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Here's Why Fate Therapeutics Stock Jumped Higher Today

By Brian Orelli, PhD – Updated Jun 9, 2020 at 2:12PM

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The company has some additional capital to support the development of its pipeline.

What happened

Shares of Fate Therapeutics (FATE -0.36%) were up 19% to $33.73 at 1:39 p.m. EDT on Tuesday after the company raised at least $214 million through a public secondary offering and a private placement with Johnson & Johnson (JNJ -0.28%).

So what

Fate sold 6,181,562 shares at $28.31 in the public offering, which grossed the company around $175 million. After subtracting underwriting discounts and commissions and other expenses, Fate expects to net about $164.2 million. The underwriters have a 30-day option to purchase an additional 927,234 shares, which would gross another $26 million. Considering where Fate's shares are trading right now, it's highly likely that the option will be exercised.

In addition to the public offering, Fate will also sell $50 million worth of shares to Johnson & Johnson at the same offering price of $28.31. In April, Johnson & Johnson and Fate struck a deal potentially worth more than $3 billion to develop up to four different cancer treatments. As part of the deal, Fate got an option to require Johnson & Johnson to purchase $50 million of shares at the public offering price.

Pencil and calculator on a balance sheet

Image source: Getty Images.

Now what

With shares buoyed by the deal with Johnson & Johnson, now was a great time for Fate to raise additional capital to support its drug pipeline. Fate didn't quite need the money right now; the biotech had $219 million in the bank at the end of the first quarter and received another $100 million from Johnson & Johnson through the deal in April. But smart biotechs raise capital when they can, not when they have to.

It's a little surprising to see Fate's shares trading so much higher than the price for the secondary offering; typically shares fall after a secondary offering due to the dilution. But Fate's shares were trading this high a couple of weeks ago, so perhaps the valuation isn't completely out of line.

Brian Orelli has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Fate Therapeutics, Inc. Stock Quote
Fate Therapeutics, Inc.
$21.89 (-0.36%) $0.08
Johnson & Johnson Stock Quote
Johnson & Johnson
$166.26 (-0.28%) $0.46

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