10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

OR

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

 

From the transition period from to .

Commission File Number 001-36076

FATE THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

65-1311552

(State or other jurisdiction

of incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

 

12278 Scripps Summit Drive, San Diego, CA

 

92131

(Address of principal executive offices)

 

(Zip Code)

 

(858) 875-1800

 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock

FATE

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of April 27, 2023, 98,384,456 shares of the registrant’s common stock, par value $0.001 per share, were issued and outstanding.

 


 

 

FATE THERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

Page

SUMMARY OF RISK FACTORS

 

3

 

 

 

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

 

5

 

Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022

 

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022 (unaudited)

 

6

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (unaudited)

 

7

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

33

Item 4.

Controls and Procedures

 

33

 

 

 

 

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

34

Item 1A.

Risk Factors

 

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

72

Item 3.

Defaults Upon Senior Securities

 

72

Item 4.

Mine Safety Disclosures

 

72

Item 5.

Other Information

 

72

Item 6.

Exhibits

 

73

 

 

 

 

SIGNATURES

 

74

 

 

 

2


 

 

RISK FACTOR SUMMARY

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (SEC) before making investment decisions regarding our common stock.

Our product candidates represent a novel therapeutic approach to treating cancer and autoimmune disorders and may cause undesirable side effects or have other properties that could delay or halt their clinical development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences. If we fail to complete the preclinical or clinical development of, or to obtain regulatory approval for, our product candidates on a timely basis or at all, our business would be significantly harmed.
We use induced pluripotent stem cell (iPSC) technology and gene-editing technology in the creation of our product candidates. Both technologies are relatively new technologies, which makes it difficult to predict the time and cost of product candidate development and obtaining regulatory approval. If we are unable to use these technologies in the creation of our product candidates, our business would be significantly harmed.
We may face delays in initiating, conducting or completing our clinical trials, including due to difficulties enrolling patients in our clinical trials, manufacturing adequate clinical supply of our product candidates, and obtaining sufficient quantities of other components and supplies necessary for the conduct of our clinical trials, and we may not be able to initiate, conduct or complete our clinical trials at all.
Initial, interim and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. Furthermore, results from our ongoing or future clinical trials involving our product candidates may differ materially from initial, interim and preliminary data.
The manufacture and distribution of our product candidates are complex and subject to a multitude of risks. These risks could substantially limit the clinical and commercial supply of our product candidates and increase our costs, and the development and commercialization of our product candidates could be significantly delayed or restricted if the United States Food and Drug Administration (FDA) or other regulatory authorities impose additional requirements on our manufacturing operations or if we are required to change our manufacturing operations to comply with regulatory requirements.
We have limited experience manufacturing our product candidates on a clinical scale, and no experience manufacturing on a commercial scale. Any failure by us or any third parties on whom we depend on to manufacture our product candidates consistently and under the proper conditions may result in delays to our clinical development plans and impair our ability to obtain approval for, or commercialize, our product candidates.
Our inability to manufacture sufficient quantities of our product candidates, or the loss of our third-party contract manufacturers, or our or their failure to supply sufficient quantities of our product candidates at acceptable quality levels or prices, or at all, would materially and adversely affect our business.
We depend on third party suppliers, including sole source suppliers, for the provision of reagents, materials, devices and equipment that are used by us and our third-party contract manufacturers in the production of our product candidates, the loss of which could adversely impact our ability to conduct our clinical trials or commercialize our product candidates, if approved.
Global economic and market conditions, the COVID-19 pandemic, and the ongoing conflict in Ukraine, could adversely impact various aspects of our business, results of operations and financial condition, and could cause a disruption to our supply chain and the development and manufacture of our product candidates.
We may face challenges recruiting and retaining key personnel due to labor market changes, availability of qualified candidates, and competition for employees from other companies.
We may face cost fluctuations and inflationary pressures, including increases in prices of materials and costs of labor, which may adversely impact our operating performance, expenses, and results.
We depend on strategic partnerships and collaboration arrangements for the development and commercialization of certain of our product candidates in certain indications or geographic territories, and if these arrangements are unsuccessful or are terminated, this could result in delays and other obstacles in the development, manufacture or commercialization of any of our product candidates and materially harm our results of operations.

3


 

Development of our product candidates will require substantial additional funding, without which we will be unable to complete preclinical or clinical development of, or obtain regulatory approval for, our product candidates, and we may not be able to secure adequate funding on acceptable terms or on a timely basis.
We have a limited operating history, have incurred significant losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future, including in connection with the potential global development of our product candidates.
If we are unable to protect our intellectual property or obtain and maintain patent protection for our technology and product candidates, other companies could develop products based on our technologies and discoveries, which may reduce demand for, or limit the commercial potential of, our products and harm our business.
If we fail to comply with our obligations under our license agreements, we could lose rights to our product candidates or key technologies.
We may not be successful in obtaining or maintaining necessary rights to product components and processes for development or manufacture of our product candidates which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.
We do not have experience marketing any product candidates and do not have a sales force or distribution capabilities, and if our products are approved, we may be unable to commercialize them successfully.
The commercial success of our product candidates will depend upon the degree of market acceptance by physicians, patients, third-party payers and others in the medical community and may require generation of additional evidence to support the anticipated short-term and long-term costs, comparative risks and benefits relative to standard of care and emerging therapies, and other value demonstrations.
We face increasing competition in an environment of rapid technological change from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.
The success of our existing and any future product candidates is substantially dependent on developments within the field of cellular immunotherapy and autoimmunity, and to changes to clinical treatment standards, some of which are beyond our control.
Security breaches, loss of data and other disruptions could compromise sensitive information related to our business.
Our principal stockholders and management own a significant percentage of our stock and may be able to exercise significant control over our company.

 

4


 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

Fate Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

42,020

 

 

$

61,333

 

Accounts receivable

 

 

13,500

 

 

 

38,480

 

Short-term investments and related maturity receivables

 

 

366,878

 

 

 

374,894

 

Prepaid expenses and other current assets

 

 

15,490

 

 

 

27,367

 

Total current assets

 

 

437,888

 

 

 

502,074

 

Long-term investments

 

 

3,912

 

 

 

4,942

 

Property and equipment, net

 

 

108,594

 

 

 

110,020

 

Operating lease right-of-use assets

 

 

64,682

 

 

 

66,069

 

Restricted cash

 

 

15,227

 

 

 

15,227

 

Collaboration contract assets

 

 

 

 

 

7,196

 

Other assets

 

 

33

 

 

 

33

 

Total assets

 

$

630,336

 

 

$

705,561

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

9,855

 

 

$

8,265

 

Accrued expenses

 

 

31,513

 

 

 

53,932

 

CIRM award liability, current portion

 

 

 

 

 

4,000

 

Deferred revenue, current portion

 

 

1,738

 

 

 

42,226

 

Operating lease liabilities, current portion

 

 

5,545

 

 

 

5,628

 

Total current liabilities

 

 

48,651

 

 

 

114,051

 

Operating lease liabilities, net of current portion

 

 

102,070

 

 

 

103,710

 

Stock price appreciation milestones

 

 

2,143

 

 

 

3,861

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; authorized shares—5,000,000
   at March 31, 2023 and December 31, 2022; Class A Convertible Preferred
   shares issued and outstanding—
2,794,549 at March 31, 2023 and
   December 31, 2022

 

 

3

 

 

 

3

 

Common stock, $0.001 par value; authorized shares—250,000,000 at
   March 31, 2023 and December 31, 2022; issued and outstanding—
98,191,015 
   at March 31, 2023 and
97,294,917 at December 31, 2022

 

 

98

 

 

 

97

 

Additional paid-in capital

 

 

1,547,702

 

 

 

1,536,497

 

Accumulated other comprehensive loss

 

 

(646

)

 

 

(1,854

)

Accumulated deficit

 

 

(1,069,685

)

 

 

(1,050,804

)

Total stockholders’ equity

 

 

477,472

 

 

 

483,939

 

Total liabilities and stockholders’ equity

 

$

630,336

 

 

$

705,561

 

 

See accompanying notes.

5


 

Fate Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

Collaboration revenue

 

$

58,980

 

 

$

18,414

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

65,629

 

 

 

72,139

 

General and administrative

 

 

21,943

 

 

 

20,742

 

Total operating expenses

 

 

87,572

 

 

 

92,881

 

Loss from operations

 

 

(28,592

)

 

 

(74,467

)

Other income:

 

 

 

 

 

 

Interest income

 

 

3,694

 

 

 

418

 

Change in fair value of stock price appreciation milestones

 

 

1,718

 

 

 

8,359

 

Other income

 

 

4,299

 

 

 

 

Total other income

 

 

9,711

 

 

 

8,777

 

Net loss

 

$

(18,881

)

 

$

(65,690

)

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities, net

 

 

1,208

 

 

 

(2,088

)

Comprehensive loss

 

$

(17,673

)

 

$

(67,778

)

Net loss per common share, basic and diluted

 

$

(0.19

)

 

$

(0.68

)

Weighted-average common shares used to compute basic and diluted net loss per share

 

 

98,054,687

 

 

 

96,343,529

 

 

See accompanying notes.

 

6


 

Fate Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(18,881

)

 

$

(65,690

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

4,191

 

 

 

2,761

 

Stock-based compensation

 

 

10,983

 

 

 

19,331

 

Accretion and amortization of premiums and discounts on investments, net

 

 

(2,295

)

 

 

873

 

Amortization of collaboration contract assets

 

 

7,196

 

 

 

1,094

 

Deferred revenue

 

 

(40,488

)

 

 

(3,497

)

Change in fair value of stock price appreciation milestones

 

 

(1,718

)

 

 

(8,359

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Grant income from CIRM award

 

 

(4,000

)

 

 

 

Accounts receivable

 

 

24,980

 

 

 

(5,174

)

Prepaid expenses and other assets

 

 

11,901

 

 

 

(2,407

)

Accounts payable and accrued expenses

 

 

(20,393

)

 

 

(3,493

)

Right-of-use assets and lease liabilities, net

 

 

(336

)

 

 

(52

)

Net cash used in operating activities

 

 

(28,860

)

 

 

(64,613

)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,208

)

 

 

(10,084

)

Purchases of investments

 

 

(114,452

)

 

 

(132,166

)

Maturities of investments

 

 

127,000

 

 

 

135,224

 

Net cash provided by (used in) investing activities

 

 

9,340

 

 

 

(7,026

)

Financing activities

 

 

 

 

 

 

Issuance of common stock from equity incentive plans, net of issuance costs

 

 

207

 

 

 

2,797

 

Net cash provided by financing activities

 

 

207

 

 

 

2,797

 

Net change in cash, cash equivalents and restricted cash

 

 

(19,313

)

 

 

(68,842

)

Cash, cash equivalents and restricted cash at beginning of the period

 

 

76,560

 

 

 

148,810

 

Cash, cash equivalents and restricted cash at end of the period

 

$

57,247

 

 

$

79,968

 

Supplemental schedule of noncash investing and financing activities

 

 

 

 

 

 

Purchases of property and equipment in accounts payable

 

$

612

 

 

$

3,377

 

 

See accompanying notes.

7


 

Fate Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

Fate Therapeutics, Inc. (the Company) was incorporated in the state of Delaware on April 27, 2007, and has its principal operations in San Diego, California. The Company is a clinical-stage biopharmaceutical company dedicated to bringing off-the-shelf, multiplexed-engineered, iPSC-derived natural killer (NK) and T-cell product candidates to patients for the treatment of cancer and autoimmune disease.

As of March 31, 2023, the Company has devoted substantially all of its efforts to product development, raising capital and building infrastructure and has not generated any revenues from any sales of its therapeutic products. To date, the Company’s revenues have been derived from collaboration agreements and government grants.

In January 2023, the Company implemented a corporate restructuring to streamline operations, reduce operating expenses, extend cash runway and focus resources on the Company's most promising programs. In connection with the restructuring, the Company reduced its workforce by 60%, to approximately 220 employees. Affected employees were informed on January 5, 2023. The restructuring was completed by March 31, 2023.

The Company incurred charges of $12.9 million during the three months ended March 31, 2023, for severance and other employee termination-related costs. Of which, $10.9 million were related to research and development expenses and $2.0 million were related to general and administrative expenses. As of March 31, 2023, all restructuring and related expenses have been fully recognized by the Company.

The Company also evaluated the impact of the restructuring on the carrying value of its long-lived assets, such as property and equipment and operating lease assets. This process included evaluating the estimated remaining lives, significant changes in the use, and potential impairment charges related to its long-lived assets. Based on its evaluation, the Company determined that its long-lived assets were not impaired as of March 31, 2023, and it has not recognized any impairment charges related to its long-lived assets since the restructuring announcement.

Use of Estimates

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The preparation of the Company’s unaudited condensed consolidated financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s unaudited condensed consolidated financial statements and accompanying notes. The most significant estimates and assumptions in the Company’s unaudited condensed consolidated financial statements relate to its stock price appreciation milestone obligations, contracts containing leases, and accrued expenses. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. To date, the aggregate operations of these subsidiaries have not been significant and all intercompany transactions and balances have been eliminated in consolidation.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash in readily available operating accounts, money market accounts and money market funds. The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same such amounts shown in the unaudited condensed consolidated statements of cash flows as of March 31, 2023 and 2022 (in thousands):

8


 

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash and cash equivalents

 

$

42,020

 

 

$

64,741

 

Restricted cash

 

 

15,227

 

 

 

15,227

 

Total cash, cash equivalents, and restricted cash shown in the unaudited condensed consolidated statement of cash flows

 

$

57,247

 

 

$

79,968

 

 

For each of the three months ended March 31, 2023 and 2022, the restricted cash balance includes cash-collateralized irrevocable standby letters of credit for $15.2 million associated with the Company’s facilities leases.

Investments

Investments are accounted for as available-for-sale securities and are carried at fair value on the unaudited condensed consolidated balance sheets. Upon initial recognition of the investment and at each reporting period, the Company evaluates whether any unrealized losses on investments are attributable to a credit loss or other factors. Any unrealized losses attributable to credit loss are recorded through an allowance for credit losses, limited to the amount by which the fair value is below amortized cost, with the offsetting amount recorded in other income or expense in the unaudited condensed consolidated statement of operations and comprehensive loss. Unrealized losses not attributable to an expected credit loss and unrealized gains on investments are recorded in other comprehensive income (loss) on the unaudited condensed consolidated statements of operations and comprehensive loss. Realized gains and losses, if any, on investments classified as available-for-sale securities are included in other income or expense.

The amortized cost of investments classified as available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and following the requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required can be condensed or omitted. The interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2022, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed by the Company with the SEC on February 28, 2023. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position and its results of operations and comprehensive loss and its cash flows for the periods presented. The results for the three months ended March 31, 2023 are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.

 

Collaborative Arrangements

The Company analyzes its 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, the Company assesses whether aspects of the arrangement between the Company and its collaboration partner 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, the Company 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 the Company concludes a counterparty to a transaction is not a customer or otherwise not within the scope of ASC 606, the Company considers the guidance in other accounting literature as applicable or by analogy to account for such transaction. The classification of transactions under the Company’s arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants.

 

9


 

Revenue Recognition

The Company analyzes its collaboration arrangements to assess whether they are within the scope of 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. If the Company concludes that some or all aspects of the arrangement represent a transaction with a customer, the Company accounts for those aspects of the arrangement within the scope of ASC 606.

For arrangements attributable to ASC 606, the Company recognizes 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 the Company is entitled to receive in exchange for such product or service. In doing so, the Company follows 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. The Company considers the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. The Company applies 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 the Company, where the purpose of the contract is to obtain a product or a service that is an output of the Company’s 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 the Company will collect substantially all of the consideration to which it is 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. The Company identifies 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) the Company’s 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.

The transaction price is the amount of consideration the Company is entitled to receive in exchange for the transfer of control of a product or a service to a customer. To determine the transaction price, the Company considers 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, the Company must estimate the consideration it expects to receive and uses 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, the Company allocates the transaction price to each distinct performance obligation in an amount that reflects the consideration the Company is entitled to receive in exchange for satisfying each distinct performance obligation. For each distinct performance obligation, revenue is recognized when (or as) the Company transfers control of the product or the service applicable to such performance obligation.

In those instances where the Company first receives consideration in advance of satisfying its performance obligation, the Company classifies such consideration as deferred revenue until (or as) the Company satisfies such performance obligation. In those instances where the Company first satisfies its performance obligation prior to its receipt of consideration, the consideration is recorded as accounts receivable.

The Company expenses 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

The Company estimates the fair value of the stock price appreciation milestones associated with the Amended and Restated Exclusive License Agreement with Memorial Sloan Kettering Cancer Center, using a Monte Carlo simulation model, which relies on the Company’s current stock price as well as significant estimates and assumptions to determine the estimated liability associated with

10


 

the contingent milestone payments. The Company accounts for the fair value of the stock price appreciation milestones in accordance with ASC 815, Derivatives and Hedging, with fair value marked to market at each reporting date. The assumptions used to calculate the fair value of the stock price appreciation milestones are subject to a significant amount of judgment including the probability of achieving a specified clinical milestone, the expected volatility of the Company’s common stock, the risk-free interest rate, and the estimated term, which is based in part on the last valid patent claim date. The Company remeasures the fair value of the stock price appreciation milestones at each balance sheet date, with changes in fair value recorded in earnings as non-operating income or expense on the unaudited condensed consolidated statements of operations and comprehensive loss.

Leases

The Company determines if a contract contains a lease at the inception of the contract. The Company currently has leases related to its facilities leased for office and laboratory space, which are classified as operating leases. These leases result in operating right-of-use (ROU) assets, current operating lease liabilities, and non-current operating lease liabilities in the unaudited condensed consolidated balance sheets. The Company does not have any financing leases. Leases with a term of 12 months or less are considered short-term and ROU assets and lease obligations are not recognized. Payments associated with short-term leases are expensed on a straight-line basis over the lease term.

Lease liabilities represent an obligation to make lease payments arising from the lease, and ROU assets represent the right to use the underlying asset identified in the lease for the lease term. Lease liabilities are measured at the present value of the lease payments not yet paid discounted using the discount rate for the lease established at the lease commencement date. To determine the present value, the implicit rate is used when readily determinable. For those leases where the implicit rate is not provided, the Company determines an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. ROU assets are measured as the present value of the lease payments and also include any prepaid lease payments made and any other indirect costs incurred, and exclude any lease incentives received. Lease terms may include the impact of options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company aggregates all lease and non-lease components for each class of underlying assets into a single lease component.

Stock-Based Compensation

Stock-based compensation expense represents the cost of 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, the Company reassesses 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. For stock awards for which vesting is subject to both performance-based milestones and market conditions, expense is recorded over the derived service period after the point when the achievement of the performance-based milestone is probable or the performance condition has been achieved.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, with the exception of option grants for which vesting is subject to both performance-based milestones and market conditions, which are valued using a lattice-based model. The fair value of restricted stock units, including performance-based restricted stock units, is based on the closing price of the Company’s common stock as reported on The Nasdaq Global Market on the date of grant. The Company recognizes forfeitures for all awards as such forfeitures occur.

Convertible Preferred Stock

The Company applies the relevant accounting standards to distinguish liabilities from equity when assessing the classification and measurement of preferred stock. Preferred shares subject to mandatory redemptions are considered liabilities and measured at fair value. Conditionally redeemable preferred shares are considered temporary equity. All other preferred shares are considered as stockholders’ equity.

11


 

The Company applies the relevant accounting standards for derivatives and hedging (in addition to distinguishing liabilities from equity) when accounting for hybrid contracts that contain conversion options. Conversion options must be bifurcated from the host instruments and accounted for as free-standing financial instruments according to certain criteria. These criteria include circumstances when (i) the economic characteristics and risks of the embedded derivative instruments are not clearly and closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable accounting principles with changes in fair value reported in earnings as they occurred, and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. The derivative is subsequently measured at fair value at each reporting date, with the changes in fair value reported in earnings.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non‑owner sources. Other comprehensive loss includes unrealized gains and losses, other than losses attributable to a credit loss which are included in other income and expense, on investments classified as available-for-sale securities, which was the only difference between net loss and comprehensive loss for the applicable periods.

Net Loss Per Common Share

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for common stock equivalents. The Pre-Funded Warrants associated with the January 2021 public equity offering (see Note 8) are considered outstanding shares in the basic earnings per share calculation given their nominal exercise price. Dilutive common stock equivalents for the periods presented include convertible preferred stock, warrants for the purchase of common stock, and common stock options and restricted stock units outstanding under the Company’s stock option and incentive plans. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

For the three months ended March 31, 2023, the Company realized a net loss of $18.9 million. Shares of potentially dilutive securities totaled 29.8 million for the three months ended March 31, 2023, including 14.0 million shares associated with a hypothetical conversion of all outstanding shares of the Company’s Class A convertible preferred stock, and an aggregate of 15.8 million shares of common stock issuable upon the exercise of outstanding stock options and the vesting of outstanding restricted stock units.

For the three months ended March 31, 2022, the Company realized a net loss of $65.7 million. Shares of potentially dilutive securities totaled 27.7 million for the three months ended March 31, 2022, including 14.0 million shares associated with a hypothetical conversion of all outstanding shares of the Company’s Class A convertible preferred stock, and an aggregate of 13.7 million shares of common stock issuable upon the exercise of outstanding stock options and the vesting of outstanding restricted stock units.

Going Concern Assessment

Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The Company determined that there are no conditions or events that raise substantial doubt about its ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements.

2. Collaboration and License Agreements

Janssen Collaboration and Option Agreement

On April 2, 2020 (the Janssen Agreement Effective Date), the Company 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, the Company 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, the Company 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, the Company was entitled to receive full funding for the conduct of all research, preclinical development and IND-enabling activities performed by the Company under the Janssen Agreement.

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The Company 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. In addition, under the Stock Purchase Agreement, the Company exercised the right to require JJDC to purchase an aggregate of $50.0 million in shares in a private placement at the same price per share as paid by investors in a public offering. In June 2020, JJDC purchased 1.8 million shares of the Company's common stock at a price of $28.31 per share.

On January 3, 2023, the Company received notice of termination from Janssen of the Janssen Agreement. The termination took effect on April 3, 2023, and during the three months ended March 31, 2023, the Company performed wind down activities including discontinuing development of all collaboration product candidates under the Janssen Agreement. The Company expects to be reimbursed for all wind down activities in the second quarter of this year. In connection with the termination, and per the terms of the Janssen Agreement, (i) all licenses and other rights granted to either party pursuant to the Janssen Agreement have terminated, subject to limited exceptions set forth in the Janssen Agreement; (ii) both parties have wound down all development, commercialization and manufacturing activities under the Janssen Agreement; (iii) neither party has any right to continue to develop, manufacture or commercialize any collaboration candidate or collaboration product or use the other party’s materials; and (iv) neither party is restricted from independently developing, manufacturing, or commercializing any product, including any products directed to the same antigens as those of any collaboration candidate or collaboration product.

In connection with the Janssen Agreement, the Company has incurred $17.1 million in sublicense fees to certain of its existing licensors as of March 31, 2023. The $17.1 million in sublicense consideration represents an asset under ASC Topic 340, Other Assets and Deferred Costs (ASC 340) and was amortized to research and development expense ratably with the Company’s revenue recognition under the Janssen Agreement. During the three months ended March 31, 2023 and 2022, the Company recognized $7.2 million and $1.1 million of such expense, respectively. As of March 31, 2023, there was no remaining balance on the Janssen Agreement contract asset.

The Company recognized revenue of $52.3 million under the Janssen Agreement for the three months ended March 31, 2023, of which $41.2 million was previously deferred. Such revenue comprised $11.1 million associated with research and development services, $31.2 million associated with the upfront fee and Equity Premium, and $10.0 million associated with a commercial option exercise for the three months ended March 31, 2023. The Company recognized revenue of $15.9 million for the three months ended March 31, 2022. Such revenue comprised $9.8 million associated with research and development services and $6.1 million associated with the upfront fee and Equity Premium for the three months ended March 31, 2022.

As of March 31, 2023, the Company has received $82.0 million in aggregate research and development fees from Janssen.

Ono Collaboration and Option Agreement

On September 14, 2018, the Company 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, the Company received an upfront, non-refundable and non-creditable payment of $10.0 million. Additionally, the Company is entitled to receive funding for the conduct of research and development under a joint development plan, which fees were estimated to be $20.0 million in aggregate.

In December 2020, the Company 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 the Company retained all rights to research, develop and commercialize Candidate 1 throughout the world without any obligation to Ono.

In June 2022, the Company 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, Ono and the Company 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, the Company 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 the Company by Ono, to develop and commercialize Candidate 3 in all territories of the world, where the Company retains rights to co-develop and co-commercialize Candidate 3 in the United States and Europe under a joint arrangement with Ono under which the Company is eligible to share at least 50% of the profits and losses. The Company will continue to receive committed funding from Ono through September 2024 and has 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

13


 

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.

Under the terms of the Ono Agreement (as amended by the Ono Amendment), for Candidate 2 and for Candidate 3 (subject to exercise by Ono of its preclinical option to Candidate 3), the Company is eligible to receive additional payments upon the achievement of certain clinical, regulatory and commercial milestones (the Ono Milestones) with respect to each Candidate in an amount up to $843.0 million in aggregate, with the applicable milestone payments for the United States and Europe subject to reduction by 50% if the Company elects to co-develop and co-commercialize the Candidate in the United States and Europe as described above. In addition, in those territories where Ono has exclusive rights of commercialization, the Company is 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 such territories, with such royalties subject to certain reductions.

The Ono Agreement will terminate with respect to a Candidate if Ono does not exercise its option for a candidate within the option period, or in its entirety if Ono does not exercise any of its options for the candidates within their respective option periods. In addition, either party may terminate the Ono Agreement in the event of breach, insolvency or patent challenges by the other party; provided, that Ono may terminate the Ono Agreement in its sole discretion (x) on a Candidate-by-Candidate basis at any time after the second anniversary of the effective date of the Ono Agreement or (y) on a Candidate-by-Candidate or country-by-country basis at any time after the expiration of the option period, subject to certain limitations. The Ono Agreement will expire on a Candidate-by-Candidate and country-by-country basis upon the expiration of the applicable royalty term, or in its entirety upon the expiration of all applicable payment obligations under the agreement.

The Company determined that the Ono Agreement, Ono Letter Agreement, and Ono Amendment were within the scope of ASC 808 and applicable to such guidance. The Company concluded that certain units of account within the Ono Agreement and Ono Amendment represented a customer and applied relevant guidance from ASC 606 to evaluate the appropriate accounting for those units of account. In accordance with this guidance, the Company identified its performance obligations, including its grant of a license to Ono to certain of its intellectual property subject to certain conditions, its conduct of research services, and its participation in a joint steering committee. The Company determined that its grant of a license to Ono to certain of its intellectual property subject to certain conditions was not distinct from other performance obligations because such grant is dependent on the conduct and results of the research services. Additionally, the Company determined that its conduct of research services was not distinct from other performance obligations since such conduct is dependent on the guidance of the joint steering committee. Accordingly, the Company determined that all performance obligations 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 services, which is estimated to be four years. The termination of the Ono Agreement with respect to Candidate 1 did not impact this assessment.

In accordance with ASC 606, the Company determined that the initial transaction price under the Ono Amendment equals $39.3 million, consisting of the upfront, non-refundable and non-creditable payment of $10.0 million and the aggregate estimated research and development fees of $29.3 million. The upfront payment of $10.0 million was recorded as deferred revenue and is being recognized as revenue over time in conjunction with the Company’s conduct of research services as the research services are the primary component of the combined performance obligations. Revenue associated with the upfront payment will be recognized based on actual costs incurred as a percentage of the estimated total costs expected to be incurred over the expected term of conduct of the research services. The Company recorded the $5.0 million prepayment of the first-year research and development fees as deferred revenue, and such fees were recognized as revenue as the research services were delivered.

On November 7, 2022, Ono exercised its option for continued development of Candidate 2. Upon Ono's exercise, the Company granted Ono a license to develop and commercialize Candidate 2. The Company elected its preclinical option to co-develop and co-commercialize Candidate 2. As a result, the Company received an Option Exercise Payment (as defined under the Ono Agreement) of $12.5 million. The Company determined the exercise represented an option with no material right under the Ono Agreement. The Company has completed its 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. The Company and Ono will proceed with a joint development plan for the ongoing development of Candidate 2. The costs of this development plan are accounted for in accordance with ASC 808, and cost sharing payments to the Company from Ono are recorded net into research and development expenses. During the three months ended March 31, 2023, the Company recognized contra-research and development expense of $1.0 million. As of March 31, 2023, there were no cost-sharing payments made to the Company from Ono.

As a direct result of the Company’s entry into the Ono Agreement and the Ono Letter Agreement, the Company incurred an aggregate of $7.8 million in sublicense consideration to existing licensors as of March 31, 2023. The $7.8 million in sublicense consideration represents an asset under ASC 340 and was amortized to research and development expense ratably with the Company’s revenue recognition under the Ono Agreement. During the three months ended March 31, 2023, the Company recognized none of such expense, and during the three months ended March 31, 2022, the Company recognized $0.3 million of such expense.

The Company recognized revenue of $6.7 million under the Ono Agreement for the three months ended March 31, 2023. All of such revenue was associated with research services for the three months ended March 31, 2023. During the three months ended

14


 

March 31, 2022, the Company recognized revenue of $2.5 million under the Ono Agreement. Such revenue comprised $1.2 million associated with research services and $1.3 million associated with the upfront payment for the three months ended March 31, 2022.

As of March 31, 2023, the Company has received $29.2 million in aggregate research and development fees from Ono.

Memorial Sloan Kettering Cancer Center License Agreement

On May 15, 2018, the Company entered into an Amended and Restated Exclusive License Agreement (Amended MSK License) with Memorial Sloan Kettering Cancer Center (MSK). The Amended MSK License amends and restates the Exclusive License Agreement entered into between the Company and MSK on August 19, 2016 (Original MSK License), pursuant to which the Company 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 to the Company 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. The Company has the right to grant sublicenses to certain licensed rights in accordance with the terms of the Amended MSK License, in which case it is obligated to pay MSK a percentage of certain sublicense income received by the Company.

The Company is obligated to pay to MSK an annual license maintenance fee during the term of the agreement, and is required to make milestone payments upon the achievement of specified clinical, regulatory and commercial milestones for licensed products as well as royalty payments on net sales of licensed products.

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 the Company’s common stock, where the amount of such payments owed to MSK is contingent upon certain increases in the price of the Company’s 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 the Company’s common stock and the denominator being the ten-trading day trailing average closing price of the Company’s 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, the Company may be required to pay a portion of these payments to MSK based on the price of the Company’s common stock in connection with such change of control.

The following table summarizes the common stock multiples and the stock price appreciation milestone payments under the terms of the agreement:

 

Common stock multiple

 

5.0x

 

 

10.0x

 

 

15.0x

 

Ten-trading day trailing average common stock price

 

$

50.18

 

 

$

100.36

 

 

$

150.54

 

Stock price appreciation milestone payment (in millions)

 

$

20.0

 

 

$

30.0

 

 

$

25.0

 

 

In July 2021, the Company achieved the specified clinical milestone for a licensed product under the Amended MSK License and the Company’s ten-trading day trailing average common stock price exceeded the first, pre-specified threshold. As a result, the Company remitted the first milestone payment of $20.0 million to MSK during the year ended December 31, 2021.

To determine the estimated fair value of the remaining stock price appreciation milestones, the Company uses a Monte Carlo simulation methodology which models future Company common stock prices based on the current stock price and several key variables. The following variables were incorporated in the calculation of the estimated fair value of the stock price appreciation milestones as of March 31, 2023:

 

 

 

As of March 31,

 

 

As of December 31,

 

 

 

2023

 

 

2022

 

Risk-free interest rate

 

 

3.6

%

 

 

4.0

%

Expected volatility

 

 

83.9

%

 

 

78.1

%

Estimated term (in years)

 

 

15.8

 

 

 

16.0

 

Closing stock price as of remeasurement date

 

$

5.70

 

 

$

10.09

 

 

The key inputs to the Monte Carlo simulation to determine the fair value of the stock price appreciation milestones include the Company’s stock price as of the measurement date; the estimated term, which is based in part on the last valid patent claim date; the expected volatility of the Company’s common stock, estimated using the Company’s historical common stock volatility as of the remeasurement date; and the risk-free rate based on the U.S. Treasury yield for the estimated term determined. Fair value

15


 

measurements are highly sensitive to changes in these inputs and significant changes could result in a significantly higher or lower fair value and resulting expense or gain.

At each balance sheet date, the Company remeasures the fair value of the stock price appreciation milestones, with changes in fair value recognized as a component of other income (expense) in the unaudited condensed consolidated statements of operations and comprehensive loss. Amounts are included in current or non-current liabilities based on the estimated timeline associated with the individual potential payments. During the three months ended March 31, 2023, the Company recorded $1.7 million of income associated with the change in fair value of the stock price appreciation milestones. As of March 31, 2023, the Company recorded a liability of $2.1 million associated with the stock price appreciation milestones for the Amended MSK License.

3. California Institute for Regenerative Medicine Award

On April 5, 2018, the Company executed an award agreement with the California Institute for Regenerative Medicine (CIRM) pursuant to which CIRM awarded the Company $4.0 million to advance the Company’s FT516 product candidate into a first-in-human clinical trial for the treatment of subjects with advanced solid tumors, including in combination with monoclonal antibody therapy (the Award). The Award is subject to certain co-funding requirements by the Company, and the Company is required to provide CIRM progress and financial update reports under the Award.

Pursuant to the terms of the Award, the Company, in its sole discretion, has the option to treat the Award either as a loan or as a grant. In connection with the Company's decision to discontinue its FT516 program during the first quarter of 2023, the Company reversed the liability associated with the Award and recorded such amount in other income during the three months ended March 31, 2023.

4. Investments

The Company invests portions of excess cash in United States treasuries, commercial paper, non-U.S. government securities, municipal securities, and corporate debt securities with maturities ranging from three to thirty-six months from the purchase date. These investments are accounted for as available-for-sale securities and are classified as short-term and long-term investments in the accompanying consolidated balance sheets based on each security’s contractual maturity date.

The following table summarizes the Company’s investments accounted for as available-for-sale securities as of March 31, 2023 and December 31, 2022 (in thousands, except for maturity in years):

 

 

 

Maturity
(in years)

 

Amortized
Cost

 

 

Unrealized
Losses

 

 

Unrealized
Gains

 

 

Estimated
Fair Value

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified as current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury debt securities

 

1 or less

 

$

108,628

 

 

$

(42

)

 

$

105

 

 

$

108,691

 

Non-U.S. government securities

 

1 or less

 

 

2,452

 

 

 

(6

)

 

 

 

 

 

2,446

 

Municipal securities

 

1 or less

 

 

14,978

 

 

 

(118

)

 

 

 

 

 

14,860

 

Corporate debt securities

 

1 or less

 

 

102,936

 

 

 

(427

)

 

 

7

 

 

 

102,516

 

Commercial paper

 

1 or less

 

 

138,559

 

 

 

(194

)

 

 

 

 

 

138,365

 

Total short-term investments

 

 

 

$

367,553

 

 

$

(787

)

 

$

112

 

 

$

366,878

 

Classified as non-current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury debt securities

 

Greater than 1

 

$

3,883

 

 

$

 

 

$

29

 

 

$

3,912

 

Total long-term investments

 

 

 

$

3,883

 

 

$

 

 

$

29

 

 

$

3,912

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified as current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury debt securities

 

1 or less

 

$

79,251

 

 

$

(263

)

 

$

37

 

 

$

79,025

 

Non-US government securities

 

1 or less

 

 

2,425

 

 

 

(2

)

 

 

 

 

 

2,423

 

Municipal securities

 

1 or less

 

 

18,963

 

 

 

(208

)

 

 

 

 

 

18,755

 

Corporate debt securities

 

1 or less

 

 

123,996

 

 

 

(1,138

)

 

 

3

 

 

 

122,861

 

Commercial paper

 

1 or less

 

 

152,056

 

 

 

(230

)

 

 

4