The Small San Diego Company Counting Down the Days to Curing Cancer
– Bret Jensen, Editor, Biotech Gem
In this free report, we take a look at a small high risk/high reward biotech concern that has not only one of the more interesting ticker symbols in the market but also an intriguing and advancing pipeline.
Company Overview:
Fate Therapeutics (NASDAQ: FATE) is a San Diego, California-based early-stage immunotherapy company that applies cell programming techniques to regulate oncological and immune 
disorders. More specifically, what differentiates Fate is its use of ex-vivo (outside the organism) cell programming through the use of small molecules as opposed to the current paradigm of harvesting a patient’s own cells.
These “engineered” cells cut out the step of isolating and engineering cells for each individual patient. Fate refers to it as an “off-the-shelf” approach to immunotherapy. From this Induced Pluripotent Cell Platform {iPSC} Fate hopes to revolutionize cellular immunotherapies. To that end, the company announced in September 2016 a partnership with Memorial Sloan Kettering Cancer Center to generate renewable T cell product candidates. Fate has 60 patents and another 90 patents pending.
Fate was founded in 2007 and went public in May 2013 when it offered 6.9 million shares at $5 apiece. The stock currently trades at just under $3.00 a share and has a market capitalization of approximately $100 million.
Pipeline:
The company has myriad early stage compounds in a quite diversified pipeline. Let’s take a look at four of those key efforts.
1) ProTmune. ProTmune is being evaluated for the prevention of life-threatening complications (including acute graft-versus-host disease (aGvHD) and cytomegalovirus infections) in adult subjects with hematologic (blood) malignancies undergoing allogeneic mobilized peripheral blood hematopoietic cell transplantation (HCT). In these treatments, donor T cells sometimes attack healthy tissue in the liver, gut, and skin (aGvHD).
Patients receiving HCT currently experience mortality or relapse 50% of the time within two years. Fate’s promising treatment was granted Fast Tract status from the FDA in June 2016 and was granted broad Orphan Drug Designations by the FDA (Sept 2016) and the EMA (Oct 2016).A delay in the recruitment for the Phase 1/2 PROTECT clinical trial occurred while Fate amended its protocol for the trials – the studies are now blinded and are designed to include a wider range of patients.
This change in the conduct of the study could speed up the approval process as it may obviate the need for an additional trial down the road and it may broaden ProTmune’s label potential. Seven clinical sites are now open for enrollment with 10 patients expected for Phase 1 and 60 patients for Phase 2.
2) FATE-NK100. In addition to T cells, the body has natural killer (NK) cells, which may be superior to T-cells. Not only do NK cells display significant anti-tumor activity, but also, unlike T cells, they are not dependent on tumor antigen exposure and do not kill normal, healthy cells.
Fate has filed an indication for NK100, a first-in-class adaptive NK candidate, for the treatment of refractory or relapsed acute myeloid leukemia (AML). Testing is expected to initiate in early 2017.
In pre-clinical studies, NK100 demonstrated superior anti-tumor activity and improved persistence versus NK cell therapies that are being clinically-administered today. Scott Wolchko, President and CEO of Fate said in a recent conference call that “FATE-NK100 has the potential to become a cornerstone product in cancer immunotherapy for the treatment of liquid and solid tumors [both] as a monotherapy and in combination with monoclonal antibodies.”
3) PD-L1 CD34+. Like ProTmune, PD-L1 CD34+ is a cell therapy for autoimmune disorders. CD34+ cells are programmed to travel to sites of inflammation and suppress T cell activity. Fate is currently formulating a study protocol for PD-L1 CD34+ (ToleraCyte) in the treatment of type I diabetes and possibly other T cell-mediated immune dysfunctions.
4) Collaboration with Juno Therapeutics. Juno is in FDA trials to treat patients with blood-borne cancers using chimeric antigen receptors (CAR) T cells and T cell receptors (TCR). Through its collaboration with Juno, Fate is hoping to identify small molecules that can add a further therapeutic dimensionality to engineered T cell immunotherapies.
As part of their four-year agreement, which commenced on May 4, 2015, Fate received a $5 million upfront payment from Juno and an additional $8 million through the purchase of one million shares by Juno at $8 per share. Additionally, Fate will receive a minimum $2 million annual research payments while also being eligible for target selection fees.
Fate could qualify for milestone payments totaling over $500 million along with low single-digit royalties if Juno decides to use Fate’s molecules and certain breakthroughs are accomplished.
In return, Juno was granted an exclusive worldwide license to certain Fate intellectual property used to target tumor-associated antigens in its trials. Fate can extend this agreement for two additional years with slightly modified terms.
Analyst Commentary and Balance Sheet:
As for the stock, it opened the year at $3.37 a share, traded down to a low of $1.51 realized on Feb 4th and May 20th, then achieved a year high of $3.54 on Sept 22nd, retreated to $1.92 on Nov 3rd before rallying to $2.80 by mid-December. This latest rally was likely triggered by a combination of Trump’s election and a bullish post-earnings release conference call on Nov 7th.
Fate took advantage of this bullish run by raising $57 million (gross) through a private placement on Nov 22nd. This capital raise was accomplished through the sale of convertible preferred and common stock in which the equivalent of 21,334,582 common shares were sold at $2.66 per. This comes on the back of a $10.2 million (net) financing through a private placement that closed on Aug 10th of this year.
Also of note regarding the private placement, nearly 470,000 shares were purchased by three company insiders.
FATE is covered by six analyst firms. Five have a Buy rating on the stock and one rates it Outperform. The average 12-month price target is just north of $7 a share, more than double the shares current price.
Probably the most colorful commentary has come from Wells Fargo who has a Buy rating on the stock. Its analyst noted earlier this year “We continue to believe that its stem cell optimization platform could be highly leverageable in the rapidly evolving adoptive cellular therapy (ACT) space and that ProTmune offers base support and significant potential upside from current levels.”
Fate had $46.6 million in cash and marketable securities as of September 30, 2016, and a total of 34.1 million shares outstanding. With the November, private placement, the company should have approximately $90 million in cash at year’s end with a total of 55.4 million shares outstanding, or $1.62 a share in cash, or two and a half years’ worth of money if the current burn rate stays constant.
Outlook:
Although commercialization – if realized – is still far in the future, with the exciting lineup of potentially groundbreaking therapies, insider buying, and a cash reserve that should cover its expenses for the next 30 months, Fate’s risk to reward profile merits a small investment for aggressive investors within a well-diversified biotech portfolio.
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