The following discussion and analysis should be read in conjunction with ourfinancial statements and accompanying notes included in this Quarterly Report onForm 10-Q and the financial statements and accompanying notes thereto for thefiscal year ended December 31, 2022 and the related Management's Discussion andAnalysis of Financial Condition and Results of Operations, which are containedin our Annual Report on Form 10-K filed with the Securities and ExchangeCommission on February 28, 2023.

This Quarterly Report on Form 10-Q contains "forward-looking statements" withinthe meaning of Section 27A of the Securities Act and Section 21E of theSecurities Exchange Act of 1934, as amended (the Exchange Act). Suchforward-looking statements, which represent our intent, belief, or currentexpectations, involve risks and uncertainties and other factors that could causeactual results and the timing of certain events to differ materially from futureresults expressed or implied by such forward-looking statements. In some casesyou 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 orcontribute to differences in results include, but are not limited to, those setforth under "Risk Factors" under Item 1A of Part II below. Except as required bylaw, we undertake no obligation to update these forward-looking statements toreflect events or circumstances after the date of this report or to reflectactual outcomes.

Overview

We are a clinical-stage biopharmaceutical company dedicated to bringing afirst-in-class pipeline of programmed cellular immunotherapies to patients withcancer and autoimmune disorders. Our development of first-in-class cell therapyproduct candidates is based on a simple notion: we believe that better celltherapies start with better cells.

To create better cell therapies, we have pioneered a therapeutic approach thatwe generally refer to as cell programming: we create and engineer human inducedpluripotent stem cells (iPSCs) to incorporate novel synthetic controls of cellfunction; we generate a clonal master iPSC line for use as a renewable source ofcell manufacture; and we direct the fate of the clonal master iPSC line toproduce our first-in-class cell therapy product candidate. Analogous to mastercell lines used to manufacture biopharmaceutical drug products such asmonoclonal antibodies, we believe clonal master iPSC lines can be used to massproduce multiplexed-engineered cellular immunotherapies which are well-definedand uniform in composition, can be stored in inventory for off-the-shelfavailability, can be combined and administered with other therapies, and canhave broader patient reach.

Utilizing this therapeutic approach, we are advancing a cell therapy pipelinecomprised of off-the-shelf, multiplexed-engineered, iPSC-derived natural killer(NK) and T-cell product candidates that are selectively designed, incorporatenovel synthetic controls of cell function, and are intended to deliver multiplemechanisms of therapeutic importance to patients for the treatment of cancer andautoimmune diseases.

We have entered into a research collaboration and license agreement with theRegents of the University of Minnesota to develop off-the-shelf, engineeredNK-cell cancer immunotherapies derived from clonal master iPSC lines.Additionally, we have entered into a research collaboration and licenseagreement with Memorial Sloan Kettering Cancer Center (MSK) to developoff-the-shelf, engineered T-cell cancer immunotherapies derived from clonalmaster iPSC lines.

In September 2018, we entered into a collaboration and option agreement (OnoAgreement) with Ono Pharmaceutical Co. Ltd. (Ono) for the joint development andcommercialization of off-the-shelf, iPSC-derived CAR T-cell product candidatesfor the treatment of cancer. In June 2022, we entered into an amendment (OnoAmendment) to the Ono Agreement to expand the collaboration to include theresearch and development of off-the-shelf, iPSC-derived CAR NK-cell productcandidates, and pursuant to the Ono Agreement, Ono agreed to provide novelbinding domains targeting a second solid tumor antigen under the collaboration.

In April 2020, we entered into a collaboration and option agreement with JanssenBiotech, Inc. (Janssen), part of the Janssen Pharmaceutical Companies of Johnson& Johnson (Janssen Agreement), for the development and commercialization ofoff-the-shelf, iPSC-derived CAR NK and CAR T-cell product candidates for thetreatment of cancer. Through the period ending December 31, 2022, Janssen hadexercised a commercial option for two collaboration candidates: an iPSC-derived,CAR-targeted NK cell product candidate for the treatment of B-cell lymphoma, forwhich the U.S. Food and Drug Administration (FDA) allowed an Investigational NewDrug (IND) application in December 2022; and an iPSC-derived, CAR-targeted NKcell product candidate for the treatment of multiple myeloma, for which thecompanies were preparing to submit an IND application to the FDA in early 2023.On January 3, 2023, we received notice of termination from Janssen of theJanssen Agreement. The termination of the Janssen Agreement took effect on April3, 2023, and during the three months ended March 31, 2023, we performed winddown activities, including discontinuing development of all collaborationproduct candidates, including two product candidates that were expected to enterthe clinic in 2023.

In January 2023, we announced the discontinuation of our FT516, FT596, FT538,and FT536 NK cell programs to focus our resources on advancing our mostinnovative and differentiated programs.

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We were incorporated in Delaware in 2007, and are headquartered in San Diego,CA. Since our inception in 2007, we have devoted substantially all of ourresources to our cell programming approach and the research and development ofour product candidates, the creation, licensing and protection of relatedintellectual property, and the provision of general and administrative supportfor these activities. To date, we have funded our operations primarily throughthe public and private sale of common stock, the private placement of preferredstock and convertible notes, commercial bank debt and revenues fromcollaboration activities and grants.

We have never been profitable and have incurred net losses in each year sinceinception. Substantially all of our net losses resulted from costs incurred inconnection with our research and development programs and from general andadministrative costs associated with our operations. We expect to continue toincur operating losses for at least the foreseeable future. Our net losses mayfluctuate significantly from quarter to quarter and year to year. We expect ourexpenses will increase substantially in connection with our ongoing and plannedactivities as we:

conduct our ongoing and planned clinical trials of our product candidates, whichmay include higher clinical trial expenses associated with arrangements we mayenter into with clinical research organizations (CROs) for the execution andmanagement of certain clinical trials, including trials outside of the UnitedStates;

conduct Good Manufacturing Practice (GMP) production, including through the useof contract manufacturing organizations (CMOs) for the conduct of some or all ofthe activities required for manufacturing our iPSC-derived cell productcandidates, process and scale-up development and technology transfer activitiesfor the manufacture of our product candidates, including those undergoingclinical investigation and IND-enabling preclinical development;

procure laboratory equipment, materials and supplies for the manufacture of ourproduct candidates and the conduct of our research activities;

conduct preclinical and clinical research to investigate the therapeuticactivity of our product candidates;

continue our research, development and manufacturing activities, including underour sponsored research and collaboration agreement with Ono;

maintain, prosecute, protect, expand and enforce our intellectual propertyportfolio;

engage with regulatory authorities for the development of, and seek regulatoryapprovals for, our product candidates;

build out business operations at our corporate headquarters, including internalGMP production capabilities;

continue to implement the corporate restructuring and reduction in force that weannounced in January 2023; and

continue operating as a public company and support our operations and developcommercial infrastructure for potential commercialization of our productcandidates.

We do not expect to generate any meaningful revenues from product sales,royalties, or sales milestones unless and until we successfully completedevelopment and obtain regulatory approval for one or more of our productcandidates, which we expect will take a number of years. If we obtain regulatoryapproval for any of our product candidates, we expect to incur significantcommercialization expenses related to product sales, marketing, manufacturingand distribution. Accordingly, we will seek to fund our operations throughpublic or private equity or debt financings, collaboration arrangements, orother sources. However, we may be unable to raise additional funds or enter intosuch other arrangements when needed on favorable terms or at all. Our failure toraise capital or enter into such other arrangements when needed would have anegative effect on our financial condition and ability to develop our productcandidates.

Financial Operations Overview

We conduct substantially all of our activities through Fate Therapeutics, Inc.,a Delaware corporation, at our facilities headquartered in San Diego,California. The results of operations include the operations of the Company andits subsidiaries. To date, the aggregate operations of our subsidiaries have notbeen significant and all intercompany transactions and balances have beeneliminated in consolidation.

Collaboration Revenue

To date, we have not generated any revenues from therapeutic product sales orroyalties. Our revenues have been derived from collaboration agreements andgovernment grants.

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Agreement with Janssen Biotech, Inc.

On April 2, 2020 (the Janssen Agreement Effective Date), we entered into aCollaboration and Option Agreement (the Janssen Agreement) with Janssen Biotech,Inc. (Janssen), part of the Janssen Pharmaceutical Companies of Johnson &Johnson. Additionally, on the Janssen Agreement Effective Date, we entered intoa Stock Purchase Agreement (the Stock Purchase Agreement) with Johnson & JohnsonInnovation - JJDC, Inc. (JJDC). Under the terms of the Janssen Agreement and theStock Purchase Agreement taken together, we received $100.0 million, of which$50.0 million was an upfront cash payment and $50.0 million was in the form ofan equity investment by JJDC. Additionally, we are entitled to receive fees forthe conduct of all research, preclinical development and IND-enabling activitiesperformed by us under the Janssen Agreement.

We determined the common stock purchase by JJDC represented a premium of $9.93per 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.

On January 3, 2023, we received notice of termination from Janssen of theJanssen Agreement. The termination will take effect on April 3, 2023, and duringthe three months ending March 31, 2023, we performed wind down activities,including discontinuing development of all collaboration product candidatesunder the Janssen Agreement. We expect to be reimbursed for all wind downactivities associated with the termination of the Janssen Agreement in thesecond quarter of this year. Under the terms of the Janssen Agreement, inconnection with the termination, (i) all licenses and other rights granted toeither party pursuant to the Janssen Agreement have terminated, subject tolimited exceptions set forth in the Janssen Agreement; (ii) both parties havewound down all development, commercialization and manufacturing activities underthe Janssen Agreement; (iii) neither party has any right to continue to develop,manufacture or commercialize any collaboration candidate or collaborationproduct or use the other party's materials; and (iv) neither party is restrictedfrom independently developing, manufacturing, or commercializing any product,including any products directed to the same antigens as those of anycollaboration candidate or collaboration product.

During the three months ended March 31, 2023, we recognized $52.3 million ofcollaboration revenue under the Janssen Agreement, of which $41.2 million waspreviously deferred. During the three months ended March 31, 2022, we recognized$15.9 million of collaboration revenue under the Janssen Agreement.

Agreement with Ono Pharmaceutical Co., Ltd.

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

We concluded that certain units of account within the Ono Agreement representeda customer relationship and in accordance with ASC 606, we determined that theinitial transaction price under the Ono Agreement equals $30.0 million,consisting of the upfront, non-refundable and non-creditable payment of $10.0million and the aggregate estimated research and development fees of $20.0million. In addition, we identified our performance obligations under the OnoAgreement, including our grant to Ono of a license to certain of ourintellectual property subject to certain conditions, our conduct of researchservices, and our participation in a joint steering committee. We determinedthat all performance obligations should be accounted for as one combinedperformance obligation since no individual performance obligation is distinct,and that the combined performance obligation is transferred over the expectedterm of the conduct of the research services, which is estimated to be fouryears.

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

In June 2022, we entered into an amendment with Ono to the Ono Agreement (theOno Amendment). Pursuant to the Ono Amendment, the companies agreed to designatean additional antigen expressed on certain solid tumors for research andpreclinical development, and Ono agreed to contribute proprietary antigenbinding domains targeting such additional solid tumor antigen (Candidate 3). Inaddition, for both Candidate 2 and Candidate 3, the companies expanded the scopeof the collaboration to include the research and development of iPSC-derived CARNK cell product candidates (in addition to iPSC-derived CAR T-cell productcandidates) targeting the designated solid tumor antigens. Similar to Candidate2, we granted to Ono, during a specified period of time, a preclinical option toobtain an exclusive license under certain intellectual property rights, subjectto payment of an option exercise fee to us by Ono, to develop and commercializeCandidate 3 in all territories of the world, where we retain rights toco-develop and co-commercialize Candidate 3 in the United States and Europeunder a joint arrangement with Ono under which we are eligible to share at least50% of the profits and losses. We maintained worldwide rights of manufacture forCandidate 3. The preclinical option expires upon the earlier of: (a) September30, 2024, or (b) the achievement of the pre-defined preclinical milestone underthe joint development plan for Candidate 3. Subject to payment of an extensionfee by Ono, Ono may choose to defer its

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decision to exercise the preclinical option until no later than June 2026. Underthe Ono Amendment, aggregate estimated research and development fees have beenincreased by approximately $9.3 million, for a total estimated $29.3 million inaggregate research and development fees over the course of the joint developmentplan.

In November 2022, Ono exercised its preclinical option to Candidate 2, and weexercised our preclinical option to co-develop and co-commercialize (CDCCOption) in the United States and Europe under a joint arrangement with Ono. As aresult, we received an option exercise fee of $12.5 million from Ono.

During the three months ended March 31, 2023, we recognized $6.7 million ofcollaboration revenue and $1.0 million of contra-research and developmentexpense under the Ono Agreement. During the three months ended March 31, 2022,we recognized $2.5 million of collaboration revenue under the Ono Agreement.

Research and Development Expenses

Research and development expenses consist of costs associated with the research,preclinical development, process and scale-up development, manufacture andclinical development of our product candidates, the research and development ofour cell programming technology including our iPSC product platform, and theperformance of research and development activities under our collaborationagreements. These costs are expensed as incurred and include:

salaries and employee-related costs, including stock-based compensation;

costs incurred under clinical trial agreements with investigative sites;

costs to acquire, develop and manufacture preclinical study and clinical trialmaterials, including our product candidates;

costs associated with conducting our preclinical, process and scale-updevelopment, manufacturing, clinical and regulatory activities, including feespaid to third-party professional consultants, service providers and suppliers;

costs incurred for our research, development and manufacturing activities,including under our collaboration agreements;

costs for laboratory equipment, materials and supplies for the manufacture ofour product candidates and the conduct of our research activities;

costs incurred to license and maintain intellectual property; and

facilities, depreciation and other expenses including allocated expenses forrent and maintenance of facilities.

We plan to increase our current level of research and development expenses forthe foreseeable future as we continue the clinical and preclinical developmentand manufacture of our product candidates, research and develop our iPSC productplatform, and perform our obligations under collaboration agreements includingunder our agreements with Ono, University of Minnesota and MSK. Our currentplanned research and development activities over the next twelve months consistprimarily of the following:

conducting clinical trials of our product candidates, including through theengagement of CROs to manage various aspects of our clinical trials;

conducting GMP production, including through the use of CMOs for the conduct ofsome or all of the activities required for manufacturing our iPSC-derived cellproduct candidates, process and scale-up development and technology transferactivities for the manufacture of our product candidates, including thoseundergoing clinical investigation and IND-enabling preclinical development;

procuring laboratory equipment, materials and supplies for the manufacture ofour product candidates and the conduct of our research activities;

conducting preclinical and clinical research to investigate the therapeuticactivity of our product candidates; and

conducting research, development and manufacturing activities, including underour sponsored research and collaboration agreement with Ono.

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Due to the inherently unpredictable nature of preclinical and clinicaldevelopment and manufacture, and given our novel therapeutic approach and thecurrent stage of development of our product candidates, we cannot determine andare unable to estimate with certainty the timelines we will require and thecosts we will incur for the development and manufacture of our productcandidates. Clinical and preclinical development and manufacturing timelines andcosts, and the potential of development and manufacturing success, can differmaterially from expectations. In addition, we cannot forecast which productcandidates may be subject to future collaborations, when such arrangements willbe secured, if at all, and to what degree such arrangements would affect ourdevelopment and manufacturing plans and capital requirements. We cannot predictthe effects of the impact of global economic and market conditions, the COVID-19pandemic and the ongoing conflict in Ukraine on our business and operations, andour expenditures may be increased by delays or disruptions due to these or otherfactors, including as a result of actions we take in the near term to ensurebusiness continuity and protect against possible supply chain shortages.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries andemployee-related costs, including stock-based compensation, for our employees inexecutive, operational, finance and human resource functions; professional feesfor accounting, legal and tax services; costs for obtaining, prosecuting,maintaining, and enforcing our intellectual property; and other costs and fees,including director and officer insurance premiums, to support our operations asa public company. We anticipate that our general and administrative expenseswill increase in the future as we increase our research and developmentactivities, maintain compliance with exchange listing and SEC requirements,protect and enforce our intellectual property, and continue to operate as apublic company.

Other Income (Expense)

Other income (expense) consists of changes in the fair value of stock priceappreciation milestones associated with the Amended and Restated ExclusiveLicense Agreement dated May 15, 2018 (Amended MSK License) with Memorial SloanKettering Cancer Center (MSK), interest income earned on cash and cashequivalents and interest income from investments (including the amortization ofdiscounts and premiums).

California Institute for Regenerative Medicine Award

On April 5, 2018, we executed an award agreement with the California Institutefor Regenerative Medicine (CIRM) pursuant to which CIRM awarded us $4.0 millionto advance our FT516 product candidate into a first-in-human clinical trial (theAward). In November 2019, we submitted an IND application for FT516 in advancedsolid tumors. As of March 31, 2023, we have received aggregate disbursementsunder the Award in the amount of $4.0 million.

Pursuant to the terms of the Award, we, in our sole discretion, have the optionto treat the Award either as a loan or as a grant. In connection with ourdecision to discontinue our FT516 program during the first quarter of 2023, wereversed the liability associated with the Award, and recorded such amount inother income during the three months ended March 31, 2023.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and resultsof operations are based on our unaudited condensed consolidated financialstatements, which have been prepared in accordance with United States generallyaccepted accounting principles. The preparation of these unaudited condensedconsolidated financial statements requires us to make estimates and judgmentsthat affect the reported amounts of assets, liabilities, revenues, and expensesand the disclosure of contingent assets and liabilities in our financialstatements. On an ongoing basis, we evaluate our estimates and judgments,including those related to the fair value of the stock price appreciationmilestones for the Amended MSK License, contracts containing leases, accruedexpenses, stock-based compensation, and the estimated total costs expected to beincurred under our collaboration agreements. We base our estimates on historicalexperience, known trends and events, financial models, and various other factorsthat are believed to be reasonable under the circumstances, the results of whichform the basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. Actual results maydiffer from these estimates under different assumptions or conditions.

The estimates and judgments involved in our accounting policies as described inItem 7 of our Annual Report on Form 10-K for the year ended December 31, 2022,continue to be our critical accounting policies and there have been no othermaterial changes to our critical accounting policies during the three monthsended March 31, 2023.

See Note 1 to the unaudited condensed consolidated financial statements for asummary of critical accounting policies and information related to recentaccounting pronouncements.

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Results of Operations

Comparison of the Three Months Ended March 31, 2023 and 2022

The following table summarizes the results of our operations for the threemonths ended March 31, 2023 and 2022 (in thousands):

Collaboration Revenue. During the three months ended March 31, 2023 and 2022, werecognized revenue of $59.0 million and $18.4 million, respectively, under ourcollaboration agreements with Janssen and Ono. The increase in collaborationrevenue was attributable to recognition of deferred revenue balances associatedto the Janssen contract termination.

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FATE THERAPEUTICS INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q) - Marketscreener.com