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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, 2024

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 May 2, 2024, 113,831,969 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, 2024 (Unaudited) and December 31, 2023

 

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023 (Unaudited)

 

6

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (Unaudited)

 

7

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

8

Item 2.

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

 

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

29

Item 4.

Controls and Procedures

 

29

 

 

 

 

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

30

Item 1A.

Risk Factors

 

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

74

Item 3.

Defaults Upon Senior Securities

 

74

Item 4.

Mine Safety Disclosures

 

74

Item 5.

Other Information

 

74

Item 6.

Exhibits

 

75

 

 

 

 

SIGNATURES

 

77

 

 

 

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 and programs represent novel therapeutic approaches to treating cancer and autoimmune diseases, and our product candidates may cause undesirable side effects or have other properties that could delay or halt their preclinical or 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.
Our proprietary induced pluripotent stem cell (iPSC) product platform enables the production of next-generation product candidates, and we have multiple iPSC-derived natural killer (NK) cell and T-cell product candidates currently undergoing clinical development. We may elect to deprioritize or discontinue the clinical development of one or more of our product candidates for any number of reasons, including due to changes in our business strategy, in our prioritization of our product candidates, and the competitive therapeutic landscape for which our product candidates are being developed. In addition, one or more of our product candidates undergoing clinical development may have therapeutic potential in more than one disease area, and we may elect to discontinue clinical development in one disease area in order to pursue the development of such product candidate in another disease area.
We use 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 preclinical studies or clinical trials that we announce or publish from time to time may change as more 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 U.S. 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 to manufacture sufficient quantities of our product candidates consistently and at acceptable quality and costs may result in delays to our clinical development plans and impair our ability to obtain approval for, or commercialize, our product candidates and would materially and adversely affect our business.
Development of our product candidates will require substantial additional funding, which, if available, may cause dilution to our stockholders, and 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 depend on third-party suppliers, including sole source suppliers, for the provision of reagents, materials, devices and equipment that are used by us 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.
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, cash utilization and results.

3


 

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.
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 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 fields of cancer and autoimmunity, and on changes to the competitive therapeutic landscape and clinical treatment standards, the majority 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.
Our stock price is subject to fluctuation based on a variety of factors.
We recently qualified as a “smaller reporting company” and a “non-accelerated filer,” and any decision on our part to comply with only certain reduced reporting and disclosure requirements applicable to such companies could make our stock less attractive to investors.
Global economic and market conditions, any continued and prolonged public health emergency similar to the COVID-19 pandemic, wars and other armed conflicts, including the ongoing conflicts between Russia and Ukraine and between Israel and Hamas, could adversely impact various aspects of our business, results of operations and financial condition, and could cause disruptions to our supply chain and the development and manufacture of our product candidates.
 

 

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,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

121,322

 

 

$

41,870

 

Accounts receivable

 

 

858

 

 

 

1,826

 

Short-term investments

 

 

262,222

 

 

 

273,305

 

Prepaid expenses and other current assets

 

 

9,973

 

 

 

14,539

 

Total current assets

 

 

394,375

 

 

 

331,540

 

Long-term investments

 

 

7,595

 

 

 

980

 

Property and equipment, net

 

 

92,116

 

 

 

96,836

 

Operating lease right-of-use assets

 

 

60,620

 

 

 

61,675

 

Restricted cash

 

 

15,177

 

 

 

15,177

 

Other assets

 

 

9

 

 

 

9

 

Total assets

 

$

569,892

 

 

$

506,217

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,765

 

 

$

4,719

 

Accrued expenses

 

 

32,043

 

 

 

27,514

 

Deferred revenue

 

 

159

 

 

 

685

 

Operating lease liabilities, current portion

 

 

6,402

 

 

 

6,176

 

Total current liabilities

 

 

45,369

 

 

 

39,094

 

Operating lease liabilities, net of current portion

 

 

95,668

 

 

 

97,360

 

Stock price appreciation milestones

 

 

2,740

 

 

 

1,346

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; authorized shares—5,000,000
   at March 31, 2024 and December 31, 2023; Class A Convertible Preferred
   shares issued and outstanding—
2,761,108 at March 31, 2024 and December 31, 2023

 

 

3

 

 

 

3

 

Common stock, $0.001 par value; authorized shares—250,000,000 at
   March 31, 2024 and December 31, 2023; issued and outstanding—
113,798,942 
   at March 31, 2024 and
98,627,076 at December 31, 2023

 

 

114

 

 

 

99

 

Additional paid-in capital

 

 

1,685,928

 

 

 

1,580,032

 

Accumulated other comprehensive income (loss)

 

 

(194

)

 

 

15

 

Accumulated deficit

 

 

(1,259,736

)

 

 

(1,211,732

)

Total stockholders’ equity

 

 

426,115

 

 

 

368,417

 

Total liabilities and stockholders’ equity

 

$

569,892

 

 

$

506,217

 

 

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,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

Collaboration revenue

 

$

1,925

 

 

$

58,980

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

32,138

 

 

 

65,629

 

General and administrative

 

 

20,855

 

 

 

21,943

 

Total operating expenses

 

 

52,993

 

 

 

87,572

 

Loss from operations

 

 

(51,068

)

 

 

(28,592

)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

4,149

 

 

 

3,694

 

Change in fair value of stock price appreciation milestones

 

 

(1,394

)

 

 

1,718

 

Other income

 

 

309

 

 

 

4,299

 

Total other income

 

 

3,064

 

 

 

9,711

 

Net loss

 

$

(48,004

)

 

$

(18,881

)

Other comprehensive income (loss):

 

 

 

 

 

 

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

 

 

(209

)

 

 

1,208

 

Comprehensive loss

 

$

(48,213

)

 

$

(17,673

)

Net loss per common share, basic and diluted

 

$

(0.47

)

 

$

(0.19

)

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

 

 

101,104,345

 

 

 

98,054,687

 

 

See accompanying notes.

 

6


 

Fate Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(48,004

)

 

$

(18,881

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

4,821

 

 

 

4,191

 

Stock-based compensation

 

 

10,981

 

 

 

10,983

 

Accretion and amortization of premiums and discounts on investments, net

 

 

(2,631

)

 

 

(2,295

)

Amortization of collaboration contract assets

 

 

 

 

 

7,196

 

Deferred revenue

 

 

(525

)

 

 

(40,488

)

Change in fair value of stock price appreciation milestones

 

 

1,394

 

 

 

(1,718

)

Grant income from 2018 CIRM Award

 

 

 

 

 

(4,000

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

968

 

 

 

24,980

 

Prepaid expenses and other assets

 

 

4,565

 

 

 

11,901

 

Accounts payable and accrued expenses

 

 

(4,507

)

 

 

(20,393

)

Right-of-use assets and lease liabilities, net

 

 

(412

)

 

 

(336

)

Net cash used in operating activities

 

 

(33,350

)

 

 

(28,860

)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(86

)

 

 

(3,208

)

Purchases of investments

 

 

(86,335

)

 

 

(114,452

)

Maturities of investments

 

 

103,735

 

 

 

127,000

 

Net cash provided by investing activities

 

 

17,314

 

 

 

9,340

 

Financing activities

 

 

 

 

 

 

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

 

 

299

 

 

 

207

 

Proceeds from public offering of common stock, net of issuance costs

 

 

75,193

 

 

 

 

Proceeds from issuance of pre-funded warrants, net of issuance costs

 

 

19,996

 

 

 

 

Net cash provided by financing activities

 

 

95,488

 

 

 

207

 

Net change in cash, cash equivalents and restricted cash

 

 

79,452

 

 

 

(19,313

)

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

 

 

57,047

 

 

 

76,560

 

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

 

$

136,499

 

 

$

57,247

 

Supplemental schedule of noncash investing and financing activities

 

 

 

 

 

 

Purchases of property and equipment in accounts payable

 

$

14

 

 

$

612

 

Accrued issuance costs included in additional paid-in-capital

 

$

558

 

 

$

 

 

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, induced pluripotent stem cell (iPSC)-derived cellular immunotherapies to patients for the treatment of cancer and autoimmune diseases.

As of March 31, 2024, 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 product candidates. To date, the Company’s revenues have been derived from collaboration agreements and government grants.

Public Equity Offering

In March 2024, the Company completed a public offering of common stock in which investors purchased 14,545,454 shares of the Company’s common stock at a public offering price of $5.50 per share under a shelf registration statement. Gross proceeds from the public offering were approximately $80.0 million, and, after giving effect to $5.3 million of costs related to the public offering, net proceeds were approximately $74.7 million.

Private Placement of Pre-Funded Warrants

In March 2024, in conjunction with the public offering, the Company issued in a private placement, in lieu of common stock to certain investors, pre-funded warrants to purchase 3,636,364 shares of the Company’s common stock (2024 Pre-Funded Warrants) (see Note 8). The purchase price of the 2024 Pre-Funded Warrants was $5.499 per pre-funded warrant, which equals the per share public offering price for the shares of common stock issued in the March 2024 public offering, less the $0.001 exercise price for each pre-funded warrant, for aggregate net proceeds of approximately $20.0 million.

Use of Estimates

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (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, 2024 and 2023 (in thousands):

8


 

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

121,322

 

 

$

42,020

 

Restricted cash

 

 

15,177

 

 

 

15,227

 

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

 

$

136,499

 

 

$

57,247

 

 

For each of the three months ended March 31, 2024 and 2023, the restricted cash balance includes cash-collateralized irrevocable standby letters of credit for $15.2 million associated with the Company’s facilities leases.

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 U.S. 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, 2023, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed by the Company with the SEC on February 26, 2024. 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, 2024 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.

 

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.

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

9


 

right-of-use (ROU) assets, current operating lease liabilities, and non-current operating lease liabilities in the Company’s 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 the Company’s 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.

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 3,893,674 pre-funded warrants associated with the January 2021 public equity offering and the private placement concurrent with the March 2024 public equity offering (see Note 8) are included in the weighted-average common shares outstanding 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.

Basic and diluted net loss per share attributable to stockholders for the three months ended March 31, 2024 and 2023 are calculated as follows (in thousands, except share and per share data):

10


 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(48,004

)

 

$

(18,881

)

Denominator:

 

 

 

 

 

 

Shares used to compute net loss per share, basic and diluted

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

100,447,435

 

 

 

97,797,377

 

Weighted-average pre-funded warrants

 

 

656,910

 

 

 

257,310

 

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

 

 

101,104,345

 

 

 

98,054,687

 

Net loss per share, basic and diluted

 

 

 

 

 

 

Basic and diluted

 

$

(0.47

)

 

$

(0.19

)

 

The following weighted-average outstanding shares of potentially dilutive securities are excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Convertible preferred stock

 

 

13,805,540

 

 

 

13,972,745

 

Outstanding options to purchase common stock

 

 

13,308,902

 

 

 

11,874,180

 

Outstanding restricted stock units

 

 

3,468,958

 

 

 

3,970,765

 

Total

 

 

30,583,400

 

 

 

29,817,690

 

 

2. Collaboration and License Agreements

Ono Collaboration and Option Agreement

On September 14, 2018, the Company entered into a Collaboration and Option Agreement (the Ono Agreement) with Ono Pharmaceutical Co., Ltd. (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 2022 Ono Amendment). Pursuant to the 2022 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 2022 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.

11


 

On November 7, 2022, Ono exercised its option for continued development of Candidate 2. Upon Ono’s exercise of the option, 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, 2024, the Company recognized contra-research and development expense of $0.8 million. As of March 31, 2024, the Company has received $8.0 million in aggregate cost-sharing payments from Ono.

On November 30, 2023, the Company entered into an amendment with Ono to the Ono Agreement (the 2023 Ono Amendment and collectively with the 2022 Ono Amendment, the Ono Amendments). Under the 2023 Ono Amendment, aggregate estimated research and development fees payable by Ono to the Company have been increased by approximately $1.4 million, for a total estimated $30.7 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 Amendments), 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 the 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 Amendments 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 Amendments 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. 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 2023 Ono Amendment equaled $40.7 million, consisting of the upfront, non-refundable and non-creditable payment of $10.0 million and the aggregate estimated research and development fees of $30.7 million. The upfront payment of $10.0 million was recorded as deferred revenue and was 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 was 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.

As a direct result of the Company’s entry into the Ono Agreement, the Ono Amendments, and the Ono Letter Agreement, the Company incurred an aggregate of $7.8 million in sublicense consideration to existing licensors. 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. The Company recognized no such expense during the three months ended March 31, 2024 and 2023.

The Company recognized revenue of $1.9 million under the Ono Agreement for the three months ended March 31, 2024. All such revenue was associated with research services for the three months ended March 31, 2024. During the three months ended

12


 

March 31, 2023, the Company recognized revenue of $6.7 million under the Ono Agreement. All of such revenue was associated with research services for the three months ended March 31, 2023. As of March 31, 2024, aggregate deferred revenue related to the research services under the Ono Agreement was $0.2 million, all of which is classified as current.

As of March 31, 2024, the Company has received $34.1 million in aggregate research and development fees from Ono.

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). 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 was reimbursed for all wind-down activities.

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. 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. Additionally, the Company received full funding for the conduct of all research, preclinical development and Investigational New Drug Application (IND)-enabling activities performed by the Company under the Janssen Agreement.

In connection with the Janssen Agreement, the Company incurred $17.1 million in sublicense fees to certain of its existing licensors. 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, the Company recognized $7.2 million of such expense. As of March 31, 2024, 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.

Prior to termination of the Janssen Agreement, the Company had received $82.0 million in aggregate research and development fees from Janssen.

Memorial Sloan Kettering Cancer Center License Agreement

On May 15, 2018, the Company entered into an Amended and Restated Exclusive License Agreement (Amended MSKCC License) with MSKCC. The Amended MSKCC License amends and restates the Exclusive License Agreement entered into between the Company and MSKCC on August 19, 2016 (Original MSKCC License), pursuant to which the Company entered into an exclusive license agreement with MSKCC for rights relating to compositions and methods covering iPSC-derived cellular immunotherapy, including T-cells and NK-cells derived from iPSCs engineered with chimeric antigen receptors (CARs).

Pursuant to the Amended MSKCC License, MSKCC 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 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 MSKCC License, in which case it is obligated to pay MSKCC a percentage of certain sublicense income received by the Company.

The Company is obligated to pay to MSKCC 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, MSKCC 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 MSKCC 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

13


 

average closing price of the Company’s common stock as of the effective date of the Amended MSKCC License, adjusted for any stock splits, cash dividends, stock dividends, other distributions, combinations, recapitalizations, or similar events. Under the terms of the Amended MSKCC 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 MSKCC 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 MSKCC 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 MSKCC 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, 2024:

 

 

 

As of March 31,

 

 

As of December 31,

 

 

 

2024

 

 

2023

 

Risk-free interest rate

 

 

4.3

%

 

 

4.0

%

Expected volatility

 

 

84.1

%

 

 

84.0

%

Estimated term (in years)

 

 

14.8

 

 

 

15.0

 

Closing stock price as of remeasurement date

 

$

7.34

 

 

$

3.74

 

 

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 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, 2024 and 2023, the Company recorded $1.4 million of expense and $1.7 million of income, respectively, associated with the change in fair value of the stock price appreciation milestones. As of March 31, 2024 and December 31, 2023, the Company recorded a liability of $2.7 million and $1.3 million, respectively, associated with the stock price appreciation milestones for the Amended MSKCC License.

3. California Institute for Regenerative Medicine Awards

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 2018 CIRM Award). The 2018 CIRM 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 2018 CIRM Award.

Pursuant to the terms of the 2018 CIRM Award, the Company, in its sole discretion, has the option to treat the 2018 CIRM Award either as a loan or as a grant. During the first quarter of 2023, the Company elected to treat the 2018 CIRM Award as a grant and derecognized the liability associated with the 2018 CIRM Award and recorded such amount in other income during the three months ended March 31, 2023.

On February 22, 2024, the Company received approval from CIRM for funding of a $7.9 million grant (the 2024 CIRM Award) to support the conduct of the Company’s Phase 1 study of FT819 in patients with systemic lupus erythematosus (SLE). The Company finalized and executed the Award agreement in April 2024. Pursuant to the terms of the 2024 CIRM Award and certain co-funding requirements, the Company will receive five disbursements in varying amounts, with one disbursement receivable upon the execution

14


 

of the 2024 CIRM Award, and four disbursements receivable based on the completion of certain development milestones throughout the project period of the Award, which is estimated to be from April 1, 2024 to March 31, 2028 (the Project Period). The Company is required to provide CIRM progress and financial update reports throughout the Project Period.

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, 2024 and December 31, 2023 (in thousands, except for maturity in years):

 

 

 

Maturity
(in years)

 

Amortized
Cost

 

 

Unrealized
Losses

 

 

Unrealized
Gains

 

 

Estimated
Fair Value

 

March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified as current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

1 or less

 

$

101,163

 

 

$

 

 

$

 

 

$

101,163

 

U.S. Treasury debt securities

 

1 or less

 

 

45,844

 

 

 

(33

)

 

 

 

 

 

45,811

 

Municipal securities

 

1 or less

 

 

3,212

 

 

 

(1

)

 

 

 

 

 

3,211

 

Corporate debt securities

 

1 or less

 

 

87,415

 

 

 

(86

)

 

 

7

 

 

 

87,336

 

Commercial paper

 

1 or less

 

 

133,581

 

 

 

(101

)

 

 

14

 

 

 

133,494

 

Total short-term investments

 

 

 

$

371,215

 

 

$

(221

)

 

$

21

 

 

$

371,015

 

Classified as non-current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury debt securities

 

Greater than 1

 

$

1,957

 

 

$

(5

)

 

$

 

 

$

1,952

 

Corporate debt securities

 

Greater than 1

 

 

5,636

 

 

 

(4

)

 

 

11

 

 

 

5,643

 

Total long-term investments

 

 

 

$

7,593

 

 

$

(9

)

 

$

11

 

 

$

7,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified as current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

1 or less

 

$

35,273

 

 

$

 

 

$

 

 

$

35,273

 

U.S. Treasury debt securities

 

1 or less

 

 

82,811

 

 

 

(34

)

 

 

27

 

 

 

82,804

 

Non-US government securities

 

1 or less

 

 

999

 

 

 

 

 

 

 

 

 

999

 

Municipal securities

 

1 or less

 

 

5,000

 

 

 

(3

)

 

 

 

 

 

4,997

 

Corporate debt securities

 

1 or less

 

 

47,144

 

 

 

(51

)

 

 

14

 

 

 

47,107

 

Commercial paper

 

1 or less

 

 

137,339

 

 

 

(62

)

 

 

121

 

 

 

137,398

 

Total short-term investments

 

 

 

$

308,566

 

 

$

(150

)

 

$

162

 

 

$

308,578

 

Classified as non-current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

Greater than 1

 

$

977

 

 

$

 

 

$

3

 

 

$

980

 

Total long-term investments

 

 

 

$

977

 

 

$

 

 

$

3

 

 

$

980

 

 

As of March 31, 2024 and December 31, 2023, the Company had $0.9 million and $0.9 million, respectively, of accrued interest on investments recorded in prepaid expenses and other assets on the unaudited condensed consolidated balance sheets.

15


 

5. Fair Value Measurements

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 (in thousands):

 

 

 

 

 

 

Fair Value Measurements at
Reporting Date Using

 

 

 

Total

 

 

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

As of March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

101,163

 

 

$

101,163

 

 

$

 

 

$

 

U.S. Treasury debt securities

 

 

47,763

 

 

 

47,763

 

 

 

 

 

 

 

Municipal securities

 

 

3,211

 

 

 

 

 

 

3,211

 

 

 

 

Corporate debt securities

 

 

92,979

 

 

 

 

 

 

92,979

 

 

 

 

Commercial paper

 

 

133,494

 

 

 

 

 

 

133,494

 

 

 

 

Total financial assets measured at fair value on a recurring basis

 

$

378,610

 

 

$

148,926

 

 

$

229,684

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Stock price appreciation milestones

 

$

2,740

 

 

$

 

 

$

 

 

$

2,740

 

Total financial liabilities measured at fair value on a recurring basis

 

$

2,740

 

 

$

 

 

$

 

 

$

2,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

35,273

 

 

$

35,273

 

 

$

 

 

$

 

U.S. Treasury debt securities

 

 

82,804

 

 

 

82,804

 

 

 

 

 

 

 

Non-U.S. government securities

 

 

999

 

 

 

 

 

 

999

 

 

 

 

Municipal securities

 

 

4,997

 

 

 

 

 

 

4,997

 

 

 

 

Corporate debt securities

 

 

48,087

 

 

 

 

 

 

48,087

 

 

 

 

Commercial paper

 

 

137,398

 

 

 

 

 

 

137,398

 

 

 

 

Total assets measured at fair value on a recurring basis

 

$

309,558

 

 

$

118,077

 

 

$

191,481

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Stock price appreciation milestones

 

$

1,346

 

 

$

 

 

$

 

 

$

1,346

 

Total financial liabilities measured at fair value on a recurring basis

 

$

1,346

 

 

$

 

 

$

 

 

$

1,346

 

 

Level 1 assets consisted of money market funds and U.S. Treasury securities measured at fair value based on quoted prices in active markets as provided by the Company’s investment managers.

 

Level 2 assets consisted of corporate debt securities, commercial paper, municipal securities, and non-U.S. government securities measured at fair value using standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers. The Company validates the quoted market prices provided by its investment managers by comparing the investment managers’ assessment of the fair values of the Company’s investment portfolio balance against the fair values of the Company’s investment portfolio balance obtained from an independent source.

There were no Level 3 assets held by the Company as of March 31, 2024.

 

Level 3 liabilities consisted of stock price appreciation milestones associated with the Amended MSKCC License as described in detail in Note 2.

16


 

The following table presents the changes in fair value of the Company’s Level 3 stock price appreciation milestones liability for the three months ended March 31, 2024 (in thousands):

 

Balance at December 31, 2023

 

$

1,346

 

Changes in fair value of stock price appreciation milestones liability

 

 

1,394

 

Balance at March 31, 2024

 

$

2,740

 

 

The following table presents the changes in fair value of the Company’s Level 3 stock price appreciation milestones liability for the three months ended March 31, 2023 (in thousands):

 

Balance at December 31, 2022

 

$

3,861

 

Changes in fair value of stock price appreciation milestones liability

 

 

(1,718

)

Balance at March 31, 2023

 

$

2,143

 

 

6. Accrued Expenses

Accrued Expenses

Current accrued expenses consist of the following (in thousands):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Accrued clinical trial related costs

 

$

7,975

 

 

$

8,833

 

Accrued payroll and other employee benefits

 

 

5,414

 

 

 

10,563

 

Accrued other

 

 

18,654

 

 

 

8,118

 

Total current accrued expenses

 

$

32,043

 

 

$

27,514

 

 

7. Leases

The Company has lease agreements for office, laboratory and manufacturing spaces that are classified as operating leases on the unaudited condensed consolidated balance sheets. These leases have terms varying from one to approximately sixteen years, with renewal options of up to ten years, as well as early termination options. Extension and termination options are included in the total lease term when the Company is reasonably certain to exercise them. The leases are subject to additional variable charges, including common area maintenance, property taxes, property insurance and other variable costs. Given the variable nature of such costs, they are recognized as expense as incurred. Additionally, some of the Company’s leases are subject to certain fixed fees which the Company has determined to be non-lease components. The Company has elected to combine and account for lease and non-lease components as a single-lease component for purposes of determining the total future lease payments.

As of March 31, 2024, future undiscounted minimum contractual payments under the Company’s operating leases were $159.3 million, which will be paid over a remaining weighted-average lease term of 10.5 years. The weighted-average discount rate for the operating lease liabilities was 8.35%, which was the Company’s incremental borrowing rate at lease commencement, as the discount rates implicit in the leases could not be readily determined.

The components of lease expense were as follows (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Straight-line lease expense

 

$

3,221

 

 

$

3,318

 

Variable lease expense

 

 

887

 

 

 

613

 

Total operating lease expense

 

$

4,108

 

 

$

3,931

 

 

No short-term lease expense was recognized during the three months ended March 31, 2024 and 2023.

17


 

Future undiscounted minimum lease payments under the Company’s operating leases as of March 31, 2024 are as follows (in thousands):

 

 

 

Operating
Lease Payments

 

Remaining 2024

 

$

11,025

 

2025

 

 

15,087

 

2026

 

 

15,540

 

2027

 

 

16,006

 

2028

 

 

15,057

 

2029

 

 

10,602

 

Thereafter

 

 

75,978

 

Total undiscounted lease payments

 

$

159,295

 

Less: imputed interest

 

 

(57,225

)

Total lease liability

 

$

102,070

 

 

In April 2023, the Company entered into an agreement to sublease approximately 18,913 square feet of space, which sublease agreement commenced in April 2023 and expires in December 2028 with no option to extend the sublease term. Under the sublease agreement, rent is subject to scheduled annual increases and the subtenant is responsible for certain operating expenses and taxes throughout the term of the sublease.

Sublease income is recognized in other income. Sublease income for the three months ended March 31, 2024 and 2023 was as follows (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Sublease income

 

$

273

 

 

$

 

 

 

8. Convertible Preferred Stock and Stockholders’ Equity

Convertible Preferred Stock

In November 2016, the Company completed a private placement of stock in which investors, including investors affiliated with the directors and officers of the Company, purchased convertible preferred stock and common stock of the Company (the November 2016 Placement). The Company issued 2,819,549 shares of Class A Convertible Preferred Stock, $0.001 par value per share (the Class A Preferred), at $13.30 per share, each of which is convertible into five shares of common stock upon certain conditions defined in the Certificate of Designation of Preferences, Rights and Limitations of the Class A Preferred filed with the Delaware Secretary of State on November 22, 2016 (the CoD). The Class A Preferred were purchased exclusively by entities affiliated with Redmile Group, LLC (collectively, Redmile). The terms of the CoD prohibited Redmile from converting the Class A Preferred into shares of the Company’s common stock if, as a result of conversion, Redmile, together with its affiliates, would own more than 9.99% of the Company’s common stock then issued and outstanding (the Redmile Percentage Limitation), which percentage could change at Redmile’s election upon 61 days’ notice to the Company to (i) any other number less than or equal to 19.99% or (ii) subject to approval of the Company’s stockholders to the extent required in accordance with the NASDAQ Global Market rules, any number in excess of 19.99%. On May 2, 2017, the Company’s stockholders approved the issuance of up to an aggregate of 14,097,745 shares of common stock upon the conversion of the outstanding shares of Class A Preferred. As a result, Redmile has the right to increase the Redmile Percentage Limitation to any percentage in excess of 19.99% at its election. The Company also issued 7,236,837 shares of common stock at $2.66 per share as part of the November 2016 Placement. In April 2023, the Company filed with the office of the Secretary of State of the State of Delaware a Certificate of Amendment to Certificate of Designation of Preferences, Rights and Limitations of Class A Convertible Preferred Stock which amends the definition of Beneficial Ownership Limitation to be 14.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock pursuant to a Notice of Conversion. In April 2023, 33,441 shares of the Companys Class A Preferred were converted into 167,205 shares of the Company’s common stock.

The Class A Preferred are non-voting shares and are convertible into five shares of the Company’s common stock at a conversion price of $2.66 per share, which was the fair value of the Company’s common stock on the date of issuance of the Class A Preferred. Holders of the Class A Preferred have the same dividend rights as holders of the Company’s common stock. Additionally, the liquidation preferences of the Class A Preferred are pari passu among holders of the Company’s common stock and holders of the

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Class A Preferred, pro rata based on the number of shares held by each such holder (treated for this purpose as if the Class A Preferred had been converted to common stock).

Pre-Funded Warrants

In January 2021, in conjunction with a public offering, the Company issued pre-funded warrants, in lieu of common stock to certain investors, to purchase 257,310 shares of the Company’s common stock (2021 Pre-Funded Warrants). The purchase price for the 2021 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. Given that the 2021 Pre-Funded Warrants are indexed to the Company’s own shares of common stock (and otherwise meet the requirements to be classified in equity), the Company recorded the consideration received from the issuance of the warrants as additional paid-in capital on the Company’s unaudited condensed consolidated balance sheets.

In March 2024, in conjunction with a public offering, the Company issued in a private placement, in lieu of common stock to certain investors, pre-funded warrants to purchase 3,636,364 shares of the Company’s common stock (2024 Pre-Funded Warrants, and collectively with the 2021 Pre-Funded Warrants, the Pre-Funded Warrants). The purchase price for the 2024 Pre-Funded Warrants was $5.499 per pre-funded warrant, which equals the per share public offering price for the shares of common stock issued in the March 2024 public offering, less the $0.001 exercise price for each such pre-funded warrant. Given that the 2024 Pre-Funded Warrants are indexed to the Company’s own shares of common stock (and otherwise meet the requirements to be classified in equity), the Company recorded the consideration received from the issuance of the warrants as additional paid-in capital on the Company’s unaudited condensed consolidated balance sheets.

The Pre-Funded Warrants are exercisable at any time after the date of issuance. A holder of Pre-Funded Warrants may not exercise the Pre-Funded Warrant if the holder, together with its affiliates, would beneficially own more than 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise. A holder of Pre-Funded Warrants may increase or decrease this percentage not in excess of 19.99% by providing at least 61 days’ prior notice to the Company.

As of March 31, 2024, there were 3,893,674 Pre-Funded Warrants outstanding.

Stock Options and Restricted Stock Unit Awards

The following table summarizes stock option activity and related information under all equity plans for the period ended March 31, 2024:

 

 

 

Number of
Options

 

 

Weighted-
Average Price

 

Balance at December 31, 2023

 

 

9,850,841

 

 

$

13.71

 

Granted

 

 

3,745,625

 

 

 

6.77

 

Exercised

 

 

(45,438

)

 

 

6.57

 

Cancelled

 

 

(242,126

)

 

 

10.96

 

Balance at March 31, 2024

 

 

13,308,902

 

 

$

11.83

 

 

Restricted stock unit activity under all equity and stock option plans is summarized as follows:

 

 

 

Number of
Restricted Stock Units

 

 

Weighted-
Average Grant Date Fair Value per Share

 

Balance at December 31, 2023

 

 

3,065,087

 

 

$

37.96

 

Granted

 

 

1,076,100

 

 

 

6.76

 

Vested

 

 

(580,974

)

 

 

31.49

 

Cancelled