NKTX - Fate Therapeutics: Getting There But Perpetually

2023-11-12 12:10:29 ET

Summary

• Fate Therapeutics stock has fallen 50% and lost 90% of its market cap, validating negative stance on the company.
• Janssen walked away from a partnership deal with Fate, resulting in a huge loss for shareholders.
• Fate's current pipeline consists of early-stage programs, but the company's progress in the market has been dubious.

I covered Fate Therapeutics ( FATE ) in a rare “sell” rated article in March, and the stock has gone down 50%, validating my negative stance if not my arguments for the same. I noted very early in the article that Fate was down 80% since my previous coverage in November; thus Fate has not had a good year so far at all.

Last time, we saw how the stock fell after Janssen walked away from a partnership deal with Fate. The deal had been in place since 2020, and was originally $3bn in potential biobucks. Late last year, possibly as a result of poor data from partnered programs that we discussed earlier, Janssen wanted to modify this deal. Fate declined, Janssen walked away, Fate was forced to reduce workforce and restructure itself, resulting in a huge loss for shareholders.

Comparisons were drawn with Geron when Janssen exited Fate, as it once did with Geron. However, while both companies have been in existence for decades, Geron is now on the verge of its first approval, with a near term PDUFA, while Fate still has only early stage data. In the last one and a half years, Fate’s market cap has gone down from over $3bn to less than $300mn today, with investors losing 90% of their investments. While long time Geron investors are not exactly getting uber rich out of their Geron portfolio, they are also not in such a terrible situation, with no recourse in sight. The comparison is, therefore, fruitless and without merit.

Recently, Fate found itself on a list of the worst-performing stocks in the sector. This list was produced by BofA, and I tend to agree with the list. Fate’s current, early stage pipeline looks like this. Remember, Fate has been in existence since 2007:

Fate was once a major player in the NK cell therapy space, and they still have programs here; the value is just not where it used to be. Their lead program is still FT576 targeting multiple myeloma in a phase 1 trial. Their second program is FT819, targeting B-cell malignancies, also in phase 1 trials. A third candidate, FT522, is about to begin phase 1 trials in B-cell lymphoma. They have a collaboration with Ono for FT825, for which an IND is planned. Dose escalation studies are ongoing for the two listed phase 1 programs.

Here’s what Scott Wolchko, President and Chief Executive Officer of Fate Therapeutics, said about their program in their previous earnings call:

We have commenced Phase 1 study start-up activities for our FT522 ADR-armed, CD19-targeted CAR NK cell program for B-cell lymphoma, where we intend to assess FT522 with and without administration of conditioning chemotherapy to patients. We have also initiated GMP manufacturing of FT825/ONO-8250 under our solid tumor collaboration with ONO Pharmaceutical, and plan to submit an IND application in the second half of 2023 for this multiplexed-engineered, HER2-targeted CAR T-cell program. Finally, we continue to preclinically assess the potential of our off-the-shelf, iPSC-derived cellular immunotherapies to selectively target and durably deplete pathogenic immune cells, and are evaluating opportunities for clinical expansion into autoimmunity.

The company released earnings call on November 8, and here’s what they said about the latest developments:

Phase 1 Study Open for Enrollment of FT522 ADR-armed, CD19-targeted CAR NK Cell Program for B-cell Lymphoma; Dose Escalation Designed to Assess 3-dose Treatment Schedule with and without Conditioning Chemotherapy

IND Application Cleared by FDA for FT825/ONO-8250 CAR T-cell Program for Solid Tumors; Incorporates Seven Synthetic Controls including Novel Cancer-specific CAR Targeting HER2

iPSC-derived CAR T-cell Product Platform Expanded into Autoimmunity; IND Application Cleared by FDA for FT819 CD19-targeted 1XX CAR T-cell Program for Systemic Lupus Erythematosus

Thus, there is some progress with two IND applications cleared during the quarter. However, the lead asset remains in the same stage.

Nkarta ( NKTX ) is another developer of NK cells based therapies, and it is in very similar clinical stages compared to FATE. In an article earlier this year, I noted that Oppenheimer says that NK-cells based therapies are rapidly being left behind by “bispecific antibodies and commercial CAR-Ts in treating lymphoma and myeloma.” This seems to be the key reason behind fate’s dubious progress in the market, and also perhaps the reason why Fate’s later programs are focusing on non-NK cells. However, the ship may have already sailed for FATE.

Financials

FATE has a market cap of $247mn and a cash balance of $350mn. R&D and G&A expenses were $34mn and $19mn. At that rate, they have a cash runway of 6-7 quarters, or into early 2025.

FATE is heavily owned by institutions, followed by hedge funds. Key holders are Redmile Group, BlackRock and Vanguard. Redmile has, in the last one year, purchased a few million dollars worth of shares. However, the broad trend for insider transactions is towards sells, with many insiders regularly selling stock.

Risks

FATE is the kind of biopharma stock that drags the entire sector down; however, over these last couple of years, that could be said of many other stocks in the sector. Despite decades of existence, some of these stocks, like FATE, fail to do anything at all. It seems that their whole purpose of existence is simply to continue as a company, and not to generate revenues. I try to avoid stocks where there does not seem to be prospects of revenue generation any time soon.

Bottomline

Thus, like my earlier coverage, I will issue a sell rating for FATE. Yes the prices are low, and the cash balance is huge, but as a biopharma company, there seems to be no positive future for FATE.

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