FATE THERAPEUTICS INC

Previous wording

The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto for the fiscal year ended December 31, 2025 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2026.

Current wording

The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto for the fiscal year ended December 31, 2025 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2026 (Annual Report).

Previous wording

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Such forward-looking statements, which represent our intent, belief, or current expectations, involve risks and uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. In some cases you can identify forward-looking statements by terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions. Factors that could cause or contribute to differences in results include, but are not limited to, those set forth under “Risk Factors” under Item 1A of Part II below. Except as required by law, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

Current wording

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Such forward-looking statements, which represent our intent, belief, or current expectations, involve risks and uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. In some cases you can identify forward-looking statements by terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions. Factors that could cause or contribute to differences in results include, but are not limited to, those set forth under “Risk Factors” under Item 1A of Part II below and the section titled, “Forward-Looking Statements” in our Annual Report. Except as required by law, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

Previous wording

We conduct substantially all of our activities through Fate Therapeutics, Inc., a Delaware corporation, at our facilities headquartered in San Diego, California. Our results of operations include the operations of the Company and its subsidiaries. To date, the aggregate operations of our subsidiaries have not been significant and all intercompany transactions and balances have been eliminated in consolidation.

Current wording

We conduct substantially all of our activities through Fate Therapeutics, Inc., a Delaware corporation, at our facilities headquartered in San Diego, California. Our results of operations include our operations and those of our consolidated subsidiaries. To date, the aggregate operations of our subsidiaries have not been significant and all intercompany transactions and balances have been eliminated in consolidation.

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 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 pursuant to 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. 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.

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). 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 pursuant to 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.

Previous 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 Candidate 2 in the United States and Europe. As a result, we received and 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.

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 Candidate 2 in the United States and Europe. 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

In August 2024, we entered into an amendment with Ono to the Ono Agreement (the 2024 Ono Amendment). Under the 2024 Ono Amendment, the aggregate estimated research and preclinical development fees payable by Ono to us for Candidate 3 were increased by approximately $7.3 million, for a total estimated $38.0 million in aggregate research and preclinical development fees over the course of the joint development plan.

Current wording

In 2022, 2023, 2024, and 2025, the Company entered into amendments with Ono to the Ono Agreement (the Ono Amendments). Under the Ono Amendments, aggregate estimated research and preclinical development fees payable by Ono to the Company for Candidate 3 were increased to a total estimated $44.5 million over the course of the joint development plan.

Previous wording

In June 2025, we entered into an amendment with Ono to the Ono Agreement (the 2025 Ono Amendment, and collectively with the 2024 Ono Amendment, 2023 Ono Amendment, and 2022 Ono Amendment, the Ono Amendments). Under the 2025 Ono Amendment, aggregate estimated research and preclinical development fees payable by Ono to us for Candidate 3 were increased by approximately $6.5 million, for a total estimated $44.5 million in aggregate research and preclinical development fees over the course of the joint development plan. We will continue to receive committed funding under the joint development plan from Ono through June 2026. The Candidate 3 Development Option expires upon the achievement of the pre-defined preclinical milestone under the joint development plan.

Current wording

As of June 30, 2026, the performance obligations related to the research and preclinical development on Candidate 3 have been met. We have received all committed funding under the preclinical joint development plan from Ono through June 2026. The Candidate 3 Development Option expires upon the achievement of the pre-defined clinical milestone under the joint development plan.

Previous wording

We account for the Ono Agreement, Ono Letter Agreement, and Ono Amendments (collectively, the Ono Arrangement) under ASC 808. We concluded that certain units of account, specifically the grant of a research license to certain intellectual property and the performance of research and preclinical development, within the Ono Arrangement represented a customer relationship and applied relevant guidance from ASC 606 to evaluate the appropriate accounting for those units of account. The initial transaction price under the Ono Arrangement was determined to be $54.5 million, consisting of the upfront, non-refundable and non-creditable payment of $10.0 million, the aggregate estimated research and preclinical development fees of $44.5 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.

Current wording

We account for the Ono Agreement, Ono Letter Agreement, and Ono Amendments (collectively, the Ono Arrangement) under ASC 808. We concluded that certain units of account, specifically the grant of a research license to certain intellectual property and the performance of research and preclinical development, within the Ono Arrangement represented a customer relationship and applied relevant guidance from ASC 606 to evaluate the appropriate accounting for those units of account. The initial transaction price under the Ono Arrangement was determined to be $54.5 million, consisting of the upfront, non-refundable and non-creditable payment of $10.0 million, the aggregate estimated research and preclinical development fees of $44.5 million. 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 recognized revenue for the combined performance obligation over time as the research and preclinical development services were performed, and such performance obligation was completed as of June 30, 2026.

Previous wording

During the three months ended March 31, 2026, we recognized $1.3 million of collaboration revenue and $1.1 million of contra-research and development expense under the Ono Agreement. During the three months ended March 31, 2025, we recognized $1.6 million of collaboration revenue and $1.9 million of contra-research and development expense under the Ono Arrangement.

Current wording

During the three and six months ended June 30, 2026, we recognized $2.1 million and $3.4 million of collaboration revenue, respectively, and $0.8 million and $1.9 million of contra-research and development expense, respectively, under the Ono Agreement. During the three and six months ended June 30, 2025, we recognized $1.9 million and $3.5 million of collaboration revenue, respectively, and $1.3 million and $3.3 million of contra-research and development expense, respectively, under the Ono Arrangement.

Previous wording

Since we may, at our election, repay some or all of the FT819 CIRM Award, we account for the award as a liability until the time of election. As of March 31, 2026, we have received three disbursements under the award in the aggregate amount of $6.6 million, which is recorded as a liability on the accompanying consolidated balance sheets. As of March 31, 2026, the total amount received is recorded as a CIRM liability in the consolidated balance sheets, with $5.3 million classified as current and the remaining $1.3 million as non-current, based on the portion we expect to be payable within twelve months from the balance sheet date.

Current wording

Since we may, at our election, repay some or all of the FT819 CIRM Award, we account for the award as a liability until the time of election. As of June 30, 2026, we have received four disbursements under the award in the aggregate amount of $7.9 million, which is recorded as a liability on the accompanying consolidated balance sheets. As of June 30, 2026, the total amount received is recorded as a CIRM liability in the consolidated balance sheets, with $6.3 million classified as current and the remaining $1.6 million as non-current, based on the portion we expect to be payable within twelve months from the balance sheet date.

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, 2025, 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, 2026.

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, 2025, 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, 2026.

Previous wording

Collaboration Revenue. During the three months ended March 31, 2026 and 2025, we recognized revenue of $1.3 million and $1.6 million, respectively, under our collaboration agreement with Ono.

Current wording

Collaboration Revenue. During the three months ended June 30, 2026 and 2025, we recognized revenue of $2.1 million and $1.9 million, respectively, under our collaboration agreement with Ono.

Previous wording

Research and development expenses. Research and development expenses were $24.7 million for the three months ended March 31, 2026, compared to $29.1 million for the three months ended March 31, 2025. The decrease in research and development expenses was attributable primarily to the following:

Current wording

Research and development expenses. Research and development expenses were $24.4 million for the three months ended June 30, 2026, compared to $27.4 million for the three months ended June 30, 2025. The decrease in research and development expenses was attributable primarily to the following:

Previous wording

$2.2 million decrease in employee compensation and benefits expense, including a $1.7 million decrease in employee stock-based compensation expense;

Current wording

$2.3 million decrease in employee compensation and benefits expense, including a $2.0 million decrease in employee stock-based compensation expense;

Previous wording

General and administrative expenses. General and administrative expenses were $9.6 million for the three months ended March 31, 2026, compared to $13.8 million for the three months ended March 31, 2025. The decrease in general and administrative expenses was attributable primarily to a $1.8 million decrease in employee stock-based compensation expense and a $0.5 million decrease in patent and legal expenses.

Current wording

General and administrative expenses. General and administrative expenses were $8.8 million for the three months ended June 30, 2026, compared to $11.4 million for the three months ended June 30, 2025. The decrease in general and administrative expenses was attributable primarily to a $1.6 million decrease in employee stock-based compensation expense, a $0.4 million decrease in third-party professional consultant and advisory fees, and a $0.3 million decrease in patent and legal expenses.

Previous wording

Other income (expense), net. Other income (expense), net was $1.8 million and $3.7 million for the three months ended March 31, 2026 and 2025, respectively. During the three months ended March 31, 2026, we recorded $0.1 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, 2026 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 (expense), net. Other income (expense), net was $1.0 million and $2.9 million for the three months ended June 30, 2026 and 2025, respectively. During the three months ended June 30, 2026, we recorded $0.6 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 June 30, 2026 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

$0.7 million decrease in laboratory materials and supplies expenses relating to the manufacture of our product candidates.

Current wording

$0.8 million decrease in laboratory materials and supplies expenses relating to the manufacture of our product candidates; partially offset by

Previous wording

During the three months ended March 31, 2025, we recorded $0.3 million in other income 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, 2025 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

During the six months ended June 30, 2025, we recorded $0.2 million in other income attributable to the change in fair value of the stock price appreciation milestones under the Amended MSKCC License. Other income (expense), net for the six months ended June 30, 2025 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

We have incurred losses and negative cash flows from operations since inception. As of March 31, 2026, we had an accumulated deficit of $1.6 billion and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our cash, cash equivalents and short-term investments as of March 31, 2026 of $174.8 million will be sufficient to fund operations for at least the next twelve months from the date of issuance of these condensed consolidated financial statements.

Current wording

We have incurred losses and negative cash flows from operations since inception. As of June 30, 2026, we had an accumulated deficit of $1.6 billion and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our cash, cash equivalents and short-term investments as of June 30, 2026 of $153.8 million will be sufficient to fund operations for at least the next twelve months from the date of issuance of these condensed consolidated financial statements.

Previous wording

During the three months ended March 31, 2025, net cash used in operating activities was $33.8 million and primarily consisted of a net loss of $37.6 million adjusted for non-cash items including stock-based compensation of $7.4 million and depreciation and amortization of $3.3 million.

Current wording

During the six months ended June 30, 2026, net cash used in operating activities was $54.3 million and primarily consisted of a net loss of $61.4 million adjusted for non-cash items including stock-based compensation of $7.4 million and depreciation and amortization of $5.7 million.

Previous wording

During the three months ended March 31, 2026, net cash used in operating activities was $30.8 million and primarily consisted of a net loss of $31.2 million adjusted for non-cash items including stock-based compensation of $3.9 million and depreciation and amortization of $2.9 million.

Current wording

During the six months ended June 30, 2025, net cash used in operating activities was $58.4 million and primarily consisted of a net loss of $71.7 million adjusted for non-cash items including stock-based compensation of $14.5 million and depreciation and amortization of $6.6 million.

Previous wording

During the three months ended March 31, 2026, investing activities provided net cash of $23.6 million compared to cash provided by investing activities of $42.7 million during the three months ended March 31, 2025. During the three months ended March 31, 2026, we purchased $28.7 million of investments, which were offset by $52.6 million in maturities of investments. During the three months ended March 31, 2025, we purchased $48.6 million of investments, which were offset by $92.5 million in maturities of investments. The remaining investing activities for the periods presented were primarily attributable to the purchase of property and equipment.

Current wording

During the six months ended June 30, 2026, investing activities provided net cash of $38.1 million compared to cash provided by investing activities of $62.3 million during the six months ended June 30, 2025. During the six months ended June 30, 2026, we purchased $87.1 million of investments, which were offset by $125.6 million in maturities of investments. During the six months ended June 30, 2025, we purchased $99.4 million of investments, which were offset by $164.1 million in maturities of investments. The remaining investing activities for the periods presented were primarily attributable to the purchase of property and equipment.

Previous wording

From our inception through March 31, 2026, we have funded our consolidated operations primarily through the public and private sale of common stock and pre-funded warrants, the private placement of preferred stock and convertible notes, commercial bank debt and revenues from collaboration activities and grants. As of March 31, 2026, we had aggregate cash and cash equivalents and investments of $174.8 million.

Current wording

From our inception through June 30, 2026, we have funded our consolidated operations primarily through the public and private sale of common stock and pre-funded warrants, the private placement of preferred stock and convertible notes, commercial bank debt and revenues from collaboration activities and grants. As of June 30, 2026, we had aggregate cash and cash equivalents and short-term investments of $153.8 million.

Previous wording

In November 2023, the SEC declared effective a shelf registration statement on Form S-3 filed by us in November 2023 (File No. 333-275402). The shelf registration statement allows us to issue certain securities, including shares of our common stock, from time to time. The specific terms of any offering under the shelf registration statement would be established at the time of such offering. We were initially eligible to issue an aggregate of $300.0 million in securities under the shelf registration statement. Additionally, we entered into a sales agreement with Jefferies Group LLC (Jefferies) with respect to an at-the-market offering program, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $100.0 million (which is included in the $300.0 million registered under the shelf registration statement) through Jefferies as the sales agent.

Current wording

In November 2023, the SEC declared effective our shelf registration statement on Form S-3 filed (File No. 333-275402). The shelf registration statement allows us to issue certain securities, including shares of our common stock, from time to time. The specific terms of any offering under the shelf registration statement would be established at the time of such offering. We were initially eligible to issue an aggregate of $300.0 million in securities under the shelf registration statement. Additionally, we entered into a sales agreement with Jefferies Group LLC (Jefferies) with respect to an at-the-market offering program, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $100.0 million (which is included in the $300.0 million registered under the shelf registration statement) through Jefferies as the sales agent.

Previous wording

In March 2024, we entered into an underwriting agreement with BofA Securities, Inc., Jefferies, and Leerink Partners LLC with respect to an underwritten public offering, under which we sold 14,545,454 shares of our common stock at a purchase price of $5.50 per share pursuant to the shelf registration statement. To date, we have not sold any securities pursuant to the sales agreement with Jefferies and are eligible to issue an aggregate of approximately $220.0 million under the shelf registration statement (including the $100.0 million issuable pursuant to the sales agreement with Jefferies).

Current wording

In March 2024, we entered into an underwriting agreement with BofA Securities, Inc., Jefferies, and Leerink Partners LLC with respect to an underwritten public offering, under which we sold 14,545,454 shares of our common stock at a purchase price of $5.50 per share pursuant to the shelf registration statement. As of June 30, 2026, no securities were sold pursuant to the sales agreement with Jefferies and we are eligible to issue an aggregate of approximately $220.0 million under the shelf registration statement (including the $100.0 million issuable pursuant to the sales agreement with Jefferies).