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Here's Why Fate Therapeutics Rose as Much as 18.7% Today

By Maxx Chatsko - Apr 3, 2020 at 11:59AM

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The cellular therapy developer announced an equity investment from and a partnership with Janssen, a subsidiary of Johnson & Johnson.

What happened

Shares of Fate Therapeutics (FATE 3.58%) gained over 18% today after the company announced an equity investment from and a partnership with Johnson & Johnson subsidiary Janssen. The pair will leverage their respective technology platforms in cellular medicine to develop immunotherapy drug candidates targeting cancers. 

Fate Therapeutics will receive an up-front cash payment of $50 million and a matching equity investment of $50 million. The development-stage company is eligible to receive up to $1.8 billion in development and regulatory milestone payments, up to $1.2 billion in commercial milestone payments, and double-digit royalties on future sales. Janssen will fund the development of drug candidates through the time investigational new drug (IND) applications are filed. The pair will likely announce funding commitments for clinical trials at that time.

As of 11:08 a.m. EDT, the pharma stock had settled to a 9.5% gain.

A red paper airplane leading a cluster of white paper airplanes higher.

Image source: Getty Images.

So what

Fate Therapeutics is developing next-generation immunotherapies. Most of the company's drug candidates and preclinical assets are designed from off-the-shelf cell lines, rather than harvested from individual patients as is standard for currently approved cellular medicines. The new approach should allow for simpler, lower-cost manufacturing and create more predictable health outcomes. 

The company lists an ambitious 13 unique clinical programs on its website, and investors might have wondered why it hadn't attracted the attention of a deep-pocketed partner to date. That's probably partly because there's a lack of robust data for its early-stage assets and partly because natural killer cells, which comprise a significant amount of the company's pipeline, are unproven as cellular therapies.

The collaboration with Janssen helps to relieve investors of some of those anxieties and de-risk development activities at Fate Therapeutics. It provides a quick cash injection for 2020 and offers the potential to provide significant milestone payments in the next several years, which can fund the development of wholly owned assets at Fate Therapeutics.

Now what

Fate Therapeutics has been a promising early-stage company in cellular medicine for the last year or so. While today's news is encouraging for investors with a long-term mindset, this biotech stock remains a relatively high-risk investment. And considering the 2020 coronavirus pandemic is likely to delay and disrupt clinical trials throughout the world, investors cannot be too sure when the first development milestones might be earned. 

Maxx Chatsko owns shares of Fate Therapeutics. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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