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Here's Why Fate Therapeutics Rose 18.4% in May

By Maxx Chatsko – Jun 9, 2020 at 5:29PM

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The cell therapy developer announced the next step for an important pipeline asset.

What happened

Shares of Fate Therapeutics (FATE -2.23%) gained over 18% last month, according to data provided by S&P Global Market Intelligence. Most of the stock's gains in May can be traced to a single announcement by the cell-therapy developer. 

On May 20, the development-stage company announced the U.S. Food and Drug Administration (FDA) cleared a new drug candidate to begin clinical trials. Identified as FT538, the drug candidate is the first cell therapy that has been both engineered with CRISPR gene-editing tools and derived from induced pluripotent stem cells (iPSC). The combination could lead to safer, more effective, and significantly lower-cost drug products. 

Investors cheered the latest sign of progress for the early stage pipeline -- and the momentum hasn't waned. In fact, a public offering of common stock on June 9 triggered additional gains for the pharma stock. Apparently, investors are content with dilution so long as Fate Therapeutics maintains a well-funded balance sheet. 

A businessman tossing cash into the air.

Image source: Getty Images.

So what

Fate Therapeutics has one of the most ambitious pipelines in cell therapy, spanning 13 unique programs and multiple cell types. Until recently, investors had few tangibles to analyze, but promising (very) early-stage data and a multi-billion-dollar partnership with Johnson & Johnson subsidiary Janssen have de-risked the stock. 

It might be a bit silly to get excited about a preclinical asset moving to clinical trials, but FT538 could prove to be an important bellwether for Fate Therapeutics. If researchers prove that gene-editing tools can be used with reproducible results on cells grown from master cell lines, such as iPSCs, then it would be a big step forward for the field of cell therapy. The capabilities would enable the relatively quick engineering of cell therapies, both for efficacy and safety, and allow living drug products to be manufactured at scales and costs simply not possible today.

Now what

Including cash on hand at the end of March and the expected proceeds from the stock offering on June 9, Fate Therapeutics should begin the second half of 2020 with at least $350 million in cash. That should be enough to generate results from a handful of ongoing clinical trials, but investors shouldn't forget that the company's ambitious pipeline will require many hundreds of millions of dollars to develop. 

Maxx Chatsko owns shares of Fate Therapeutics. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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