemics, inflation rates and global economic conditions, and the ongoing
conflict in Ukraine. We expect to finance our capital requirements in the
foreseeable future through the sale of public or private equity or debt
securities. However, additional capital may not be available to us on reasonable
terms, if at all. If we are unable to raise additional capital in sufficient
amounts or on terms acceptable to us, we may have to significantly delay, scale
back or discontinue the research, manufacture or development of one or more of
our product candidates. If we do raise additional funds through the issuance of
additional equity or debt securities, it could result in dilution to our
existing stockholders, increased fixed payment obligations and interest 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 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, 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.
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 agreement
with Ono, and any other strategic partnership or collaboration agreements that
we may enter into in the future, and the time to achievement of such milestones
and our receipt of any associated milestone payments;
•
the cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights, including in our ongoing lawsuits against
Shoreline Biosciences, Inc. (Shoreline) and Dr. Dan S. Kaufman (Kaufman), and
the cost of enforcing any of our other contractual rights;
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•
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 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.
As a result of the termination of the Janssen Agreement and the NK cell program
prioritization, during the first quarter of 2023, we expect an increase in
revenue associated with the Janssen Agreement termination and additionally
expect that we will incur charges of approximately $12 million to $16 million
for severance and other employee termination-related costs. However, we expect
revenue and overall expenses to decrease in 2023 due to a corporate
restructuring and prioritization of programs. The restructuring is expected to
extend our cash runway into the second half of 2025.
Contractual Obligations and Commitments
We lease certain office, laboratory, and manufacturing space under
non-cancelable operating leases. In addition to rent, our leases are subject to
certain fixed amenities fees. These leases are also subject to additional
variable charges for common area maintenance, property taxes, property insurance
and other variable costs. See Note 8 of the consolidated financial statements
for additional detail.
Total undiscounted aggregate future operating lease obligations under all of our
operating leases as of December 31, 2022 are $177.7 million.
We have no material contractual obligations not fully recorded on our
consolidated balance sheets or fully disclosed in the notes to the financial
statements.
We have obligations under various license agreements to make future payments to
third parties that become due and payable on the achievement of certain
development, regulatory and commercial milestones (such as the start of a
clinical trial, filing for product approval with the FDA or other regulatory
agencies, product approval by the FDA or other regulatory agencies, product
launch or product sales) or on the sublicense of our rights to another party. We
have not included these commitments on our balance sheet because the achievement
and timing of these events is not fixed and determinable. Certain milestones are
in advance of receipt of revenue from the sale of products and, therefore, we
may require additional debt or equity capital to make such payments. These
commitments include:
•
Under a license agreement with the Whitehead Institute for Biomedical Research,
pursuant to which we license certain patents relating to our iPSC product
platform, we are required to make annual maintenance payments and payments based
upon development, regulatory and commercial milestones for any products covered
by the in-licensed intellectual property. The maximum aggregate milestone
payments we may be obligated to make per product are $2.3 million. We will also
be required to pay a royalty on net sales of products covered by the in-licensed
intellectual property in the low single digits. The royalty is subject to
reduction for any third-party payments required to be made, with a minimum floor
in the low single digits. We have the right to sublicense our rights under this
agreement, and we will be required to pay a percentage of any sublicense income.
•
Under license agreements with The Scripps Research Institute (TSRI), pursuant to
which we license certain patents relating to our iPSC product platform, we are
required to make annual maintenance payments and payments based upon
development, regulatory and commercial milestones for any products covered by
the in-licensed intellectual property. The maximum aggregate milestone payments
we may be obligated to make are $1.8 million. We will also be required to pay a
royalty on net sales of products covered by the in-licensed intellectual
property in the low- to mid-single digits. The royalty is subject to reduction
for any third-party payments required to be made, with a minimum floor in the
low single digits. We have the right to sublicense our rights under these
agreements, and we will be required to pay a percentage of any sublicense
income.
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•
Under a license agreement with the Regents of the University of Minnesota,
pursuant to which we license certain patents relating to compositions and uses
of NK cells and to compositions of engineered receptors and immune cells
expressing such receptors, we are required to make annual maintenance payments
and payments based upon development, regulatory and commercial milestones for
any products covered by the in-licensed intellectual property. The maximum
aggregate milestone payments we may be obligated to make per product are $4.6
million. We will also be required to pay a royalty on net sales of products
covered by the in-licensed intellectual property in the low single digits. The
royalty is subject to reduction for any third-party payments required to be
made, with a minimum floor in the low single digits. We have the right to
sublicense our rights under this agreement, and we will be required to pay a
percentage of any sublicense income.
•
Under a license agreement with Memorial Sloan Kettering Cancer Center, pursuant
to which we license certain patents relating to compositions and uses of T cells
derived from iPSCs, CARs and genetic modifications using CRISPR, we are required
to make annual maintenance payments and payments based upon development,
regulatory and commercial milestones for any products covered by the in-licensed
intellectual property. The maximum aggregate milestone payments we may be
obligated to make per product are $12.5 million. We will also be required to pay
a royalty on net sales of products covered by the in-licensed intellectual
property up to the high-single digits. The royalty is subject to reduction for
any third-party payments required to be made, with a minimum floor in the low-
to mid-single digits. We have the right to sublicense our rights under this
agreement, and we will be required to pay a percentage of any sublicense income.
Additionally, in the event a licensed product achieves a specified clinical
milestone, Memorial Sloan Kettering Cancer Center is then eligible to receive
additional milestone payments, where the amount of such payments owed to
Memorial Sloan Kettering Cancer Center are contingent upon certain increases in
the price of our common stock following the date of achievement of such clinical
milestone. See Note 2 of the notes to the consolidated financial statements for
additional detail related to the stock price appreciation milestone payments.
•
Under a license agreement with Dana Farber Cancer Institute, pursuant to which
we license certain patent applications relating to novel antibody fragments that
bind the alpha-3 domain of MICA/B, we are required to make annual maintenance
payments and payments based upon development, regulatory and commercial
milestones for any products covered by the in-licensed intellectual property.
The maximum aggregate milestone payments we may be obligated to make per product
are $25 million. We will also be required to pay a royalty on net sales of
products covered by the in-licensed intellectual property in the low single
digits. The royalty is subject to reduction for any third-party payments
required to be made, with a minimum floor in the low single digits. We have the
right to sublicense our rights under these agreements, and we will be required
to pay a percentage of any sublicense income.
We enter into contracts in the normal course of business, including with
clinical sites, CROs, and other professional service providers for the conduct
of clinical trials, contract manufacturers for the production of our product
candidates, contract research service providers for preclinical research
studies, professional consultants for expert advice and vendors for the sourcing
of clinical and laboratory supplies and materials. These contracts generally
provide for termination on notice, and therefore are cancelable contracts and
not included in the table of contractual obligations and commitments.
Inflation
Inflation has increased during the periods covered by this Annual Report on Form
10-K, 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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