FATE THERAPEUTICS INC 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors, including those set forth under the caption “Item 1A. Risk Factors.” Overview We are a clinical-stage biopharmaceutical company dedicated to bringing a first-in-class pipeline of programmed cellular immunotherapies to patients with cancer and autoimmune diseases. Our development of programmed cellular immunotherapies is based on a simple notion: we believe that better cell therapies start with better cells. To create better cell therapies, we have pioneered a therapeutic approach that we generally refer to as cell programming: we create and engineer human induced pluripotent stem cells (iPSCs) to incorporate novel synthetic controls of cell function; we generate a clonal master iPSC line for use as a renewable source of cell manufacture; and we direct the fate of the clonal master iPSC line to produce our cell therapy product candidate. Analogous to master cell lines used to manufacture biopharmaceutical drug products such as monoclonal antibodies, we believe clonal master iPSC lines can be used to mass produce multiplexed-engineered cellular immunotherapies which are well-defined and uniform in composition, can be stored in inventory for off-the-shelf availability, can be combined and administered with other therapies, and can have broader patient reach. Utilizing our proprietary iPSC product platform, we are advancing off-the-shelf, multiplexed-engineered natural killer (NK) and T-cell product candidates which are selectively designed to incorporate novel synthetic controls of cell function, and are intended to deliver multiple therapeutic mechanisms to patients for the treatment of cancer and autoimmune diseases. We have a deep pipeline of iPSC-derived, chimeric antigen receptor (CAR)-targeted NK and T-cell product candidates currently under development with multiple clinical trials ongoing. In addition, we have entered into research collaborations and license agreements with academic institutes to support the development of our iPSC product platform and our off-the-shelf product candidates, including, among others, the Regents of the University of Minnesota and Memorial Sloan Kettering Cancer Center (MSKCC). We have also entered into collaborations with pharmaceutical companies to research, develop and commercialize off-the-shelf, multiplexed-engineered, iPSC-derived NK and T-cell product candidates for the treatment of cancer. In September 2018, we entered into a collaboration and option agreement (Ono Agreement) with Ono Pharmaceutical Co., Ltd. (Ono), under which we are currently researching and developing iPSC-derived CAR NK and CAR T-cell product candidates for the treatment of solid tumors. In April 2020, we entered into a collaboration and option agreement (Janssen Agreement) with Janssen Biotech, Inc. (Janssen), part of the Janssen Pharmaceutical Companies of Johnson & Johnson, for the research, development and commercialization of iPSC-derived CAR NK and CAR T-cell product candidates for the treatment of cancer. On January 3, 2023, we received notice of termination of the Janssen Agreement from Janssen, which took effect on April 3, 2023. We were incorporated in Delaware in 2007 and are headquartered in San Diego, California. Since our inception in 2007, we have devoted substantially all of our resources to our cell programming approach and the research and development of our product candidates, the creation, licensing and protection of related intellectual property, and the provision of general and administrative support for these activities. To date, we have funded our operations primarily through the public and private sale of common stock, the private placement of preferred stock and convertible notes, commercial bank debt and revenues from collaboration activities and grants. We have never been profitable and have incurred net losses in each year since inception. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur operating losses for at least the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect our expenses will remain significant in connection with our ongoing and planned activities as we: • conduct our ongoing and planned preclinical studies and clinical trials of our product candidates, which may include higher clinical trial expenses associated with arrangements we may enter into with clinical research organizations (CROs) for the execution and management of certain clinical trials, including trials outside of the United States; • conduct Good Manufacturing Practice (GMP) production, including through the use of contract manufacturing organizations (CMOs) for the conduct of some or all of the activities required for manufacturing our iPSC-derived cell product candidates, process and scale-up development and technology transfer activities for the manufacture of our product candidates, including those undergoing clinical investigation and IND application-enabling preclinical development; 81 Table of Contents • procure laboratory equipment, materials and supplies for the manufacture of our product candidates and the conduct of our research activities; • conduct preclinical and clinical research to investigate the therapeutic activity of our product candidates; • continue our research, development and manufacturing activities, including under our sponsored research and collaboration agreement with Ono; • maintain, prosecute, protect, expand and enforce our intellectual property portfolio; • engage with regulatory authorities for the development of, and seek regulatory approvals for, our product candidates; • continue our business operations at our corporate headquarters, including maintaining internal GMP production capabilities; and • continue operating as a public company and support our operations. We do not expect to generate any meaningful revenues from product sales, royalties, or sales milestones unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will seek to fund our operations through public or private equity or debt financings, collaboration arrangements, or other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative effect on our financial condition and ability to develop our product candidates. Financial Operations Overview Collaboration Revenue To date, we have not generated any revenues from therapeutic product sales or royalties. Our revenues have been derived from collaboration agreements and government grants. Agreement with Ono Pharmaceutical Co., Ltd. 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. 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. In June 2022, we entered into 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. 82 Table of Contents 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. On November 30, 2023, we entered into the 2023 Ono Amendment. Under the 2023 Ono Amendment, aggregate estimated research and development fees 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. 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. During the years ended December 31, 2023 and 2022, we recognized $11.2 million and $16.6 million, respectively, of collaboration revenue under the Ono Agreement. As of December 31, 2023, aggregate deferred revenue related to the Ono Agreement, Ono Letter Agreement, and Ono Amendments was $0.7 million. Agreement with Janssen Biotech, Inc. On April 2, 2020, we entered into the Janssen Agreement as well as a Stock Purchase Agreement (the Stock Purchase Agreement) with Johnson & Johnson Innovation - JJDC, Inc. (JJDC). On January 3, 2023, we received notice of termination from Janssen of the Janssen Agreement. The termination took effect on April 3, 2023, and during the three months ending March 31, 2023, we performed wind down activities, including discontinuing development of all collaboration product candidates under the Janssen Agreement. We were reimbursed for all wind down activities associated with the termination of the Janssen Agreement during the second quarter of this year. Under the terms of the Janssen Agreement and the Stock 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 of an equity investment by JJDC. We 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. Additionally, prior to termination of the Janssen Agreement, we received fees from Janssen for the conduct of all research, preclinical development and IND-enabling activities performed by us under the Janssen Agreement. In addition, Janssen had exercised a commercial option for two collaboration candidates: an iPSC-derived, CAR NK cell product candidate for the treatment of B-cell lymphoma, for which the U.S. Food and Drug Administration (FDA) allowed an Investigational New Drug (IND) application in December 2022; and an iPSC-derived, CAR NK cell product candidate for the treatment of multiple myeloma, for which the companies were preparing to submit an IND application to the FDA in early 2023. Research and Development Expenses Research and development expenses consist of costs associated with the research, preclinical development, process and scale-up development, manufacture and clinical development of our product candidates, the research and development of our cell programming technology including our iPSC product platform, and the performance of research and development activities under our collaboration agreements. 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 trial materials, including our product candidates; • costs associated with conducting our preclinical, process and scale-up development, manufacturing, clinical and regulatory activities, including fees paid 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 of our product candidates and the conduct of our research activities; • costs incurred to license and maintain intellectual property; and 83 Table of Contents • facilities, depreciation and other expenses including allocated expenses for rent and maintenance of facilities. We plan to continue to significantly invest in our current level of research and development activities for the foreseeable future as we continue the clinical and preclinical development and manufacture of our product candidates, research and develop our iPSC product platform, and perform our obligations under collaboration agreements including under our agreements with Ono, University of Minnesota and MSKCC. Our current planned research and development activities over the next twelve months consist primarily of the following: • conducting clinical trials of our product candidates, including through the engagement of CROs to manage various aspects of our clinical trials; • conducting GMP production, including through the use of CMOs for the conduct of some or all of the activities required for manufacturing our iPSC-derived cell product candidates, process and scale-up development and technology transfer activities for the manufacture of our product candidates, including those undergoing clinical investigation and IND-enabling preclinical development; • procuring laboratory equipment, materials and supplies for the manufacture of our product candidates and the conduct of our research activities; • conducting preclinical and clinical research to investigate the therapeutic activity of our product candidates; and • conducting research, development and manufacturing activities, including under our sponsored research and collaboration agreement with Ono. Due to the inherently unpredictable nature of preclinical and clinical development and manufacture, and given our novel therapeutic approach and the current stage of development of our product candidates, we cannot determine and are unable to estimate with certainty the timelines we will require and the costs we will incur for the development and manufacture of our product candidates. Clinical and preclinical development and manufacturing timelines and costs, and the potential of development and manufacturing success, can differ materially from expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development and manufacturing plans and capital requirements. We cannot predict the effects of the impact of global economic and market conditions, a continued and prolonged public health emergency such as the COVID-19 pandemic, and wars and other armed conflicts, such as the ongoing wars between Russia and Ukraine and between Israel and Hamas, on our business and operations, and our expenditures may be increased by delays or disruptions due to these or other factors, including as a result of actions we take in the near term to ensure business continuity and protect against possible supply chain shortages. General and Administrative Expenses General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for our employees in executive, operational, finance and human resource functions; professional fees for 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 as a public company. We anticipate that our general and administrative expenses will remain significant in the future as we maintain our focus on innovation, and research and development activities, maintain compliance with exchange listing and SEC requirements, protect and enforce our intellectual property, and continue to operate as a public company. Other Income (Expense) Other income (expense) consists of changes in the fair value of stock price appreciation milestones associated with the Amended and Restated Exclusive License Agreement dated May 15, 2018 (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). California Institute for Regenerative Medicine Award 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 Award). In November 2019, we submitted an IND application for FT516 in advanced solid tumors. Pursuant to the terms of the Award, we, in our sole discretion, have the option to treat the Award either as a loan or as a grant. During the first quarter of 2023, we elected to treat the Award as a grant and derecognized the liability associated with the Award and recorded such amount in other income during the year ended December 31, 2023. 84 Table of Contents Employee Retention Credit The Coronavirus Aid, Relief and Economic Security (CARES) Act provides an employee retention credit (ERC), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee through December 31, 2020. Additional relief provisions were passed by the United States government, which extend and slightly expand the qualified wage caps on these credits through December 31, 2021. Based on these additional provisions, the tax credit is now equal to 70% of qualified wages paid to employees during a quarter, and the limit on qualified wages per employee has been increased to $10,000 of qualified wages per quarter. In connection with the CARES Act, we adopted a policy to recognize an ERC when it is reasonably assumed we will comply with the conditions and the grant will be received and include in other income in the statement of operations. The Company received a cash payment and recorded $5.1 million and $0.5 million of other income during the years ended December 31, 2023 and 2022, respectively. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to the fair value of the stock price appreciation milestones for the Amended MSKCC License, contracts containing leases, accrued expenses, stock-based compensation, and the estimated total costs expected to be incurred under our collaboration agreements. We base our estimates on historical experience, known trends and events, financial models, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following critical accounting policies reflect the more significant procedures, estimates and assumptions used in the preparation of our consolidated financial statements. Collaborative Arrangements We analyze our 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, we assess whether aspects of the arrangement between us and our 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, we 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 we conclude a counterparty to a transaction is not a customer or otherwise not within the scope of ASC 606, we consider the guidance in other accounting literature as applicable or by analogy to account for such transaction. The classification of transactions under our 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 We recognize 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 we are entitled to receive in exchange for such product or service. In doing so, we follow 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. We consider the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. We apply the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances. A performance obligation is defined as a promise to transfer a product or a service to a customer. If a promise to transfer a product or a service is not separately identifiable from other promises in the contract, such promises should be combined into a single performance obligation. We determined that the promised goods and services for our collaboration agreements should be accounted 85 Table of Contents for as one combined performance obligation. We recognize revenue for the combined performance obligation over time as the research services are performed. The transaction price is the amount of consideration we are entitled to receive in exchange for the transfer of control of a product or a service to a customer. To determine the transaction price, we consider the existence of any significant financing component, the effects of any variable elements, noncash considerations and consideration payable to the customer. For our collaboration agreements, we calculate the transaction price as an estimate of the total research and development plan reimbursement. We expense incremental costs of obtaining and fulfilling a contract as and when incurred if the expected amortization period of the asset that would be recognized is one year or less, or if the amount of the asset is immaterial. Otherwise, such costs are capitalized as contract assets if they are incremental to the contract and amortized to expense proportionate to revenue recognition of the underlying contract. Stock Price Appreciation Milestones We estimate the fair value of the stock price appreciation milestones under the Amended MSKCC License using a Monte Carlo simulation model, which relies on our current stock price at the end of each quarter as well as significant estimates and assumptions to determine the estimated liability associated with the contingent milestone payments. We account for the fair value of the stock price appreciation milestones in accordance with ASC 815, Derivatives and Hedging , with fair value marked to market. The assumptions used to calculate the fair value of the stock price appreciation milestones are subject to a significant amount of judgment including the assessment of achieving a specified clinical milestone, the expected volatility of our common stock, the risk-free interest rate and the estimated term, which is based in part on the last valid patent claim date. We achieved the specified clinical milestone in July 2021 and met the first milestone during fiscal 2021. Accordingly, we remitted a payment to MSKCC of $20.0 million in the year ended December 31, 2021. We remeasure the fair value of the remaining stock price appreciation milestones at each balance sheet date, with changes in fair value recorded in earnings as a non-operating income or expense. Accrued Research and Development Expenses As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of accrued research and development expenses include amounts owed to clinical research organizations, to investigative sites in connection with clinical trials, to sponsored research organizations, to service providers in connection with preclinical development activities and to service providers related to product manufacturing, development and distribution of clinical supplies. We base our accrued expenses related to clinical trials on our estimates of the services performed and efforts expended pursuant to our contractual arrangements, including those with clinical research organizations. The financial terms of these agreements are sometimes subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our service providers will exceed the level of services performed and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from expenses actually incurred, if our estimates of the status and timing of services performed differs from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period. To date, there have been no material differences from our estimates to the amounts actually incurred. 86 Table of Contents Stock-Based Compensation Stock-based compensation expense represents the grant date fair value of employee stock option and restricted stock unit grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. Performance-based stock units/awards represent a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period. At each reporting period, and to the extent achievement of one or any of the performance conditions is probable, we reassess 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. We estimate the fair value of stock option grants using the Black-Scholes option pricing model, with the exception of option grants with both performance-based milestones and market conditions, which are valued using a lattice-based model. These models require the use of highly subjective and complex assumptions which determine the fair value of stock-based awards, (a) the risk-free interest rate, (b) the expected volatility of our stock, (c) the expected term of the award and (d) the expected dividend yield. The expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with the estimated expected term of our stock options which is derived from historical experience and anticipated future exercise behavior. The risk-free interest rates for periods within the expected life of the option are based on the yields of zero-coupon U.S. Treasury securities. See Note 9 of the notes to the consolidated financial statements for additional information. The fair value of our restricted stock units, including performance-based restricted stock units, is based on the closing price of our common stock as reported on The NASDAQ Global Market on the date of grant. Recent Accounting Pronouncements For a discussion of recently issued accounting pronouncements, please see Note 1 of the notes to the consolidated financial statements. Results of Operations Comparison of Years Ended December 31, 2023 and 2022 The following table summarizes the results of our operations for the years ended December 31, 2023 and 2022: Years Ended December 31, Increase/ 2023 2022 (Decrease) (in thousands) Collaboration revenue $ 63,533 $ 96,300 $ (32,767 ) Research and development expenses 172,596 320,454 (147,858 ) General and administrative expenses 81,448 84,232 (2,784 ) Total other income, net 29,583 26,665 2,918 Revenue. During the year ended December 31, 2023, we recognized revenue of $63.5 million under our collaboration agreements with Janssen and Ono. During the year ended December 31, 2022, we recognized revenue of $96.3 million under our collaboration agreements with Janssen and Ono. The decrease in revenue was attributable primarily to the termination of our collaboration with Janssen in April 2023. The following table summarizes the revenue recognized with respect to each collaboration partner for the years ended December 31, 2023 and 2022: Years Ended December 31, 2023 2022 (in thousands) Janssen Biotech, Inc. $ 52,312 $ 79,662 Ono Pharmaceutical Co., Ltd. 11,221 16,638 Total collaboration revenue $ 63,533 $ 96,300 87 Table of Contents Research and development expenses. Research and development expenses were $172.6 million for the year ended December 31, 2023, compared to $320.5 million for the year ended December 31, 2022. The decrease in research and development expenses includes the impact of the termination of our collaboration with Janssen in April 2023 and was attributable primarily to the following: • $63.6 million decrease in employee compensation and benefits expense, which includes a $30.3 million decrease in employee-stock based compensation expense; • $48.4 million decrease in expenditures for laboratory materials and supplies relating to the manufacture of our product candidates and the conduct of our research activities, including under our collaboration agreements; and • $29.0 million decrease in third-party professional consultant and clinical trial related expense. General and administrative expenses. General and administrative expenses were $81.4 million for the year ended December 31, 2023, compared to $84.2 million for the year ended December 31, 2022. The decrease in general and administrative expenses was attributable primarily to the following: • $10.6 million decrease in employee compensation and benefits expense, which includes a $5.0 million decrease in employee stock-based compensation expense; • $1.8 million decrease in office and computer supplies; and • $10.6 million increase in patent and legal expense. Other income. Other income was $29.6 million and $26.7 million for the years ended December 31, 2023 and 2022, respectively. During the year ended December 31, 2023, we recorded $4.0 million in income attributable to the CIRM Award, $5.1 million in income attributable to the ERC, and $2.5 million in other income attributable to the change in fair value of the stock price appreciation milestone under the Amended MSKCC License. Other income for the year ended December 31, 2023 also consisted of $17.2 million interest income earned on cash and cash equivalents and interest income from investments (including the amortization of discounts and premiums). During the year ended December 31, 2022, we recorded $20.3 million in other income attributable to the fair value of the stock price appreciation milestones under the Amended MSKCC License. Other income for the year ended December 31, 2022 also consisted of interest income earned on cash and cash equivalents and interest income from investments (including the amortization of discounts and premiums). Liquidity and Capital Resources We have incurred losses and negative cash flows from operations since inception. As of December 31, 2023, we had an accumulated deficit of $1.2 billion and anticipate that we will continue to incur net losses for the foreseeable future. The following table sets forth a summary of the net cash flow activity for each of the years ended December 31: 2023 2022 (in thousands) Net cash used in operating activities $ (132,263 ) $ (248,208 ) Net cash provided by investing activities 112,665 166,751 Net cash provided by financing activities 85 9,207 Net increase (decrease) in cash, cash equivalents and restricted cash $ (19,513 ) $ (72,250 ) Operating Activities Cash used in operating activities decreased from $248.2 million for the year ended December 31, 2022 to $132.3 million for the year ended December 31, 2023. The primary drivers of this change in cash used in operating activities was our decrease of $120.8 million in net loss primarily due to the termination of the Janssen agreement, restructuring activities and discontinuation of programs implemented in January 2023. Investing Activities During the years ended December 31, 2023 and 2022, investing activities provided cash of $112.7 million and $166.8 million, respectively. During the year ended December 31, 2023 we purchased $358.8 million of investments, which were partially offset by $477.6 million in maturities of investments. During the year ended December 31, 2022 we purchased $404.8 million of investments, which were partially offset by $607.1 million in maturities of investments. The remaining investing activities for the periods presented were primarily attributable to the purchase of property and equipment. 88 Table of Contents Financing Activities Financing activities provided cash of $0.1 million for the year ended December 31, 2023, which consisted of $0.1 million received from the issuance of common stock from equity incentive plans pursuant to the exercise of employee stock options. Financing activities provided cash of $9.2 million for the year ended December 31, 2022, which consisted of $9.2 million received from the issuance of common stock from equity incentive plans pursuant to the exercise of employee stock options. From our inception through December 31, 2023 we have funded our consolidated operations primarily through the public and private sale of common stock, the private placement of preferred stock and convertible notes, commercial bank debt and revenues from collaboration activities and grants. As of December 31, 2023, we had aggregate cash and cash equivalents and investments of $316.2 million. Registration Statements on Form S-3 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 are 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. To date, we have not sold any securities pursuant to the sales agreement with Jefferies or the shelf registration statement. Operating Capital Requirements We anticipate that we will continue to incur losses for the foreseeable future, and we expect the losses to remain significant as we continue the research, manufacture and development of, and seek regulatory approvals for, our product candidates and conduct additional research, manufacturing and development activities pursuant to our collaboration agreement with Ono. Our product candidates have not yet achieved regulatory approval and we may not be successful in achieving commercialization of our product candidates. We are also subject to all the risks and uncertainties incident in the research, manufacture and development of therapeutic products, and cell therapy product candidates in particular. For example, the FDA or other regulatory authorities may require us to generate additional data or conduct additional preclinical studies, manufacturing activities, or clinical trials, or may impose other requirements beyond those that we currently anticipate. Additionally, it is possible for a product candidate to show promising results in preclinical studies or in clinical trials, but fail to establish sufficient safety and efficacy data necessary to obtain regulatory approvals. As a result of these and other risks and uncertainties and the probability of success, the duration and the cost of our research, manufacturing and development activities required to advance a product candidate cannot be accurately estimated and are subject to considerable variation. We may encounter difficulties, complications, delays and other unknown factors and unforeseen expenses in the course of our research, manufacturing and development activities, any of which may significantly increase our capital requirements and could adversely affect our liquidity. We will require additional capital for the research, manufacture and development of our product candidates and to perform our obligations under our collaboration agreements, and we may need to seek additional funds sooner than expected due to any changes in our business, operations, financial condition or prospects, including any impacts of inflation rates and global economic conditions, and wars or other armed conflicts. We expect to finance our capital requirements in the foreseeable future through the sale of public or private equity, debt securities, or through existing or future potential collaborations. However, additional capital may not be available to us on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the research, manufacture or development of one or more of our product candidates. If we do raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock. Additionally, if we incur indebtedness, we may become subject to financial or other covenants that could adversely restrict, impair or affect our ability to conduct our business, such as requiring us to relinquish rights to certain of our product candidates or technologies or limiting our ability to acquire, sell or license intellectual property rights or incur additional debt. Any of these events could significantly harm our business, operations, financial condition and prospects. In addition, the full impact of inflation rates, global political and economic instability, a continued and prolonged public health emergency such as the COVID-19 pandemic, and wars and other armed conflicts, on our business, operations, financial condition and prospects, and on the global economy, are currently unknown and difficult to predict, and these events could materially and adversely affect our ability to raise capital through equity or debt financings in the future. 89 Table of Contents Our forecast of the period of time through which our existing cash and cash equivalents and investments will be adequate to support our operations is a forward-looking statement and involves significant risks and uncertainties. We have based this forecast on assumptions that may prove to be wrong, and actual results could vary materially from our expectations, which may adversely affect our capital resources and liquidity. We could utilize our available capital resources sooner than we currently expect. The amount and timing of future funding requirements, both near- and long-term, will depend on many factors, including, but not limited to: • the initiation, timing, progress, size, duration, costs and results of our clinical trials and preclinical studies for our product candidates, including the timing and costs of manufacturing activities to support such clinical trials and preclinical studies; • the number and the nature of product candidates that we pursue; • the time to and cost of establishing and maintaining internal GMP production capabilities to support the clinical and potential commercial manufacture of our product candidates at our corporate headquarters; • the cost of GMP production, process and scale-up development and technology transfer activities for the manufacture of our product candidates, including the cost of laboratory equipment, materials and supplies to support these activities; • the time, cost and outcome of seeking and obtaining regulatory approvals; • the extent to which we are required to pay milestone or other payments under our existing in-license agreements and any in-license agreements that we may enter into in the future, and the timing of such payments, including payments owed to MSKCC in connection with the stock price appreciation milestones; • the extent to which milestones are achieved under our collaboration agreement with Ono, and any other strategic partnership or collaboration agreements that we may enter into in the future, and the time to achievement of such milestones and our receipt of any associated milestone payments; • the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, including in our ongoing lawsuits against Shoreline Biosciences, Inc. (Shoreline) and Dr. Dan S. Kaufman (Kaufman), and the cost of enforcing any of our other contractual rights; • the cost of our research and development activities, including our need and ability to hire additional employees and procure additional equipment, materials and supplies; • the establishment and continuation of collaborations and strategic alliances; • the timing and terms of future in-licensing and out-licensing transactions; and • the cost of establishing sales, marketing, manufacturing and distribution capabilities for, and the pricing and reimbursement of, any products for which we may receive regulatory approval. In addition, we are closely monitoring inflation rates and global political and economic conditions, including the ongoing wars between Russia and Ukraine and between Israel and Hamas, and evaluating adjustments to our business and operations, which may negatively impact our financial condition and prospects and our operating results. We will continue to assess our operating capital requirements and may make adjustments to our business and operations if circumstances warrant. If we cannot continue or expand our research, manufacturing and development operations, or otherwise capitalize on our business opportunities, because we lack sufficient capital, our business, operations, financial condition and prospects could be materially adversely affected. Contractual Obligations and Commitments We lease certain office, laboratory, and manufacturing space under non-cancelable operating leases. In addition to rent, our leases are subject to certain fixed amenities fees. These leases are also subject to additional variable charges for common area maintenance, property taxes, property insurance and other variable costs. See Note 8 of the consolidated financial statements for additional detail. Total undiscounted aggregate future operating lease obligations under all of our operating leases as of December 31, 2023 are $162.9 million. On May 15, 2018, we entered into the Amended MSKCC License with MSKCC. 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 our common stock, where the amount of such payments owed to MSKCC is contingent upon certain increases in the price of our common stock following the date of achievement of such clinical milestone. See Note 2 of the consolidated financial statements for additional detail. 90 Table of Contents As of December 31, 2023, we recorded a liability of $1.3 million associated with the remaining stock price appreciation milestones for the Amended MSKCC License. We have no material contractual obligations not fully recorded on our consolidated balance sheets or fully disclosed in the notes to the financial statements. We have obligations under various license agreements to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones (such as the start of a clinical trial, filing for product approval with the FDA or other regulatory agencies, product approval by the FDA or other regulatory agencies, product launch or product sales) or on the sublicense of our rights to another party. We have not included these commitments on our balance sheet because the achievement and timing of these events is not fixed and determinable. Certain milestones are in advance of receipt of revenue from the sale of products and, therefore, we may require additional debt or equity capital to make such payments. These commitments include: • Under a license agreement with the Whitehead Institute for Biomedical Research, pursuant to which we license certain patents relating to our iPSC product platform, we are required to make annual maintenance payments and payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate milestone payments we may be obligated to make per product are $2.3 million. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low single digits. We have the right to sublicense our rights under this agreement, and we will be required to pay a percentage of any sublicense income. • Under license agreements with The Scripps Research Institute (TSRI), pursuant to which we license certain patents relating to our iPSC product platform, we are required to make annual maintenance payments and payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate milestone payments we may be obligated to make are $1.8 million. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low- to mid-single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low single digits. We have the right to sublicense our rights under these agreements, and we will be required to pay a percentage of any sublicense income. • Under a license agreement with the Regents of the University of Minnesota, pursuant to which we license certain patents relating to compositions and uses of NK cells and to compositions of engineered receptors and immune cells expressing such receptors, we are required to make annual maintenance payments and payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate milestone payments we may be obligated to make per product are $4.6 million. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low single digits. We have the right to sublicense our rights under this agreement, and we will be required to pay a percentage of any sublicense income. • Under a license agreement with MSKCC, pursuant to which we license certain patents relating to compositions and uses of T-cells derived from iPSCs, CARs and genetic modifications using CRISPR, we are required to make annual maintenance payments and payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate milestone payments we may be obligated to make per product are $12.5 million. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property up to the high-single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low- to mid-single digits. We have the right to sublicense our rights under this agreement, and we will be required to pay a percentage of any sublicense income. Additionally, in the event a licensed product achieves a specified clinical milestone, MSKCC is then eligible to receive additional milestone payments, where the amount of such payments owed to MSKCC are contingent upon certain increases in the price of our common stock following the date of achievement of such clinical milestone. See Note 2 of the notes to the consolidated financial statements for additional detail related to the stock price appreciation milestone payments. • Under a license agreement with Dana Farber Cancer Institute, pursuant to which we license certain patent applications relating to novel antibody fragments that bind the alpha-3 domain of MICA/B, we are required to make annual maintenance payments and payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate milestone payments we may be obligated to make per product are $25 million. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low single digits. We have the right to sublicense our rights under these agreements, and we will be required to pay a percentage of any sublicense income. 91 Table of Contents • Under a license agreement with Max Delbruck Center for Molecular Medicine (MDC), pursuant to which we license certain patents relating to novel humanized antibody fragments, antigen-binding domains and CAR constructs that uniquely target and specifically bind B-cell Maturation Antigen, w e are required to make annual maintenance payments and payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate milestone payments we may be obligated to make per product are $11.0 million. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low single digits. We have the right to sublicense our rights under this agreement, and we will be required to pay a percentage of any sublicense income. • Under a license agreement with Baylor College of Medicine, pursuant to which we license certain patents relating to the composition and use of a novel allo-immune defense receptor (ADR), we are required to make annual maintenance payments and payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate milestone payments we may be obligated to make per product are $7.0 million. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low single digits. We have the right to sublicense our rights under this agreement, and we will be required to pay a percentage of any sublicense income. We enter into contracts in the normal course of business, including with clinical sites, CROs, and other professional service providers for the conduct of clinical trials, contract manufacturers for the production of our product candidates, contract research service providers for preclinical research studies, professional consultants for expert advice and vendors for the sourcing of clinical and laboratory supplies and materials. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments. Inflation Inflation has increased during the periods covered by this Annual Report on Form 10-K, 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 cost 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. ITEM 7A. Quantitative and Qualitat ive Disclosures about Market Risk Not applicable to smaller reporting companies. 92 Table of Contents ITEM 8. Financial Stateme nts and Supplementary Data Report of Independent Regist ered Public Accounting Firm The Board of Directors and Stockholders of Fate Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Fate Therapeutics, Inc. as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. 93 Table of Contents Accrued research and development expenses – clinical trials Description of the Matter The Company recorded research and development expenses of $172.6 million for the year ended December 31, 2023. Research and development costs are expensed as incurred. Research and development costs include fees paid to contract research organizations, investigative sites and sponsored research organizations that conduct certain research and development activities on the Company’s behalf for clinical trials. Auditing the Company’s research and development expenses and related accruals was challenging due to the complex nature of evaluating the completeness and accuracy of the expenses and accruals. Research and development expenses are recognized as the services are being performed by the vendors, which requires management to accurately estimate the time period over which services will be performed and the level of effort to be expended in each period. How We Addressed the Matter in Our Audit To test the clinical trial expenses and related accruals, our audit procedures included, among others, confirming with a sample of vendors the progress of activities under research and development contracts at period end, testing a sample of cash disbursements after period end to assess the completeness of the expense recognition, and testing a sample of research and development expenses recorded during the period and evaluating the timing and amount of the expense recognition. /s/ Ernst & Young, LLP We have served as the Company's auditor since 2009. San Diego, California February 26, 2024 94 Table of Contents Fate Therapeutics, Inc. Consolidated B alance Sheets (In thousands, except par value and share data) December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 41,870 $ 61,333 Accounts receivable 1,826 38,480 Short-term investments 273,305 374,894 Prepaid expenses and other current assets 14,539 27,367 Total current assets 331,540 502,074 Long-term investments 980 4,942 Property and equipment, net 96,836 110,020 Operating lease right-of-use assets 61,675 66,069 Restricted cash 15,177 15,227 Collaboration contract assets — 7,196 Other assets 9 33 Total assets $ 506,217 $ 705,561 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 4,719 $ 8,265 Accrued expenses 27,514 53,932 CIRM award liability — 4,000 Deferred revenue 685 42,226 Operating lease liabilities, current portion 6,176 5,628 Total current liabilities 39,094 114,051 Operating lease liabilities, net of current portion 97,360 103,710 Stock price appreciation milestones 1,346 3,861 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.001 par value; authorized shares— 5,000,000 ; Class A Convertible Preferred shares issued and outstanding— 2,761,108 at December 31, 2023 and 2,794,549 at December 31, 2022 3 3 Common stock, $ 0.001 par value; authorized shares— 250,000,000 ; issued and outstanding— 98,627,076 at December 31, 2023 and 97,294,917 at December 31, 2022 99 97 Additional paid-in capital 1,580,032 1,536,497 Accumulated other comprehensive income (loss) 15 ( 1,854 ) Accumulated deficit ( 1,211,732 ) ( 1,050,804 ) Total stockholders’ equity 368,417 483,939 Total liabilities and stockholders’ equity $ 506,217 $ 705,561 See accompanying notes. 95 Table of Contents Fate Therapeutics, Inc. Consolidated Statements of Ope rations and Comprehensive Loss (In thousands, except share and per share data) For the Years Ended December 31, 2023 2022 Collaboration revenue $ 63,533 $ 96,300 Operating expenses: Research and development 172,596 320,454 General and administrative 81,448 84,232 Total operating expenses 254,044 404,686 Loss from operations ( 190,511 ) ( 308,386 ) Other income: Interest income 17,186 5,842 Change in fair value of stock price appreciation milestones 2,515 20,307 Other income 9,882 516 Total other income 29,583 26,665 Net loss $ ( 160,928 ) $ ( 281,721 ) Other comprehensive gain (loss): Unrealized gain (loss) on available-for-sale securities, net 1,869 ( 1,092 ) Comprehensive loss $ ( 159,059 ) $ ( 282,813 ) Net loss per common share, basic and diluted $ ( 1.64 ) $ ( 2.91 ) Weighted–average common shares used to compute basic and diluted net loss per share 98,411,162 96,826,058 See accompanying notes. 96 Table of Contents Fate Therapeutics, Inc. Consolidated Statements of Convertible Prefer red Stock and Stockholders’ Equity (In thousands, except share data) Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Gain (Loss) Deficit Equity Balance at December 31, 2021 2,794,549 $ 3 95,726,962 $ 96 $ 1,448,584 $ ( 762 ) $ ( 769,083 ) $ 678,838 Exercise of stock options, net of issuance costs — — 941,780 1 9,180 — — 9,181 Issuance of common stock upon vesting of restricted stock units — — 626,175 — — — — — Stock–based compensation — — — — 78,733 — — 78,733 Unrealized loss on investments, net — — — — — ( 1,092 ) — ( 1,092 ) Net loss — — — — — — ( 281,721 ) ( 281,721 ) Balance at December 31, 2022 2,794,549 $ 3 97,294,917 $ 97 $ 1,536,497 $ ( 1,854 ) $ ( 1,050,804 ) $ 483,939 Exercise of stock options, net of issuance costs — — 93,787 — 76 — — 76 Issuance of common stock upon vesting of restricted stock units — — 1,071,167 1 — — — 1 Conversion of preferred shares to common stock ( 33,441 ) — 167,205 1 — — — 1 Stock–based compensation — — — — 43,459 — — 43,459 Unrealized gain on investments, net — — — — — 1,869 — 1,869 Net loss — — — — — — ( 160,928 ) ( 160,928 ) Balance at December 31, 2023 2,761,108 $ 3 98,627,076 $ 99 $ 1,580,032 $ 15 $ ( 1,211,732 ) $ 368,417 See accompanying notes 97 Table of Contents Fate Therapeutics, Inc. Consolidated Statem ents of Cash Flows (in thousands) Years Ended December 31, 2023 2022 Operating activities: Net loss $ ( 160,928 ) $ ( 281,721 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 18,282 13,758 Stock–based compensation 43,459 78,733 Accretion and amortization of premiums and discounts on investments, net ( 11,398 ) ( 256 ) Amortization of collaboration contract asset 7,196 2,676 Deferred revenue ( 41,541 ) ( 6,381 ) Change in fair value of stock price appreciation milestones ( 2,515 ) ( 20,307 ) Grant income from CIRM award ( 4,000 ) — Changes in assets and liabilities: Accounts receivable 36,654 ( 29,804 ) Prepaid expenses and other assets 12,876 ( 18,330 ) Accounts payable and accrued expenses ( 28,940 ) 14,252 Right-of-use assets and lease liabilities, net ( 1,408 ) ( 828 ) Net cash used in operating activities ( 132,263 ) ( 248,208 ) Investing activities Purchases of property and equipment ( 6,153 ) ( 35,566 ) Purchases of investments ( 358,810 ) ( 404,796 ) Maturities of investments 477,628 607,113 Net cash provided by investing activities 112,665 166,751 Financing activities Issuance of common stock from equity incentive plans, net of issuance costs 85 9,207 Net cash provided by financing activities 85 9,207 Net change in cash, cash equivalents and restricted cash ( 19,513 ) ( 72,250 ) Cash, cash equivalents and restricted cash at beginning of the year 76,560 148,810 Cash, cash equivalents and restricted cash at end of the year $ 57,047 $ 76,560 Supplemental schedule of noncash investing and financing activities Purchases of property and equipment in accounts payable $ — $ 1,055 Right-of-use assets obtained in exchange for lease obligations $ — $ 682 See accompanying notes. 98 Table of Contents Fate Therapeutics, Inc. Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies Organization Fate Therapeutics, Inc. (the Company) was incorporated in the state of Delaware on April 27, 2007 and has its principal operations in San Diego, California. The Company is a clinical-stage biopharmaceutical company dedicated to bringing off-the-shelf, multiplexed-engineered, iPSC-derived cellular immunotherapies to patients for the treatment of cancer and autoimmune diseases. As of December 31, 2023, the Company has devoted substantially all of its efforts to product development, raising capital and building infrastructure and has not generated any revenues from any sales of its therapeutic products. To date, the Company’s revenues have been derived from collaboration agreements and government grants. Use of Estimates The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The preparation of the Company’s consolidated financial statements requires it 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 consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to its stock 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 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. Segment Reporting Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating and reportable segment. Fair Value of Financial Instruments The Company’s financial instruments consist primarily of cash and cash equivalents, marketable securities, accounts receivable, stock price appreciation milestones, accounts payable, and accrued liabilities. The carrying amounts of accounts receivable, accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the relatively short-term nature of those instruments. The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three- tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. 99 Table of Contents Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include cash in readily available checking and savings 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 consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows as of December 31, 2023 and 2022 (in thousands): Years Ended December 31, 2023 2022 Cash and cash equivalents $ 41,870 $ 61,333 Restricted cash 15,177 15,227 Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows $ 57,047 $ 76,560 For the years ended December 31, 2023 and 2022 , the restricted cash balance includes cash-collateralized irrevocable standby letters of credit for $ 15.2 million associated with the Company’s facilities leases . Investments Investments are accounted for as available-for-sale securities and are carried at fair value on the consolidated balance sheets. Upon initial recognition of the investment and at each reporting period, the Company evaluates whether any unrealized losses on investments are attributable to a credit loss or other factors. Any unrealized losses attributable to credit loss are recorded through an allowance for credit losses, limited to the amount by which the fair value is below amortized cost, with the offsetting amount recorded in other income or expense in the consolidated statement of operations and comprehensive loss. Unrealized losses not attributable to an expected credit loss and unrealized gains on investments are recorded in other comprehensive income (loss) on the consolidated statements of operations and comprehensive loss. Realized gains and losses, if any, on investments classified as available-for-sale securities are included in other income or expense. The amortized cost of investments classified as available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. Concentration of Credit Risk Financial instruments, which potentially subject the Company to a significant concentration of credit risk, consist primarily of cash and cash equivalents and investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits and investments are held. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets (generally two to five years ) and generally consist of furniture and fixtures, computers, scientific and office equipment, and in-process costs related to facilities construction. Repairs and maintenance costs are charged to expense as incurred. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. If the carrying amount is not recoverable, the Company measures the amount of any impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset. While the Company’s current and historical operating losses and negative cash flows are indicators of impairment, management believes that future cash flows to be 100 Table of Contents received support the carrying value of its long-lived assets and, accordingly, has not recognized any impairment losses since the Company’ s inception. Leases The Company determines if a contract contains a lease at the inception of the contract. The Company currently has leases related to its facilities leased for office and laboratory space, which are classified as operating leases. These leases result in operating right-of-use (ROU) assets, current operating lease liabilities, and non-current operating lease liabilities in the 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. 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. Stock Price Appreciation Milestones The Company estimates the fair value of the stock price appreciation milestones associated with the Amended and Restated Exclusive License Agreement with Memorial Sloan Kettering Cancer Center (MSKCC) using a Monte Carlo simulation model, which relies on the Company’s current stock price as well as significant estimates and assumptions to determine the estimated liability associated with the contingent milestone payments. The Company accounts for the fair value of the stock price appreciation 101 Table of Contents milestones in accordance with ASC 815, Derivatives and Hedging, with fair value marked to market at each reporting date. The assumptions used to calculate the fair value of the stock price appreciation milestones are subject to a significant amount of judgment including the probability of achieving a specified clinical milestone, the expected volatility of the Company’s common stock, the risk-free interest rate, and the estimated term, which is based in part on the last valid patent claim date. The Company remeasures the fair value of the stock price appreciation milestones at each balance sheet date, with changes in fair value recorded in earnings as non-operating income or expense on the consolidated statements of operations and comprehensive loss. 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. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more- likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability. Employee Retention Credit The CARES Act provides an employee retention credit (ERC), which is a refundable tax credit against certain employment taxes of up to $ 5,000 per employee for eligible employers. The tax credit is equal to 50 % of qualified wages paid to employees during a quarter, capped at $ 10,000 of qualified wages per employee through December 31, 2020. Additional relief provisions were passed by the United States government, which extend and slightly expand the qualified wage caps on these credits through December 31, 2021. Based on these additional provisions, the tax credit is now equal to 70 % of qualified wages paid to employees during a quarter, and the limit on qualified wages per employee has been increased to $ 10,000 of qualified wages per quarter. The Company qualifies for the tax credit under the CARES Act and expects to continue to receive additional tax credits under the additional relief provisions for qualified wages through December 31, 2021. In connection with the CARES Act, the Company adopted a policy to recognize the employee retention credit when received and include in other income in the statement of operations. T he Company received a cash 102 Table of Contents payment and recorded $ 5.1 million and $ 0.5 million of other income during the years ended December 31, 2023 and 2022, respectively . 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 on available-for-sale securities. Net Loss Per Common Share Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. The Pre-Funded Warrants associated with the January 2021 public equity offering (see Note 9) are considered outstanding shares in the basic earnings per share calculation given their nominal exercise price. Dilutive common stock equivalents comprise 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 plans. For all periods presented, there is no difference in the number of common shares used to calculate basic and diluted common shares outstanding due to the Company’s net loss position. Potentially dilutive securities that are not included in the calculation of diluted net loss per common share because to do so would be anti-dilutive are as follows (in common stock equivalent shares): As of December 31, 2023 2022 Common stock options 9,850,841 7,267,226 Restricted stock units 3,065,087 5,862,733 Series A convertible preferred stock (if converted) 13,805,540 13,972,745 Total 26,721,468 27,102,704 Going Concern Assessment Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The Company determined that there are no conditions or events that raise substantial doubt about its ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements . Restructuring In January 2023, the Company implemented a corporate restructuring to streamline operations, reduce operating expenses, extend cash runway and focus resources on the Company’s most promising programs. In connection with the restructuring, the Company reduced its workforce by 60 %. Affected employees were informed on January 5, 2023. The restructuring was completed by March 31, 2023. The Company incurred charges of $ 12.9 million during the year ended December 31, 2023 for severance and other employee termination-related costs, of which $ 10.9 million were related to research and development expenses and $ 2.0 million were related to general and administrative expenses. All restructuring and related expenses have been fully recognized by the Company. 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 103 Table of Contents 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. On November 7, 2022, Ono exercised its option for continued development of Candidate 2. Upon Ono’ s exercise, the Company granted Ono a license to develop and commercialize Candidate 2. The Company elected its preclinical option to co-develop and co-commercialize Candidate 2. As a result, the Company received an Option Exercise Payment (as defined under the Ono Agreement) of $ 12.5 million. The Company determined the exercise represented an option with no material right under the Ono Agreement. The Company has completed its performance obligations with respect to the exercise of the option and accordingly, recognized the Option Exercise Payment as revenue for the year ended December 31, 2022. The Company and Ono will proceed with a joint development plan for the ongoing development of Candidate 2. The costs of this development plan are accounted for in accordance with ASC 808, and cost sharing payments to the Company from Ono are recorded net into r esearch and development expenses. During the year ended December 31, 2023 , the Company recognized contra-research and development expense of $ 8.0 million. There were no such amounts recognized during the year ended December 31, 2022 As of December 31, 2023 , the Company has received $ 6.2 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). Under the 2023 Ono Amendment, aggregate estimated research and development fees 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 2022 Ono Amendment), for Candidate 2 and for Candidate 3 (subject to exercise by Ono of its preclinical option to Candidate 3), the Company is eligible to receive additional payments upon the achievement of certain clinical, regulatory and commercial milestones (the Ono Milestones) with respect to each Candidate in an amount up to $ 843.0 million in aggregate, with the applicable milestone payments for the United States and Europe subject to reduction by 50 % if the Company elects to co-develop and co-commercialize the Candidate in the United States and Europe as described above. In addition, in those territories where Ono has exclusive rights of commercialization, the Company is eligible to receive tiered royalties (Royalties) ranging from the mid-single digits to the low-double digits based on annual net sales by Ono for each Candidate in such territories, with 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 104 Table of Contents 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 and the Ono Letter Agreement, the Company incurred an aggregate of $ 7.8 million in sublicense consideration to existing licensors of the Company. The $ 7.8 million in sublicense consideration represents an asset under ASC 340 and is being amortized to research and development expense ratably with the Company’s revenue recognition under the Ono Agreement. During the years ended December 31, 2022, the Company recognized $ 4.1 million of such expense. During the year ended December 31, 2023, the Company recognized no such expense. The Company recognized revenue of $ 11.2 million and $ 16.6 million under the Ono Agreement and Ono Letter Agreement during the years ended December 31, 2023 and 2022, respectively. Such revenue comprised $ 11.2 million associated with research services during the year ended December 31, 2023. Suc h revenue comprised $ 2.5 million associated with research services and $ 1.6 million associated with the upfront payment, and $ 12.5 million associated with the option exercise during the year ended December 31, 2022. As of December 31, 2023, aggregate deferred revenue related to the Ono Agreement and Ono Letter Agreement was $ 0.7 million, all of which is classified as current. As of December 31, 2023, the Company has received $ 32.7 million in cash of 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. As a direct result of the Company’s entry into 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 340, Other Assets and Deferred Costs (ASC 340) and is amortized to research and development expense ratably with the Company’s revenue recognition under the Janssen Agreement. During the years ended December 31, 2023 and 2022 , the Company recognized $ 7.2 million and $ 4.3 million of such expense, respectively. As of December 31, 2023, there was no remaining balance on the Janssen Agreement contract asset. 105 Table of Contents The Company recognized revenue of $ 52.3 million under the Janssen Agreement for the year ended December 31, 2023 , of which $ 41.2 million was previously deferred. Such revenue comprised $ 11.1 million associated with research and development services, $ 31.2 m illion associated with the upfront fee and Equity Premium, and $ 10.0 million associated with a commercial option exercise for the year ended December 31, 2023 . The Company recognized revenue of $ 79.7 million under the Janssen Agreement for the year ended December 31, 2022 . Such revenue comprised $ 42.3 million associated with research and development services and $ 23.1 million associated with the upfront fee and Equity Premium, $ 13.0 million associated with a commercial option exercise and milestone achievements, and $ 1.3 million associated with collaboration services for the year ended December 31, 2022. Memorial Sloan Kettering Cancer Center License Agreement On May 15, 2018, the Company entered into an Amended and Restated Exclusive License Agreement (the 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 (the 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 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 (CRISPR) and other innovative technologies for their production, in each case to research, develop, and commercialize licensed products in the field of all human therapeutic uses worldwide. The Company has the right to grant sublicenses to certain licensed rights in accordance with the terms of the Amended 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 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 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 December 31, 2023: 106 Table of Contents Year Ended December 31, Year Ended December 31, 2023 2022 Risk-free interest rate 4.0 % 4.0 % Expected volatility 84.0 % 78.1 % Estimated term (in years) 15.0 16.0 Closing stock price as of measurement date $ 3.74 $ 10.09 The key inputs to the Monte Carlo simulation to determine the fair value of the stock price appreciation milestones include the Company’s stock price as of the measurement date; the estimated term which is based in part on the last valid patent claim date; the expected volatility of the Company’s common stock, estimated using the Company’s historical common stock volatility as of the remeasurement date; and the risk-free rate based on the U.S. Treasury yield for the estimated term determined. Fair value 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 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 years ended December 31, 2023 and 2022, the Company recorded $ 2.5 million and $ 20.3 million of income, respectively, associated with the change in fair value of the stock price appreciation milestones. As of December 31, 2023 and 2022, the Company recorded a liability of $ 1.3 million and $ 3.9 million, respectively, associated with the stock price appreciation milestones for the Amended MSKCC License. 3. California Institute for Regenerative Medicine Award On April 5, 2018 , the Company executed an award agreement with the California Institute for Regenerative Medicine (CIRM) pursuant to which CIRM awarded the Company $ 4.0 million to advance the Company’s FT516 product candidate into a first-in-human clinical trial for the treatment of subjects with advanced solid tumors, including in combination with monoclonal antibody therapy (the Award). The Award is subject to certain co-funding requirements by the Company, and the Company is required to provide CIRM progress and financial update reports under the Award. Pursuant to the terms of the Award, the Company, in its sole discretion, has the option to treat the Award either as a loan or as a grant. During the first quarter of 2023, the Company elected to treat the Award as a grant and derecognized the liability associated with the Award and recorded such amount in other income during the year ended December 31, 2023. 4. Investments The Company invests portions of excess cash in United States treasuries, commercial paper, non-U.S. government securities, municipal securities, and corporate debt securities with maturities ranging from three to thirty-six months from the purchase date. These investments are accounted for as available-for-sale securities and are classified as short-term and long-term investments in the accompanying consolidated balance sheets based on each security’s contractual maturity date. 107 Table of Contents The following table summarizes the Company’s investments accounted for as available-for-sale securities as of December 31, 2023 and 2022 (in thousands): Maturity (in years) Amortized Cost Unrealized Losses Unrealized Gains Estimated Fair Value 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 December 31, 2022 Classified as current assets: Money market fund 1 or less $ 37,645 $ — $ — $ 37,645 U.S. Treasury debt securities 1 or less 86,221 ( 263 ) 37 85,995 Non-US government securities 1 or less 2,425 ( 2 ) — 2,423 Municipal securities 1 or less 18,963 ( 208 ) — 18,755 Corporate debt securities 1 or less 126,691 ( 1,138 ) 5 125,558 Commercial paper 1 or less 152,056 ( 230 ) 4 151,830 Total short-term investments $ 424,001 $ ( 1,841 ) $ 46 $ 422,206 Classified as non-current assets: Municipal securities Greater than 1 $ 5,000 $ ( 58 ) $ — $ 4,942 Total long-term investments $ 5,000 $ ( 58 ) $ — $ 4,942 As of December 31, 2023 and 2022, the Company had $ 0.9 million and $ 0.8 million, respectively, of accrued interest on investments recorded in prepaid expenses and other assets on the consolidated balance sheets. The Company reviews its investment holdings at the end of each reporting period and evaluates any unrealized losses using the expected credit loss model to determine if the unrealized loss is a result of a credit loss or other factors. The Company also evaluates its investment holdings for impairment using a variety of factors including the Company’s intent to sell the underlying securities prior to maturity and whether it is more likely than not that the Company would be required to sell the securities before the recovery of their amortized basis. During the years ended December 31, 2023 and 2022 , the Company did no t recognize any impairment or realized gains or losses on sales of investments, and the Company did not record an allowance for, or recognize, any expected credit losses. 108 Table of Contents 5. Fair Value Measurements The following tables presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022 (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 December 31, 2023: Financial assets: Money market fund $ 35,273 $ 35,273 $ — $ — U.S. Treasury debt securities 82,804 82,804 — — Non-US 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 As of December 31, 2022: Financial assets: Money market fund $ 37,645 $ 37,645 $ — $ — U.S. Treasury debt securities 85,995 85,995 — — Non-US government securities 2,423 — 2,423 — Municipal securities 23,697 — 23,697 — Corporate debt securities 125,558 — 125,558 — Commercial paper 151,830 — 151,830 — Total assets measured at fair value on a recurring basis $ 427,148 $ 123,640 $ 303,508 $ — Financial liabilities: Stock price appreciation milestones $ 3,861 $ — $ — $ 3,861 Total financial liabilities measured at fair value on a recurring basis $ 3,861 $ — $ — $ 3,861 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 December 31, 2023. Level 3 liabilities consisted of stock price appreciation milestones associated with the Amended MSKCC License as described in detail in Note 2. 109 Table of Contents The following table presents the changes in fair value of the Company’s Level 3 stock price appreciation milestones liability (in thousands): Balance at December 31, 2021 $ 24,168 Changes in fair value of stock price appreciation milestones liability ( 20,307 ) Balance at December 31, 2022 $ 3,861 Changes in fair value of stock price appreciation milestones liability ( 2,515 ) Balance at December 31, 2023 $ 1,346 None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented. 6. Property and Equipment Property and equipment consist of the following (in thousands): December 31, 2023 2022 Furniture and fixtures $ 1,309 $ 1,209 Computer and office equipment 3,132 2,937 Software 2,130 2,122 Leasehold improvements—building 59,038 56,782 Scientific equipment 78,853 77,354 Total property and equipment, gross 144,462 140,404 Less accumulated depreciation and amortization ( 47,626 ) ( 30,384 ) Total property and equipment, net $ 96,836 $ 110,020 Depreciation expense related to property and equipment was $ 18.3 million and $ 13.8 million, for the years ended December 31, 2023 and 2022 , respectively. 7. Accrued Expenses Accrued Expenses Current accrued expenses consist of the following (in thousands): December 31, 2023 2022 Accrued payroll and other employee benefits $ 10,563 $ 17,899 Accrued clinical trial related costs 8,833 16,858 Accrued other 8,118 19,175 Total current accrued expenses $ 27,514 $ 53,932 8. Leases The Company has lease agreements for office, laboratory and manufacturing spaces that are classified as operating leases on the 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. 110 Table of Contents As of December 31, 2023, future undiscounted minimum contractual payments under the Company’s operating leases were $ 162.9 million, which will be paid over a remaining weighted-average lease term of 10.7 years. The weighted-average discount rate for the operating lease liabilities was 8.34 %, 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 for the years ended December 31, 2023 and 2022 were as follows (in thousands): Years Ended December 31, 2023 2022 Straight-line lease expense $ 13,159 $ 15,010 Variable lease expense 2,250 2,614 Total operating lease expense $ 15,409 $ 17,624 Future undiscounted minimum payments under the Company’s operating leases as of December 31, 2023 are as follows (in thousands): Operating Lease Payments Years Ending December 31, 2024 $ 14,659 2025 15,087 2026 15,540 2027 16,006 2028 15,057 Thereafter 86,579 Total undiscounted lease payments $ 162,928 Less: imputed interest ( 59,392 ) Total lease liability $ 103,536 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 years ended December 31, 2023 and 2022 was as follows (in thousands): Years Ended December 31, 2023 2022 Sublease income $ 729 $ — 9. 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 111 Table of Contents 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 Company’s 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. 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 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). Stock Option and Incentive Plans and Inducement Equity Plan 2022 Stock Option and Incentive Plan On June 9, 2022, the Company adopted the 2022 Stock Option and Incentive Plan (the 2022 Plan). The 2022 Plan authorizes 9.5 million shares of common stock for issuance and allows for the grant of stock options, stock appreciation rights, restricted stock awards, performance-based awards, and other awards to individuals who are then employees, officers, directors or consultants of the Company. The shares of common stock underlying any awards from the 2022 Plan and a previously existing equity plan from 2013 or 2007 that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without any issuance of common stock, expire or are otherwise terminated (other than by exercise) are added back to the shares of common stock available for issuance under the 2022 Plan. Recipients of stock options under the 2022 Plan shall be eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair value of such stock on the date of grant. Under the 2022 Plan, stock options generally vest 25 % on the first anniversary of the original vesting date, with the balance vesting monthly over the remaining three years , or vest monthly over four years , unless they contain specific performance and/or market-based vesting provisions. The maximum term of stock options granted under the 2022 Plan is ten years . Under the 2022 Plan, restricted stock units generally vest annually over four years . Performance-based stock units/awards vest upon the achievement of certain pre-defined company-specific performance-based clinical achievement criteria. Inducement Plan On May 10, 2016, the Company’s board of directors approved the Fate Therapeutics, Inc. Inducement Equity Plan (the Inducement Plan), the purpose of which is to enable the Company to grant equity awards to induce highly-qualified prospective officers and employees who are not employed by the Company to accept employment with the Company. Under the Inducement Plan, the Company may grant non-qualified stock options and restricted stock units. A total of 500,000 shares of common stock were initially reserved for issuance under the Inducement Plan. In January 2021, March 2020, and January 2019, an additional 300,000 shares, 470,822 shares, and 200,000 shares, respectively, of common stock were reserved for issuance under the Inducement Plan. The shares of common stock underlying any awards from the Inducement Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without any issuance of common stock, expire or are otherwise terminated (other than by exercise) under the Inducement Plan will be added back to the shares of common stock available for issuance under the Inducement Plan. 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. The purchase price for the 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 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 consolidated balance sheets. 112 Table of Contents 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 December 31, 2023 , there were 257,310 Pre-Funded Warrants outstanding. Stock Options and Restricted Stock Unit Awards Stock Options. The following table summarizes stock option activity and related information under all equity plans for the year ended December 31, 2023: Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in 000s) Outstanding at December 31, 2022 7,267,226 $ 22.37 Granted 5,875,000 6.39 Exercised ( 93,787 ) 3.24 Cancelled ( 3,197,598 ) 20.26 Outstanding at December 31, 2023 9,850,841 $ 13.71 6.83 $ 903 Options vested and expected to vest at December 31, 2023 9,850,841 $ 13.71 6.83 $ 903 Options exercisable at December 31, 2023 6,297,349 $ 15.81 5.56 $ 392 For the years ended December 31, 2023 and 2022, the weighted average grant date fair value of stock options granted per share was equal to $ 4.83 and $ 24.07 , respectively. As of December 31, 2023 and 2022, the unrecognized compensation cost related to outstanding options was $ 23.0 million and $ 35.1 million, respectively, which was expected to be recognized as expense over approximately 1.9 years and 2.2 years, respectively. The total intrinsic value, which is the amount by which the exercise price was exceeded by the price of the Company’s common stock on the date of exercise, of stock options exercised during the years ended December 31, 2023 and 2022, was $ 0.3 million and $ 23.8 million, respectively. Total cash received upon the exercise of stock options was $ 0.3 million for the year ended December 31, 2023. Restricted Stock Units. The following table summarizes restricted stock unit activity and related information under all equity plans for the year ended December 31, 2023: Number of Restricted Stock Units Weighted Average Grant Date Fair Value Per Share Weighted Average Remaining Vesting Period Aggregate Intrinsic Value (in 000s) Outstanding at December 31, 2022 5,862,733 $ 48.13 Granted 1,161,540 6.68 Vested ( 1,071,167 ) 42.71 Cancelled ( 2,888,019 ) 44.12 Outstanding at December 31, 2023 3,065,087 $ 37.96 2.59 $ 11,463 Restricted stock units expected to vest at December 31, 2023 2,044,470 $ 28.74 2.38 $ 7,646 As of December 31, 2023 and 2022, the unrecognized compensation cost related to outstanding restricted stock units (excluding those with unachieved performance-based conditions) was $ 38.3 million and $ 137.7 million, respectively, which was expected to be recognized as expense over approximately 2.0 years and 2.8 years, respectively. During the year ended December 31, 2021, 1,997,377 performance-based restricted stock units (PRSUs) were granted, none of which have vested. No PRSUs were granted during the years ended December 31, 2023 and 2022. There were 1,020,617 and 1,797,619 PRSUs outstanding at December 31, 2023 and 2022, respectively. 113 Table of Contents Stock-Based Compensation Expense The allocation of stock-based compensation for all stock awards is as follows (in thousands): Years Ended December 31, 2023 2022 Research and development $ 20,849 $ 51,103 General and administrative 22,610 27,630 Total stock-based compensation expense $ 43,459 $ 78,733 Stock Option Grants Valuation. The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee and nonemployee stock option grants were as follows: Years Ended December 31, 2023 2022 Risk–free interest rate 3.8 % 1.9 % Expected volatility 89.3 % 76.2 % Expected term (in years) 6.5 5.8 Expected dividend yield 0.0 % 0.0 % Risk-free interest rate. The Company bases the risk-free interest rate assumption on observed interest rates appropriate for the expected term of the stock option grants. Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility. The Company based the expected volatility on the historical volatility of its common stock over the most recent period commensurate with the estimated expected term of the Company’s stock options, as the Company determined there was sufficient operating history and company-specific historical volatility to estimate the expected volatility. Expected term. The expected term represents the period of time that options are expected to be outstanding. The Company estimated the expected term using historical experience and anticipated future exercise behavior. Common Stock Reserved for Future Issuance Common stock reserved for future issuance is as follows: December 31, 2023 2022 Convertible preferred stock (if converted) 13,805,540 13,972,745 Common stock options 9,850,841 7,267,226 Restricted stock units 3,065,087 5,862,733 Awards available under the 2022 Plan 8,633,496 10,274,169 Awards available under the Inducement Plan 689,750 741,000 Employee stock purchase plan — 729,000 Total 36,044,714 38,846,873 114 Table of Contents 10. Income Taxes The following is a reconciliation of the Company’s expected federal income tax provision (benefit) to the actual income tax provision (in thousands): Years Ended December 31, 2023 2022 Tax computed at federal statutory rate $ ( 33,794 ) $ ( 59,161 ) State tax, net of federal tax benefit ( 4,851 ) ( 11,109 ) Non-deductible compensation 25 2,086 Permanent differences ( 2,305 ) ( 1,340 ) Stock compensation 12,801 3,356 R&D tax credits ( 5,773 ) ( 14,484 ) Reserve for uncertain tax positions 4,254 12,564 Other 1,928 ( 1,376 ) Valuation allowance 27,715 69,464 Income tax expense $ — $ — Significant components of the Company’s deferred tax assets are summarized as follows (in thousands): December 31, 2023 2022 Deferred tax assets: Capitalized R&D expense $ 134,209 $ 127,250 Net operating losses 112,810 84,608 R&D tax credits 55,492 49,736 Intangible asset amortization 9,220 8,012 Deferred revenue 144 8,714 Stock compensation 8,322 13,128 Lease liability 21,761 22,961 Other 672 2,526 Total deferred tax assets 342,630 316,935 Deferred tax liabilities: Depreciation ( 5,639 ) ( 6,814 ) Right-of-use assets ( 13,029 ) ( 13,874 ) Total deferred tax liabilities ( 18,668 ) ( 20,688 ) Net of deferred tax assets and liabilities 323,962 296,247 Valuation allowance ( 323,962 ) ( 296,247 ) Net deferred tax assets $ — $ — A valuation allowance of $ 324.0 million and $ 296.2 million at December 31, 2023 and 2022, respectively, has been established to offset the deferred tax assets, as realization of such assets is uncertain. At December 31, 2023, the Company had federal and California net operating loss (NOL) carryforwards of $ 526.4 million and $ 522.1 million, respectively, which may be available to offset future taxable income. The federal and California NOL carryforwards begin to expire in 2027 and 2028 , respectively, unless previously utilized. At December 31, 2023 , the Company had federal and California research and development (R&D) credit carryforwards of $ 40.3 million and $ 34.7 million, respectively. The federal R&D tax credit carryforwards will begin to expire in 2035 unless previously utilized. The California R&D credit carryforwards will carry forward indefinitely. 115 Table of Contents Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, (the Code), substantial changes in the Company’ s ownership may limit the amount of net operating loss and research and development credit carryforwards that could be used annually in the future to offset taxable income. The tax benefits related to future utilization of federal and state net operating loss carryforwards, credit carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50 % within any three-year period. The Company completed a study to assess whether an ownership change, as defined by Section 382 of the Code, had occurred from the Company’s formation through December 31, 2015. Based upon this study, the Company determined that several ownership changes had occurred. Accordingly, the Company reduced its deferred tax assets related to the federal NOL carryforwards and the federal R&D credit carryforwards that are anticipated to expire unused as a result of these ownership changes. These tax attributes were excluded from deferred tax assets with a corresponding reduction of the valuation allowance with no net effect on income tax expense or the effective tax rate. The Company updated the study December 31, 2023 and concluded there were no ownership changes during 2023. Future ownership changes may further limit the Company’s ability to utilize its remaining tax attributes. The Company files income tax returns in the United States, various state jurisdictions, and the Netherlands with varying statutes of limitations. The Company currently has no years under examination by any jurisdiction; however, the Company is subject to income tax examination by federal and state tax authorities for years beginning in 2020 and 2019 , respectively. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where NOLs and tax credits were generated and carried forward, and make adjustments up to the amount of the carryforwards. The change in the Company’s unrecognized tax benefits is summarized as follows (in thousands): December 31, 2023 2022 Beginning unrecognized tax benefits $ 52,767 $ 37,255 Increase related to current year tax positions 9,724 9,101 Increase related to prior year tax positions 90 6,411 Decrease related to prior year tax positions ( 2,901 ) — Ending unrecognized tax benefits $ 59,680 $ 52,767 The Company does no t anticipate that the amount of unrecognized tax benefits as of December 31, 2023 will significantly change within the next twelve months. Due to the valuation allowance recorded against the Company’s deferred tax assets, no ne of the total unrecognized tax benefits as of December 31, 2023 would reduce the effective tax rate if recognized. The Company has not recognized interest or penalties related to income tax matters in its consolidated statements of operations and comprehensive loss since inception. 11. Employee Benefits Effective January 1, 2009, the Company adopted a defined contribution 401(k) plan for employees who are at least 21 years of age. Employees are eligible to participate in the plan beginning on the first day of the calendar quarter following date of hire. Under the terms of the plan, employees may make voluntary contributions as a percent of compensation. The Company makes discretionary contributions to the 401(k) Plan equal to 100 percent of each employee’s pretax contributions up to 20 percent of the IRS Standard Limit. The Company ’ s total contributions to the 401(k) Plan were $ 1.9 million and $ 1.3 million for the years ended December 31, 2023 and 2022 , respectively. 12. Commitments and Contingencies License Agreements The Company has entered into exclusive license agreements with certain academic institutions and universities pursuant to which the Company acquired certain intellectual property. Pursuant to each agreement, as consideration for an exclusive license to the intellectual property, the Company paid a license fee, reimbursed the institution for historical patent costs and, in certain instances, issued the institution shares of restricted common stock. Additionally, under each agreement, the institution is generally eligible to receive future consideration including, but not limited to, annual maintenance fees, royalties, milestone payments and sublicensing fees. Each of the license agreements is generally cancelable by the Company, given appropriate prior written notice. Minimum annual payments to maintain these cancelable licenses total an aggregate of $ 0.4 million. See Note 2 for additional information on certain licenses. 116 Table of Contents Litigation On January 20, 2023, a purported stockholder of the Company filed a securities class action lawsuit against the Company and certain of its officers captioned Hadian v. Fate Therapeutics, Inc. et al. in the U.S. District Court for the Southern District of California (the Securities Action). On May 4, 2023, the court appointed a different purported stockholder of the Company to serve as lead plaintiff in the Securities Action. On July 24, 2023, the lead plaintiff filed an amended complaint. The amended complaint alleges that the Company violated the federal securities laws by making allegedly false and/or misleading statements and/or omissions in its public disclosures dating back to August 2020 relating to our collaboration agreement with Janssen Biotech, Inc. (the Janssen Agreement), potential product candidates subject to the Janssen Agreement, and the termination of the Janssen Agreement. On September 22, 2023, we filed a motion to dismiss the amended complaint in its entirety. Briefing on our motion to dismiss was completed on December 6, 2023. The court may, in its discretion, either hold oral argument on the motion to dismiss or issue a ruling on the motion based upon the parties’ briefing. We intend to continue to vigorously defend against this action. On June 2, 2023, a derivative complaint, captioned Guarino v. Wolchko, et al., was filed by a purported stockholder of the Company in the U.S. District Court for the Southern District of California. The derivative lawsuit names members of our board of directors and certain officers as defendants. The Company is named as a nominal defendant. The plaintiff asserts derivative claims arising out of substantially the same alleged facts and circumstances as the Securities Action. The complaint asserts claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violation of federal securities laws. On August 14, 2023, the court stayed the derivative lawsuit pending the court’s decision on our motion to dismiss in the Securities Action filed September 22, 2023. We intend to vigorously defend against this action. From time to time, the Company may be involved in various other lawsuits, legal proceedings, or claims that arise in the ordinary course of business. Management believes there are no claims or actions pending against the Company as of December 31, 2023 , which will have, individually or in the aggregate, a material adverse effect on its business, liquidity, financial position, or results of operations. Litigation, however, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. 13. Subsequent Events California Institute for Regenerative Medicine Award On February 22, 2024, the Company was awarded a $ 7.9 m illion grant from the California Institute for Regenerative Medicine (CIRM) to support the conduct of the Company’s Phase 1 study of FT819 in patients with SLE. 117 Table of Contents ITEM 9. Changes in and Disagreements with Acco untants on Accounting and Financial Disclosure None. ITEM 9A. Control s and Procedures Evaluation of Disclosure Controls and Procedures. We are responsible for maintaining disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the individual serving as our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer) of our disclosure controls and procedures as required by Rules 13a-15 and 15d-15 under the Exchange Act, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023, the end of the period covered by this report. Management’s Report on Internal Control Over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013 Framework). Based on this assessment, our management concluded that, as of December 31, 2023, our internal control over financial reporting was effective based on those criteria. This Annual Report on Form 10-K does not include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. Our auditors will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 as the Company is classified as a smaller reporting company. Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 118 Table of Contents ITEM 9B. Othe r Information a) None. b) Rule 10b5-1 Trading Plans During the three months ended December 31, 2023 , none of the Company’s directors or officers adopted , materially modified, or terminated any contract, instruction, or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any non-Rule 10b5-1 trading arrangement . ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 119 Table of Contents PART III ITEM 10. Directors, Executive Of ficers and Corporate Governance Except as set forth below, the information required by this item is contained in our definitive proxy statement (the Proxy Statement), to be filed with the SEC in connection with the Annual Meeting of Stockholders within 120 days after the conclusion of our fiscal year ended December 31, 2023 and is incorporated in this Annual Report on Form 10-K by reference. We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current copy of the code is posted on the Corporate Governance section of our website, which is located at www.fatetherapeutics.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions, or any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K. ITEM 11. Execut ive Compensation The information required by this item is contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference, except as to information disclosed in the Proxy Statement pursuant to Item 402(v) of Regulation S-K relating to pay versus performance. ITEM 12. Security Ownership of Certain Beneficial O wners and Management and Related Stockholder Matters The information required by this item is contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference. ITEM 13. Certain Relationships and Related P arty Transactions, and Director Independence The information required by this item is contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference. ITEM 14. Principal Acco unting Fees and Services Our independent public accounting firm is Ernst & Young, LLP , San Diego, CA , PCAOB Auditor ID 42 . The information required by this item is contained in the Proxy Statement and is incorporated in this Annual Report on Form 10-K by reference. 120 Table of Contents PART IV ITEM 15. Exhibits and Fin ancial Statement Schedules (a) The following documents are filed as part of this report: (1) Index list to Financial Statements: Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 93 Consolidated Balance Sheets 95 Consolidated Statements of Operations and Comprehensive Loss 96 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity 97 Consolidated Statements of Cash Flows 98 Notes to Consolidated Financial Statements 99 (2) Financial Statement Schedules All other schedules are omitted because they are not required or the required information is included in the financial statements or notes thereto. (3) Exhibits The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report. ITEM 16. Form 10-K Summary None. 121 Table of Contents EXHIBIT INDEX Incorporated by Reference Exhibit Number Exhibit Title Form File No. Exhibit Filing Date 3.1 Amended and Restated Certificate of Incorporation of the Registrant S-1/A 333-190608 3.2 August 29, 2013 3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect 8-K 001-36076 3.1 June 7, 2021 3.3 Certificate of Designation of Preferences, Rights and Limitations of Class A Convertible Preferred Stock 8-K 001-36076 3.1 November 29, 2016 3.4 Amended and Restated Bylaws of the Registrant, as currently in effect 10-K 001-36076 3.3 February 24, 2021 3.5 Certificate of Amendment to Certificate of Designation of Preferences, Rights and Limitation of Class A Convertible Preferred Stock of the Registrant 8-K 001-36076 3.1 April 19, 2023 4.1 Specimen Common Stock Certificate S-1/A 333-190608 4.1 August 29, 2013 4.2 Description of Securities 10-Q 001-36076 4.3 November 8, 2023 4.3 Form of Pre-Funded Warrant 8-K 001-36076 4.1 January 8, 2021 10.1# 2007 Equity Incentive Plan and forms of agreements thereunder S-1/A 333-190608 10.1 August 29, 2013 10.2# Amended and Restated 2013 Stock Option and Incentive Plan and forms of agreements thereunder 10-K 001-36076 10.2 February 24, 2021 10.3# Form of Unrestricted Stock Award Agreement under the 2013 Stock Option and Incentive Plan 8-K 001-36076 10.2 January 7, 2015 10.4# Amended and Restated Employment Agreement by and between the Registrant and Scott Wolchko, dated January 14, 2018 10-K 001-36076 10.5 March 5, 2018 10.5# Amended and Restated Senior Executive Incentive Bonus Plan 8-K 001-36076 10.1 January 7, 2015 10.6# Amended and Restated Non-Employee Director Compensation Policy 10-Q 001-36076 10.1 August 8, 2023 10.7# Fate Therapeutics, Inc. Amended and Restated Inducement Equity Plan 10-K 001-36076 10.8 February 24, 2021 10.8# Forms of Stock Option Agreement under the Registrant's Inducement Equity Plan 10-K 001-36076 10.9 February 24, 2021 10.9# Forms of Restricted Stock Unit Award Agreement under the Registrant's Inducement Equity Plan 10-K 001-36076 10.10 February 24, 2021 10.10 Lease Agreement by and between the Registrant and ARE-3535/3565 General Atomics Court, LLC, dated December 3, 2009 S-1 333-190608 10.14 August 13, 2013 10.11 First Amendment to Lease Agreement by and between the Registrant and ARE-3535/3565 General Atomics Court, LLC, dated October 1, 2011 S-1 333-190608 10.15 August 13, 2013 10.12 Second Amendment to Lease Agreement by and between the Registrant and ARE-3535/3565 General Atomics Court, dated September 26, 2013 S-1/A 333-190608 10.25 September 30, 2013 122 Table of Contents 10.13 Third Amendment to Lease Agreement by and between the Registrant and ARE-3535/3565 General Atomics Court, dated September 2, 2014 10-K 001-36076 10.15 March 3, 2016 10.14 Fourth Amendment to Lease Agreement by and between the Registrant and ARE-3535/3565 General Atomics Court, dated March 2, 2015 10-K 001-36076 10.16 March 3, 2016 10.15 Fifth Amendment to Lease Agreement by and between the Registrant and ARE-3535/3565 General Atomics Court, dated June 1, 2016 10-Q 001-36076 10.2 August 8, 2016 10.16 Form of Indemnification Agreement S-1/A 333-190608 10.20 August 29, 2013 10.17† Whitehead Institute for Biomedical Research Exclusive Patent License Agreement between the Registrant and the Whitehead Institute for Biomedical Research, dated as of February 24, 2009 10-K 001-36076 10.19 February 24, 2021 10.18† License Agreement between the Registrant and The Scripps Research Institute, dated as of July 13, 2009 10-K 001-36076 10.20 February 24, 2021 10.19† License Agreement between the Registrant and The Scripps Research Institute, dated as of May 25, 2010 10-K 001-36076 10.21 February 24, 2021 10.20† License Agreement between the Registrant and The Scripps Research Institute, dated as of August 24, 2010 10-K 001-36076 10.22 February 24, 2021 10.21 Securities Purchase Agreement, dated August 6, 2016, by and among the Registrant and the Purchasers 8-K 001-36076 10.1 August 8, 2016 10.22 Registration Rights Agreement, dated August 6, 2016, by and among the Registrant and the Purchasers 8-K 001-36076 10.2 August 8, 2016 10.23 Securities Purchase Agreement, dated November 21, 2016, by and among the Registrant and the Purchasers 8-K 001-36076 10.1 November 22, 2016 10.24 Registration Rights Agreement, dated November 21, 2016, by and among the Registrant and the Purchasers 8-K 001-36076 10.2 November 22, 2016 10.25# Severance and Change in Control Policy 10-K 001-36076 10.32 March 5, 2018 10.26# Offer Letter by and between the Registrant and Cindy R. Tahl, dated October 23, 2009 10-K 001-36076 10.33 March 5, 2019 123 Table of Contents 10.27 Sixth Amendment to the Lease Agreement by and between the Registrant and ARE-3535/3565 General Atomics Court, dated May 31, 2018 10-Q 001-36076 10.1 August 6, 2018 10.28 Amended and Restated Exclusive License Agreement by and between the Registrant and Memorial Sloan Kettering Cancer Center, dated May 15, 2018 10-Q 001-36076 10.2 August 6, 2018 10.29† Exclusive License Agreement by and between the Registrant and The David Gladstone Institutes, dated September 11, 2018 10-Q 001-36076 10.1 November 1, 2018 10.30† Collaboration and Option Agreement by and between the Registrant and Ono Pharmaceutical Co., Ltd., dated September 14, 2018 10-Q/A 001-36076 10.2 February 8, 2019 10.31# Offer Letter by and between the Registrant and Bahram Valamehr, dated November 23, 2009 10-K 001-36076 10.38 March 5, 2019 10.32† Lease Agreement by and between the Registrant and Scripps Summit Investments LLC, dated January 7, 2020 10-K 001-36076 10.34 March 2, 2020 10.33# Offer Letter by and between the Registrant and Edward Dulac III, dated May 20, 2020 8-K 001-36076 10.1 August 19, 2020 10.34† Letter Agreement, dated December 4, 2020, by and between the Registrant and Ono Pharmaceutical Co., Ltd. 10-K 001-36076 10.39 February 24, 2021 10.35† Patent License Agreement by and between the Registrant and Max-Delbrück-Centrum für Molekulare Medizin in der Helmholtz-Gemeinschaft, dated August 30, 2019 10-K 001-36076 10.40 February 24, 2021 10.36 Open Market Sale Agreement SM , dated November 8, 2023, by and between the Registrant and Jefferies LLC S-3 333-275402 1.2 November 8, 2023 10.37† License Agreement, dated April 9, 2020, by and between the Registrant and Dana-Farber Cancer Institute, Inc. 10-K 001-36076 10.40 February 28, 2022 10.38# 2022 Stock Option and Incentive Plan and form agreements thereunder S-8 333-26552 99.1 June 9, 2022 10.39† Amendment 01 to Collaboration and Option Agreement, dated June 28, 2022, by and between the Registrant and Ono Pharmaceutical Co. Ltd. 10-Q 001-36076 10.2 August 3, 2022 10.40 Letter Agreement, dated November 7, 2022, by and between the Registrant and Ono Pharmaceutical Co., Ltd. 8-K 001-36076 10.1 November 7, 2022 10.41 Amendment 03 to Collaboration and Option Agreement, dated November 30, 2023, by and between the Registrant and Ono Pharmaceutical Co. Ltd. — — — Filed herewith 10.42† Exclusive License Agreement, dated April 17, 2020, by an between the Registrant and Baylor College of Medicine — — — Filed herewith 14.1 Amended Code of Business Conduct and Ethics — — — Filed herewith 21.1 Subsidiaries of the Registrant 10-K 001-36076 21.1 February 28, 2023 23.1 Consent of Independent Registered Public Accounting Firm — — — Filed herewith 24.1 Power of Attorney (included on signature page to this Annual Report) — — — Filed herewith 124 Table of Contents 31.1 Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15-d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — — — Filed herewith 31.2 Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15-d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — — — Filed herewith 32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — — — Filed herewith 32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — — — Filed herewith 97.1 Compensation Recovery Policy — — — Filed herewith 101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. — — — Filed herewith 101.SCH Inline XBRL Taxonomy Extension Schema with Embedded Linkbases Document — — — Filed herewith 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). — — — Filed herewith † Certain provisions of this Exhibit have been omitted as confidential information. # Indicates a management contract or any compensatory plan, contract or arrangement. 125 Table of Contents SIGNAT URES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Fate Therapeutics, Inc. Date: February 26, 2024 By: /s/ J. Scott Wolchko J. Scott Wolchko President and Chief Executive Officer (Principal Executive Officer and Authorized Signatory) Date: February 26, 2024 By: /s/ Edward J. Dulac III Edward J. Dulac III Chief Financial Officer (Principal Financial and Accounting Officer) KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of J. Scott Wolchko and Edward J. Dulac III as his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his or her substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated: SIGNATURE TITLE DATE /s/ J. Scott Wolchko President and Chief Executive Officer and Director February 26, 2024 J. Scott Wolchko (Principal Executive Officer) /s/ Edward J. Dulac III Chief Financial Officer February 26, 2024 Edward J. Dulac III (Principal Financial and Accounting Officer) /s/ William H. Rastetter Chairman of the Board and Director February 26, 2024 William H. Rastetter, Ph.D. /s/ John D. Mendlein Vice Chairman of the Board and Director February 26, 2024 John D. Mendlein, Ph.D., J.D. /s/ Shefali Agarwal Director February 26, 2024 Shefali Agarwal, M.D. /s/ Timothy P. Coughlin Director February 26, 2024 Timothy P. Coughlin /s/ Robert S. Epstein Director February 26, 2024 Robert S. Epstein /s/ Robert Hershberg Director February 26, 2024 Robert Hershberg, M.D., Ph.D. /s/ Karin Jooss Director February 26, 2024 Karin Jooss, Ph.D. /s/ Michael Lee Director February 26, 2024 Michael Lee /s/ Yuan Xu Director February 26, 2024 Yuan Xu, Ph.D. 126