FATE THERAPEUTICS INC

Previous wording

On September 14, 2018, we entered into the Ono Agreement for the joint development and commercialization of two iPSC-derived CAR T-cell product candidates (Candidate 1 and Candidate 2). Pursuant to the terms of the Ono Agreement, we received an upfront, non-refundable and non-creditable payment of $10.0 million. Additionally, we are entitled to receive fees for the conduct of research and development under a joint development plan, which fees were estimated to be $20.0 million in aggregate.

Current wording

On September 14, 2018, we entered into the Ono Agreement for the joint development and commercialization of two iPSC-derived CAR T-cell product candidates (Candidate 1 and Candidate 2). Pursuant to the terms of the Ono Agreement, we received an upfront, non-refundable and non-creditable payment of $10.0 million. Additionally, we are entitled to receive fees for the conduct of research and preclinical development under a joint research plan, which fees were estimated to be $20.0 million in aggregate.

Previous wording

In December 2020, we entered into a letter agreement with Ono pursuant to which Ono delivered proprietary antigen binding domains targeting an antigen expressed on certain solid tumors for incorporation into Candidate 2 and paid the Company a milestone fee of $10.0 million for further research and development of Candidate 2. In addition, Ono terminated all further research and development with respect to Candidate 1, and we retained all rights to research, develop and commercialize Candidate 1 throughout the world without any obligation to Ono.

Current wording

In December 2020, we entered into a letter agreement with Ono (the Ono Letter Agreement) 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 preclinical development of Candidate 2. In addition, Ono terminated all further research and preclinical development with respect to Candidate 1, and we retained all rights to research, develop and commercialize Candidate 1 throughout the world without any obligation to Ono.

Previous wording

In June 2022, we 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, the companies expanded the scope of the collaboration to include the research and development of iPSC-derived CAR NK cell product candidates (in addition to iPSC-derived CAR T-cell product candidates) targeting the designated solid tumor antigens. Similar to Candidate 2, we granted to Ono, during a specified period of time, a preclinical option to obtain an exclusive license under certain intellectual property rights, subject to payment of an option exercise fee to us by Ono, to develop and commercialize Candidate 3 in all territories of the world, where we retain rights to co-develop and co-commercialize Candidate 3 in the United States and Europe under a joint arrangement with Ono under which we are eligible to share at least 50% of the profits and losses. We maintained worldwide rights of manufacture for Candidate 3. The preclinical option expires upon the earlier of: (a) September 30, 2024, or (b) the achievement of the pre-defined preclinical milestone under the joint development plan for Candidate 3. Subject to payment of an extension fee by Ono, Ono may choose to defer its decision to exercise the preclinical option until no later than June 2026. Under the 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.

Current wording

In June 2022, we 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, the companies expanded the scope of the collaboration to include the research and preclinical development of iPSC-derived CAR NK cell product candidates (in addition to iPSC-derived CAR T-cell product candidates) targeting the designated solid tumor antigens. Similar to Candidate 2, we granted to Ono, during a specified period of time, a preclinical option (Candidate 3 Development Option) to obtain an exclusive license under certain intellectual property rights, subject to payment of an option exercise fee to us by Ono, to further develop and commercialize Candidate 3 in all territories of the world, where we retain rights to co-develop and co-commercialize Candidate 3 in the United States and Europe under a joint arrangement with Ono under which we are eligible to share at least 50% of the profits and losses. The Candidate 3 Development Option represents an option with no material right. We maintained worldwide rights of manufacture for Candidate 3. The Candidate 3 Development Option expires upon the earlier of: (a) September 30, 2024, or (b) the achievement of the pre-defined preclinical milestone under the joint research plan for Candidate 3. Subject to payment of an extension fee by Ono, Ono may choose to defer its decision to exercise the Candidate 3 Development Option until no later than June 2026. Under the 2022 Ono Amendment, aggregate estimated research and preclinical development fees have been increased by approximately $9.3 million, for a total estimated $29.3 million in aggregate research and preclinical development fees over the course of the joint research plan.

Previous wording

In November 2022, Ono exercised its preclinical option to Candidate 2, and we exercised our preclinical option to co-develop and co-commercialize (CDCC Option) in the United States and Europe under a joint arrangement with Ono. As a result, we recognized an option exercise fee of $12.5 million from Ono during the year ended December 31, 2022. We received the option exercise fee payment during the year ended December 31, 2023.

Current wording

In November 2022, Ono exercised its option to obtain a license to develop and commercialize Candidate 2 (the Candidate 2 Development Option), and we exercised our option to co-develop and co-commercialize in the United States and Europe under a joint arrangement with Ono. As a result, we recognized an option exercise fee of $12.5 million from Ono during the year ended December 31, 2022. We and Ono are proceeding under a joint development plan for the ongoing development of Candidate 2, and, as such, we have initiated clinical studies for Candidate 2. The costs of this joint development plan are accounted for in accordance with ASC 808, and cost sharing payments to us from Ono are recorded as contra-research and development expenses.

Previous wording

On November 30, 2023, we entered into an amendment with Ono to the Ono Agreement (the 2023 Ono Amendment). Under the 2023 Ono Amendment, aggregate estimated research and development fees payable to us by Ono 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.

Current wording

On November 30, 2023, we entered into an amendment with Ono to the Ono Agreement (the 2023 Ono Amendment). Under the 2023 Ono Amendment, aggregate estimated research and preclinical development fees payable to us by Ono have been increased by approximately $1.4 million, for a total estimated $30.7 million in aggregate research and preclinical development fees over the course of the joint research plan.

Previous wording

We account for the Ono Agreement as a revenue contract under ASC 606. The initial transaction price as amended under the 2023 Ono Amendment was determined to be $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. We identified our promised goods and services under the Ono Agreement to include our grant to Ono of a license to certain of our intellectual property subject to certain conditions, our conduct of research services, and our participation in a joint steering committee. We determined that the promised goods and services should be accounted for as one combined performance obligation. We recognize revenue for the combined performance obligation over time as the research services are performed.

Current wording

We account for the Ono Agreement, Ono Letter Agreement, and Ono Amendments (collectively, the Ono Arrangement) as a revenue contract under ASC 606. The initial transaction price under the Ono Arrangement was determined to be $40.7 million, consisting of the upfront, non-refundable and non-creditable payment of $10.0 million, the aggregate estimated research and preclinical development fees of $30.7 million. We also concluded that the Candidate 2 milestone fee of $10.0 million for further research and preclinical development of Candidate 2 represented a variable consideration that was previously constrained. We identified our promised goods and services under the Ono Arrangement to include our grant to Ono of a research license to certain of our intellectual property subject to certain conditions, our conduct of research and preclinical development services, and our participation in a joint steering committee. We determined that the promised goods and services should be accounted for as one combined performance obligation. We recognize revenue for the combined performance obligation over time as the research and preclinical development services are performed.

Previous wording

During the three months ended March 31, 2024, we recognized $1.9 million of collaboration revenue and $0.8 million of contra-research and development expense under the Ono Agreement. During the three months ended March 31, 2023, we recognized $6.7 million of collaboration revenue and $1.0 million of contra-research and development expense under the Ono Agreement.

Current wording

During the three and six months ended June 30, 2024, we recognized $6.8 million and $8.7 million of collaboration revenue, respectively, and $1.1 million and $2.0 million of contra-research and development expense, respectively, under the Ono Arrangement. During the three months ended June 30, 2024, we achieved a clinical development milestone under the Ono Arrangement and received a cash payment of $5.0 million. The milestone payment is included as revenue during the three months ended June 30, 2024. During the three and six months ended June 30, 2023, we recognized $0.9 million and $7.6 million of collaboration revenue, respectively, and $2.8 million and $3.8 million of contra-research and development expense, respectively, under the Ono Arrangement.

Previous wording

During the three months ended March 31, 2023, we recognized $52.3 million of collaboration revenue under the Janssen Agreement, of which $41.2 million was previously deferred.

Current wording

During the six months ended June 30, 2023, we recognized $52.3 million of collaboration revenue under the Janssen Agreement, of which $41.2 million was deferred as of December 31, 2022. No revenue was recognized during the three months ended June 30, 2023 under the Janssen Agreement.

Previous wording

Other income (expense) consists of changes in the fair value of stock price appreciation milestones associated with the Amended MSKCC License with MSKCC, interest income earned on cash and cash equivalents and interest income from investments (including the amortization of discounts and premiums).

Current wording

Other income consists of changes in the fair value of stock price appreciation milestones associated with the Amended MSKCC License with MSKCC, interest income earned on cash and cash equivalents and interest income from investments (including the amortization of discounts and premiums).

Previous wording

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). We finalized and executed the Award agreement in April 2024. Pursuant to the terms of the Award and certain co-funding requirements, we will receive five disbursements in varying amounts, with one disbursement receivable upon the execution of the 2024 CIRM Award, and four disbursements receivable based on the completion of certain development milestones throughout the project period of the 2024 CIRM Award, which is estimated to be from April 1, 2024 to March 31, 2028 (the Project Period). We are required to provide CIRM progress and financial update reports throughout the Project Period.

Current wording

In February 2024, we were awarded $7.9 million from the California Institute for Regenerative Medicine (CIRM) to support the conduct of the Company’s Phase 1 study of FT819 in patients with systemic lupus erythematosus and, in April 2024, we executed an award agreement with CIRM (the FT819 CIRM Award). Pursuant to the terms of the FT819 CIRM Award, we are eligible to receive five disbursements in varying amounts from CIRM, with one disbursement receivable upon the execution of the award and four disbursements receivable based upon the completion of certain development milestones throughout the period of the award, which is estimated to be from April 1, 2024 to March 31, 2028 (the Award Period). Under the FT819 CIRM Award, we have certain obligations of co-funding and are required to provide CIRM progress and financial update reports throughout the Award Period.

Previous wording

On April 5, 2018, we executed an award agreement with the California Institute for Regenerative Medicine (CIRM) pursuant to which CIRM awarded us $4.0 million to advance our FT516 product candidate into a first-in-human clinical trial (the 2018 CIRM Award). In November 2019, we submitted an IND application for FT516 in advanced solid tumors.

Current wording

In April 2018, we executed an award agreement with CIRM pursuant to which CIRM awarded us $4.0 million to advance our FT516 product candidate into a first-in-human clinical trial for the treatment of subjects with advanced solid tumors (the FT516 CIRM Award). Under the FT516 CIRM Award, we have certain obligations of co-funding and are required to provide CIRM with progress and financial update reports.

Previous wording

Pursuant to the terms of the 2018 CIRM Award, we, in our sole discretion, have the option to treat the 2018 CIRM Award either as a loan or as a grant. During the first quarter of 2023, we 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 year ended December 31, 2023.

Current wording

Pursuant to the terms of the FT516 CIRM Award, we, in our sole discretion, have the option to treat the FT516 CIRM Award either as a loan or as a grant. During the first quarter of 2023, we elected to treat the FT516 CIRM Award as a grant. As such, the liability associated with the FT516 CIRM Award was reversed and such amount was recorded as other income during the first quarter of 2023.

Previous wording

The estimates and judgments involved in our accounting policies, as described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, continue to be our critical accounting policies and there have been no other material changes to our critical accounting policies during the three months ended March 31, 2024.

Current wording

The estimates and judgments involved in our accounting policies, as described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, continue to be our critical accounting policies and there have been no other material changes to our critical accounting policies during the six months ended June 30, 2024.

Previous wording

Research and development expenses. Research and development expenses were $32.1 million for the three months ended March 31, 2024, compared to $65.6 million for the three months ended March 31, 2023. The decrease in research and development expenses was attributable primarily to the following:

Current wording

Research and development expenses. Research and development expenses were $34.6 million for the three months ended June 30, 2024, compared to $40.9 million for the three months ended June 30, 2023. The decrease in research and development expenses was attributable primarily to the following:

Previous wording

$10.5 million decrease in third-party professional consultant and clinical trial related expense; and

Current wording

$6.2 million decrease in third-party professional consultant and clinical trial related expense.

Previous wording

General and administrative expenses. General and administrative expenses were $20.9 million for the three months ended March 31, 2024, compared to $21.9 million for the three months ended March 31, 2023. The decrease in general and administrative expenses was attributable primarily to a $2.8 million decrease in employee compensation and benefits expense, including a $0.7 million decrease in employee stock-based compensation expense, partially offset by an increase to patent and legal expenses of $2.2 million.

Current wording

General and administrative expenses. General and administrative expenses were $17.3 million for the three months ended June 30, 2024, compared to $22.6 million for the three months ended June 30, 2023. The decrease in general and administrative expenses was attributable primarily to a $2.2 million decrease in employee compensation and benefits expense, including a $1.7 million decrease in employee stock-based compensation expense, a $1.0 million decrease in third-party professional consultant expense, and a $0.6 million decrease in patent and legal expenses.

Previous wording

Other income (expense), net. Other income (expense), net was $3.1 million and $9.7 million for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024, we recorded $1.4 million in other expense attributable to the change in fair value of the stock price appreciation milestones under the Amended MSKCC License. Other income (expense), net for the three months ended March 31, 2024 also consisted of interest income earned on cash and cash equivalents and interest income from investments (including the amortization of discounts and premiums).

Current wording

Other income. Other income was $6.7 million and $9.8 million for the three months ended June 30, 2024 and 2023, respectively. During the three months ended June 30, 2024, we recorded other income of $1.6 million attributable to the change in fair value of the stock price appreciation milestones under the Amended MSKCC License. Other income for the three months ended June 30, 2024 also consisted of interest income earned on cash and cash equivalents and interest income from investments (including the amortization of discounts and premiums).

Previous wording

Collaboration Revenue. During the three months ended March 31, 2024 and 2023, we recognized revenue of $1.9 million and $59.0 million, respectively, under our collaboration agreements with Janssen and Ono. The decrease in collaboration revenue was primarily attributable to the Janssen contract termination in April 2023. The following table summarizes the revenue recognized with respect to each collaboration partner for the three months ended March 31, 2024 and 2023:

Current wording

Collaboration Revenue. During the six months ended June 30, 2024 and 2023, we recognized revenue of $8.7 million and $59.9 million, respectively, under our collaboration agreements with Janssen and Ono. The decrease in collaboration revenue was primarily attributable to the termination of the Janssen collaboration in 2023. The following table summarizes the revenue recognized with respect to each collaboration partner for the six months ended June 30, 2024 and 2023:

Previous wording

During the three months ended March 31, 2024, cash used in operating activities was $33.4 million compared to cash used in operating activities of $28.9 million during the three months ended March 31, 2023. The primary drivers of this change in cash used in operating activities was our increase of $29.1 million in net loss primarily due to the termination of the Janssen agreement and related decrease in revenue.

Current wording

During the six months ended June 30, 2024, cash used in operating activities was $65.7 million compared to cash used in operating activities of $57.4 million during the six months ended June 30, 2023. The primary drivers of this change in cash used in operating activities was our increase of $14.8 million in net loss primarily due to the termination of the Janssen agreement.

Previous wording

During the three months ended March 31, 2024, investing activities provided cash of $17.3 million compared to cash provided by investing activities of $9.3 million during the three months ended March 31, 2023. The change was primarily attributable to an increase in the net maturities of investments of $17.4 million during the three months ended March 31, 2024 compared to the net maturities of investments of $12.5 million during the three months ended March 31, 2023. All other investing activities for the periods presented were attributable to the purchase and maturities of investments.

Current wording

During the six months ended June 30, 2024, investing activities used cash of $36.1 million compared to cash provided by investing activities of $42.5 million during the six months ended June 30, 2023. The change was primarily attributable to an increase in the purchases of investments of $215.0 million during the six months ended June 30, 2024 compared to the purchases of investments of $206.7 million during the six months ended June 30, 2023. All other investing activities for the periods presented were attributable to the maturities of investments.

Previous wording

For the three months ended March 31, 2024, financing activities provided cash of $95.5 million, which primarily consisted of (i) the issuance of 14,545,454 shares of common stock at a purchase price of $5.50 per share in an underwritten offering of common stock in March 2024, (ii) the issuance of pre-funded warrants to purchase an aggregate of 3,636,364 shares of common stock at a purchase price of $5.499 per pre-funded warrant, which represents the offering price per share of common stock in the underwritten offering less the $0.001 exercise price per share of each pre-funded warrant, in a private placement concurrent with the underwritten offering and (iii) the issuance of common stock from equity incentive plans pursuant to the exercise of employee stock options.

Current wording

For the six months ended June 30, 2024, financing activities provided cash of $96.8 million, which primarily consisted of (i) the issuance of 14,545,454 shares of common stock at a purchase price of $5.50 per share in an underwritten offering of common stock in March 2024, (ii) the issuance of pre-funded warrants to purchase an aggregate of 3,636,364 shares of common stock at a purchase price of $5.499 per pre-funded warrant, which represents the offering price per share of common stock in the underwritten offering less the $0.001 exercise price per share of each pre-funded warrant, in a private placement concurrent with the underwritten offering, and (iii) the issuance of common stock from equity incentive plans pursuant to the exercise of employee stock options.

Previous wording

For the three months ended March 31, 2023, financing activities provided cash of $0.2 million, which consisted of the issuance of common stock from equity incentive plans pursuant to the exercise of employee stock options.

Current wording

For the six months ended June 30, 2023, financing activities provided cash of $0.3 million, which consisted of the issuance of common stock from equity incentive plans pursuant to the exercise of employee stock options.

Previous wording

From our inception through March 31, 2024, we have funded our consolidated operations primarily through the public and private sale of common stock, the issuance of warrants, the private placement of preferred stock and convertible notes, commercial bank debt and revenues from collaboration activities and grants. As of March 31, 2024, we had aggregate cash and cash equivalents and investments of $391.1 million.

Current wording

From our inception through June 30, 2024, we have funded our consolidated operations primarily through the public and private sale of common stock, the issuance of warrants, the private placement of preferred stock and convertible notes, commercial bank debt and revenues from collaboration activities and grants. As of June 30, 2024, we had aggregate cash and cash equivalents and investments of $352.0 million.

Previous wording

Inflation has persisted during the periods covered by this Quarterly Report on Form 10-Q, and may continue to increase or remain elevated for the near future. Inflationary factors, such as increases in the prices of material, interest rates and costs of labor, may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the near future, especially if inflation rates continue to rise.

Current wording

We do not believe that inflation has had a material impact on our financial position or results of operations to date; however, we may experience some effect if there is an elevated rate of inflation in the near future. Inflationary factors, such as increases in the prices of material, interest rates and costs of labor, may adversely affect our operating results.