Today, we will see why Fate Therapeutics (FATE) is an attractive pick in March 2020.

Fate Therapeutics is a clinical-stage biopharmaceutical company focused on the development of next-generation cellular immunotherapies for cancer and immune disorders. The company has pioneered proprietary iPSC (induced pluripotent stem cell) platform technology to develop off-the-shelf cell-based cancer immunotherapy products. Current patient-derived autologous and allogeneic cell therapies suffer from drawbacks such as high costs, manufacturing complexity, product heterogeneity, and high turnaround time. These methods, including patient and donor-derived approaches to cell therapy, also require batch-to-batch sourcing and engineering of millions of primary cells.

Fate Therapeutics aims to be the game-changer in cell-based cancer immunotherapy space by enabling the development of off-the-shelf cell products derived from master cell lines. The company aims to develop less costly, homogenous, and multi-dose or multi-cycle cell therapies with small turnaround time. The resultant cell therapy products are expected to be well-defined and uniform in the composition and can be mass-produced at a significant scale in a cost-effective manner and can be delivered off-the-shelf for broad patient accessibility.

The company's cell therapy pipeline comprises immune-oncology programs including off-the-shelf NK- and T-cell product candidates derived from master iPSC lines, and immuno-regulatory programs, including product candidates to prevent life-threatening complications in patients undergoing hematopoietic cell transplantation and to promote immune tolerance in patients with autoimmune disease.

Human-induced Pluripotent Stem cells are generated by reprogramming adult somatic cells to a pluripotent state. Fibroblasts are the most commonly used primary somatic cell type for the generation of induced pluripotent stem cells. They are reprogrammed using retroviruses. Pluripotent cells are capable of differentiating in all cell types that make up the body.

A single human iPSC can potentially differentiate into more than 200 cell types and provides a renewable source for making cells.

NK (natural killer) cells are the body's first line of defense against tumors and various pathogens. Fate Therapeutics is leveraging its iPSC platform to produce off-the-shelf NK cell therapy products.

FT500 is Fate Therapeutics' first off-the-shelf iPSC-derived NK-cell product candidate. The FT500 study is an open-label, multi-dose Phase 1 clinical trial designed to evaluate FT500 for the treatment of advanced solid tumors.

The dose-escalation stage of the study was originally designed to assess the safety and tolerability of three once-weekly doses of FT500, without IL-2 cytokine support, as a monotherapy and in combination with one of three FDA-approved ICI (immune checkpoint inhibitor) therapies in patients that have failed prior ICI therapy.

Data for the first 12 patients in the Phase 1 study has demonstrated clean safety for the iPSC platform. The cutoff date considered was November 28, 2019. It was seen that there were no reported dose-limiting toxicities, no FT500 related Grade 3 or greater adverse events or serious adverse events, and no incidents of cytokine release syndrome, neurotoxicity, or graft-versus-host disease.

Further, the trial also involved the evaluation of a multi-dose treatment course consisting of outpatient lympho-conditioning followed by three once-weekly doses of FT500 over up to two 30-day treatment cycles. Here, based on patients' T-cell and antibody repertoire, no anti-product immune responses against FT500 were evident over the multi-dose treatment course.

A total of 62 doses of FT500 were administered to these 12 patients in a safe and well-tolerated manner. Initial clinical data thus provides strong evidence that multiple doses of iPSC-derived NK-cells can be delivered off-the-shelf without patient matching.

In December 2019, the company disclosed plans to amend the trial protocol by including IL-2 cytokine support with each dose of FT500 after completion of 300 million cells per dose cohort in the ICI combination arm. The company has commenced dose-expansion part of Phase 1 trial with 300 million cells per dose and is focusing on enrolling NSCLC patients who are refractory to or have relapsed following CBT. This tumor type is highly susceptible to NK-cell recognition and killing. The study is enrolling at three clinical sites in the U.S. Fate Therapeutics expects expansion data readout from the trial in the second half of 2020.

Fate Therapeutics is studying the second product candidate from iPSC product platform and off-the-shelf NK-cell cancer immunotherapy, FT516, in an open-label, multi-dose Phase 1 trial. This product has been engineered to augment antibody-dependent cellular cytotoxicity.

In December 2019, the company announced results for two patients dosed with FT516. FT516 was administered as a monotherapy to the first patient who was suffering from relapsed/refractory AML (acute myeloid leukemia). The company dosed FT516 in combination with rituximab to the second patient who was suffering from high-risk DLBCL (diffuse large B-cell lymphoma) and had relapsed after multiple rituximab combination regimens, autologous hematopoietic stem cell transplant, and CAR (chimeric antigen receptor) T-cell therapy. The patients had received a first treatment cycle consisting of outpatient lympho-conditioning, three once-weekly doses of FT516 and IL-2 to better promote NK-cell activity.

Initial clinical data based on bone marrow biopsy at day 42 demonstrated no morphologic evidence of leukemia. There was even evidence of hematopoietic recovery following the completion of the first FT516 treatment cycle in the AML patient. There was also no circulating leukemia cells in the patient's peripheral blood. The patient even reported the recovery of neutrophils without growth factor support. The data did not demonstrate dose-limiting toxicities, although serious adverse events were seen. Initial dose escalation data may be read out in the second half of 2020.

This initial clinical evidence highlights the high probability of engineered iPSC-derived NK-cells demonstrating anti-tumor activity in AML indication. Besides, there is a body of data that has demonstrated clinical proof-of-concept for donor-derived NK-cell therapy in relapsed refractory AML and relapsed refractory DLBCL.

In December 2019, FDA accepted FT516's second IND application for studying the product in combination with PDL1, PD1, EGFR and HER2-targeting monoclonal antibody therapies in solid tumor indications. Initially, the company plans to prioritize the combination of FT516 and avelumab in patients with advanced solid tumors who are refractory to or have relapsed following, at least one line of anti-PDL1 monoclonal antibody therapy. The company plans to initiate enrollment in a clinical trial for FT516 and avelumab in mid-2020.

Fate Therapeutics is studying off-the-shelf multi-antigen targeted CAR NK-cell product candidate, FT596, in solid tumor indications.

In December 2019, Fate Therapeutics reported favorable in vivo preclinical data for FT596.

Here, in humanized mouse models of lymphoma and leukemia, FT596's efficacy was comparable to that of primary CAR T-cells in promoting tumor clearance and extending survival. FT596 combined with rituximab also showed the enhanced killing of lymphoma cells in vivo as compared to rituximab alone. FT596 can thus emerge to be best-in-class off-the-shelf treatment in B-cell malignancies. Fate Therapeutics has started enrolling patients in the open-label Phase I study. Initial dose escalation data readout on FT596 is expected in the second half of 2020.

Fate Therapeutics has high hopes for FT596, considering that initial clinical data from a donor-derived CAR19 NK-cell program at MD Anderson, demonstrated a 73% overall response rate in patients with relapsed refractory non-Hodgkin's lymphoma and chronic lymphocytic leukemia with no major toxicities. Hence, while the efficacy seemed similar to CAR T therapy, the safety profile was differentiated in favor of CAR NK-cell therapies.

Although early, this data has highlighted CAR NK-cells' capacity to confer a high level of efficacy without the CAR-T cell therapy-related toxicities. Fate Therapeutics expects FT596 to effectively replace patient-specific and allogeneic CAR19 T-cell immunotherapies. The latter single-antigen specific and hence pose a risk of disease relapse due to antigen escape as well as cause significant toxicities due to off-target activity. FT596, on the other hand, has been engineered with three active anti-tumoral functional components.

Fate Therapeutics aims to be the first company to introduce off-the-shelf iPSC-derived CAR T-cell therapy to patients, FT819, by submitting IND in the second quarter of 2020. The company expects to file an IND application for off-the-shelf CRISPR-edited, iPSC-derived NK-cell product candidate, FT538, by early May 2020. The company has also planned IND submission for FT576 in the second half of 2020.

Although Fate Therapeutics is pioneering a revolutionary approach for mass production of off-shelf cell therapy products, its pipeline is very early stage. There has not been sufficient data from its clinical programs to make an informed estimate about the success probability of these programs. In this backdrop, the company is exposed to significant R&D failure risks. In case data readouts from FT500 and FT596 clinical programs do not match expectations, the company may witness increased share price volatility.

At the end of 2019, the company had cash worth $261 million on its balance sheet. The company spent cash worth $83.2 million on operating activities in 2019. This is a proxy for the 2019 cash burn rate. We assume that the annual cash burn rate in 2020 will be around $120 million, considering that three assets have entered in-human trials. Hence, the company seems to have cash that can sustain operations until the end of 2021. However, if cash is needed at a faster pace, the company may land up requiring more funds. This can lead to equity dilution.

According to finviz, the 12-month consensus target price of Fate Therapeutics is $37.94. On March 4, Citi analyst Yigal Nochomovitz reiterated the "Buy" rating and increased target price from $26 to $41. On March 4, Barclays analyst Peter Lawson also initiated coverage of Fate Therapeutics with an Overweight rating and $40 price target.

On March 3, BMO Capital analyst Do Kim raised the firm's price target on Fate Therapeutics to $28 from $22 and reiterated the "Market Perform" rating. On March 3, Guggenheim analyst Michael Schmidt reiterated the "Buy" rating and increased target price from $25 to $41. On March 3, Roth Capital analyst Tony Butler reiterated the "Neutral" rating but increased the target price from $20 to $30. On March 3, BTIG analyst Amanda Murphy reiterated the "Buy" rating and increased target price from $27 to $42. The analyst has also raised the estimated value of the company's iPSC platform from $740 million to $2.0 billion.

On March 3, Oppenheimer analyst Matthew Biegler reiterated the "Outperform" rating and increased the target price from $27 to $36. Piper Sandler analyst, Edward Tenthoff also reiterated the "Overweight" rating and raised the target price from $28 to $57.

In September 2019, Fate Therapeutics launched in-house GMP (Good Manufacturing Practices) manufacturing facility at headquarters in San Diego, California. This is custom designed to use clonal master iPSC lines as a renewable cell source for the consistent and scaled manufacture of off-the-shelf NK-cell and CAR T-cell products. The company has already produced hundreds of cryopreserved, infusion-ready doses of FT500, FT516, and FT596 at a low cost per dose. Currently stored in inventory, these doses are immediately available for use in the clinical settings.

The full control of cGMP production and the technical expertise to genetically engineer iPSCs and create qualified clonal master lines for clinical use implies that the company has operational expertise and redundancies required for the consistent cost-effective manufacturing and clinical supply of off-the-shelf cell products.

I believe that the 12-month target price of $30 fairly reflects the growth potential as well as risks associated with early-stage Fate Therapeutics. I consider this company to be a good pick for aggressive biotech investors with an investment horizon of at least one year.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Fate Therapeutics: Potential Catalysts Ahead - Seeking Alpha