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Before we begin, I just want to remind you that I have prepared an article on ASCO and the various biotechnology companies that are showing up, you can read that here. There are over 50 companies being represented in the oral sessions, so click here to read more on what will be featured!
Top-line Summary
Fate Therapeutics, Inc. (NASDAQ:FATE) is a cell therapy-focused company that I’ve gone on record in previous articles as having something of a pessimistic perspective on. In early 2024, they experienced a pretty strong rally that continued through March, but the stock has since begun to come back toward Earth. In my previous update, I described the risk of share value erosion that began in earnest not long after it reached publication, and there are no signs of the downward trend slowing down.
In today’s article, I want to update you on where they stand now, since an inflection point is coming where FATE makes sense to buy, but I don’t think we’ve quite reached yet, and this article will detail why. What they absolutely have is a LOT of irons in the fire in a biotech market that is currently in a frenzy over promising immunotherapies.
Pipeline Updates
FT819
FT819 has emerged as the company’s flagship allogeneic CAR T-cell project. It is a CD19-directed treatment, similar to many of the approved CAR T-cell therapies that are known to cure some patients with B-cell malignancies (including certain forms of ALL and DLBCL, as prominent examples).
Where FT819 is intended to differ is that it is “off the shelf,” meaning that the theoretical time from deciding to treat a patient with this platform and actually delivering therapy can be cut quite short relative to the multiple months required to obtain and engineer a patient’s own T cells. FATE uses a platform for their cells that does not use a T cell receptor, hoping to remove the risk of GvHD that plagues allogeneic cell therapy.
So far, FT819 has been showcased in some early reports at ASH 2022, highlighting favorable tolerability among 15 patients with B-cell lymphoma, with 4 of these patients achieving a response despite having heavily pretreated disease with high-risk features. It was a small readout, but it was encouraging.
FT819 was also the subject of the company’s latest scientific presentation, taking place at the ASGCT meeting in Baltimore. They detailed findings from their phase 1 study of FT819 in B-cell cancers, suggesting that there could be benefits for patients with autoimmune disorders.
This represents a signal that FATE is going to follow other companies in dovetailing their cancer research into the management of autoimmune disease, which has shown a lot of promise and excitement lately. It is worth pointing out that we haven’t seen anything truly breakthrough lately, but there’s a lot of research ongoing for these CD19-directed therapies, in particular.
FT825
This CAR T-cell candidate directed against HER2 is the current subject of a phase 1 study in HER2-positive solid tumors. This program is partnered with Ono Pharmaceuticals, and the most we’ve seen from it is preclinical data establishing a preliminary proof of concept that FT825 may have more preferential targeting for HER2 in tumors than trastuzumab, which could potentially offer a distinct mechanism of action in an increasingly crowded field of anti-HER2 therapies.
No word yet on when the company expects to give a report of findings from this phase 1 study, but it is now ongoing.
NK Cell Programs
FATE is also continuing to develop iPSC-derived natural killer (NK) cell immunotherapies. One of these, FT522, is a CD19-directed therapy that recently began a phase 1 trial in patients with relapsed/refractory B-cell lymphoma. Another program, the BCMA-directed NK cell product called FT576, remains in phase 1 study for patients with multiple myeloma.
Financial Overview
As of their 2023 annual filing, FATE held $331.5 million in current assets, including $41.9 million in cash and equivalents and another $273.3 million in short-term investments. They recognized $63.5 million in collaboration revenue, down from $96.3 million in 2022.
Meanwhile, their total operating expenses for the year reached $254 million. After interest income and other accounting lines, the net loss for the year was $160.9 million. At this cash burn rate, FATE had around 2 years of capital and investments left to continue funding operations without a change in their expenses.
FATE has worked to shore up their coffers through a $100 million underwritten public offering back in mid-March 2024, which was not accounted for in the annual report. This brings the cash runway closer to 2.5-3 years overall.
Strengths and Risks
Strength – Cell therapy platforms with no obvious flaws yet observed
Strength – We know the ceiling is higher now
Divorcing ourselves from the science and data (or lack thereof), we have already seen that investor confidence in FATE is relatively high, judging by the run-up earlier this year that I expressed pessimism about. While I don’t know that the company’s data justify the two-fold valuation that they reached at their recent high, I cannot deny that the market disagreed with me, at least temporarily.
What this says is that FATE has a lot of interest and attention, relative to many of its peers in the microcap territory. This doesn’t mean that an investment here would be successful, but it does speak to the kind of support this company has from the market, and we’ve seen how that can translate into multi-billion-dollar valuations with other immunotherapy companies out there recently. FATE has every chance to join that kind of frenzy at pretty much any time, given the recent approval of cell therapies for solid tumors laying the “proof of concept” foundation at the clinical level.
So I mark it as a strength that they’re in this space of cancer medicine, for now, and I suspect there is an inflection point to be found soon after falling so much from their recent run.
Risk – Cash burn rate remains high, although they have good reserves
With over $300 million sitting in the pot as of their latest annual filing, FATE definitely has room to play. I have concerns that their cash burn rate is creating a short fuse for them, and that may need to be addressed at some time in the near future, most likely by identifying the pipeline projects that are most promising and focusing on those, or perhaps initiating more partnerships to help ease costs.
We don’t have clear guidance on how they might tighten the reins a bit, but I think it’s going to be important at some point, and it represents an unknown that makes me a bit uncomfortable.
Bottom Line Summary
In my January article, I felt that the share price (at that time) of $4.63 was overvalued, which is obviously just a relative guess. The fact that the company was gaining quickly on little-to-no news was a red flag for me. It’s taken a few months for the frenzy to slow to a crawl, and FATE is now dropping below that “overvalued” level. As they continue to mature their pipeline, improve their asset pool, and move forward overall, I believe that they’re likely reaching a bottom.
It’s not quite low enough for me to consider FATE an unequivocal buy, but I wouldn’t scold my brother if he said he was considering a small position here. For that reason, I am upgrading my view of FATE to a VERY tentative “Buy,” but my personal style would have me hold and wait to see if a better entry point presents itself within, say, the next month. That may never happen, of course, but Fate Therapeutics, Inc. is continuing to turn corners in a highly energized developmental biotech market, which is going to offer a serious opportunity for those among you who are not risk-averse.
