IPO Report: Fate Therapeutics (FATE)

Fate Therapeutics ($FATE) is a clinical-stage biopharmaceutical company engaged in the discovery and development of pharmacologic modulators of adult stem cells to treat orphan diseases, including certain hematologic malignancies, lysosomal storage disorders and muscular dystrophies.

FATE is one of nine IPOs scheduled for this week, 11 for next week. The full IPO calendar can be found at IPOpremium

FATE is based in San Diego, CA, and scheduled a $60 million IPO with a market capitalization of $219 million at a price range mid-point of $13, for Thursday, September 19, 2013.

The S-1 was filed September 3, 2013.  FATE's manager & joint managers are Cowen; BMO Capital
Co-Managers: Wedbush PacGrow Life Sciences.

Summary

The lead product candidate from this platform, ProHema, is a pharmacologically modulated HSC therapeutic derived from umbilical cord blood.

ProHema has the potential to improve patient outcomes by enhancing hematopoietic reconstitution through accelerated and durable engraftment, facilitating greater donor matching flexibility, reducing the risk of major side effects, and enabling the use of less toxic conditioning regimens.

FATE recently exhibited a more than two-fold improvement in engraftment over the prior media formulation, and is pausing a Phase 2 clinical trial up update and incorporate a new formulation, see 'Clinical trials' below.

Valuation

Accumulated deficit of -$75 million

Glossary

Conclusion

Buy FATE, based on the IPO, based on the relatively low price-to-book of 3, and based on the expected improved outcomes from the current Phase 2 clinical trial.

Business

FATE is a clinical-stage biopharmaceutical company engaged in the discovery and development of pharmacologic modulators of adult stem cells to treat orphan diseases, including certain hematologic malignancies, lysosomal storage disorders and muscular dystrophies.

FATE's novel approaches utilize established pharmacologic modalities, including small molecules and therapeutic proteins, and target well-characterized biological mechanisms to enhance the therapeutic potential of adult stem cells.

FATE has built two platforms that optimize the activity of adult stem cells using both ex vivo and in vivo techniques: the HSC modulation platform and SSC modulation platform.

FATE believes that the product candidates generated by its platforms have significant potential as life-changing or curative therapeutics across a broad range of orphan indications.

Modulation Platform

The HSC modulation platform focuses on the ex vivo pharmacologic optimization of hematopoietic stem cells, or HSCs.

The lead product candidate from this platform, ProHema, is a pharmacologically modulated HSC therapeutic derived from umbilical cord blood. FATE has established human proof-of-concept for ProHema in a Phase 1b clinical trial by demonstrating enhanced engraftment.

FATE is presently advancing ProHema in Phase 2 clinical development for hematologic malignancies. The SSC modulation platform focuses on the in vivo pharmacologic activation of satellite stem cells, or SSCs. FATE has identified Wnt7a as a natural promoter of SSCs to drive muscle regeneration, and FATE has demonstrated proof-of-concept of Wnt7a analogs as potential therapeutics for muscular dystrophy in preclinical animal studies. FATE is presently advancing our Wnt7a analogs in preclinical development with the goal of filing an IND in 2014.

Collaboration Revenue

Collaboration revenues are generated exclusively from a collaboration arrangement with Becton, Dickinson ($BDX) which has a market capitalization of $19 billion.

FATE is entitled to receive research funding for the conduct of joint development activities for a period of three years ending in September 2013. In addition, FATE is eligible to receive certain commercialization milestones and royalties on the sale of iPSC reagent products.

In connection with the arrangement with BD, FATE recognized $0.8 million, $1.3 million, $0.9 million and $0.4 million for the years ended December 31, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively, as collaboration revenue.

The three-year joint development period under the license and collaboration agreement with BD concludes in September 2013.

FATE does not currently anticipate generating any significant revenues associated with iPSC tools and technologies thereafter.

ProHema Product Candidate

Lead product candidate is in clinical trials
Other product candidates are in the pre-clinical phase

ProHema is a pharmacologically-modulated HSC therapeutic derived from umbilical cord blood. It is manufactured in the transplant center by modulating an umbilical cord blood unit with FT1050 to create a final HSC therapeutic. The HSC modulation process takes only two hours, can be performed directly in the transplant center, does not require significant changes to existing infrastructure and is compatible with standard of care treatment modalities.

ProHema has the potential to improve patient outcomes by enhancing hematopoietic reconstitution through accelerated and durable engraftment, facilitating greater donor matching flexibility, reducing the risk of major side effects, and enabling the use of less toxic conditioning regimens.

Clinical trials

In a Phase 1b clinical trial in adult patients with hematologic malignancies, treatment with ProHema demonstrated a statistically significant improvement in time to engraftment of neutrophils, a type of white blood cell primarily involved in fighting bacterial infections. FATE also observed improvements in the cumulative incidence of engraftment of neutrophils and platelets, a type of blood cell involved in the prevention of bleeding; favorable 100-day survival; a low incidence of a serious complication known as graft-versus-host disease, or GvHD; and durable long-term hematopoietic reconstitution.

Based on these data, FATE initiated a Phase 2 clinical trial of ProHema in adult patients with hematologic malignancies in the fourth quarter of 2012.

More recently, FATE has demonstrated that it can further enhance the potency and efficacy of ProHema by incorporating an improved nutrient-rich media formulation, which FATE refers to its NRM formulation, in the manufacture of ProHema. In preclinical studies, ProHema manufactured using FATE's NRM formulation exhibited a more than two-fold improvement in engraftment over the prior media formulation.

In order to take advantage of this recent development, FATE elected to pause enrollment in the Phase 2 clinical trial to incorporate the NRM formulation.

The Phase 2 clinical trial of ProHema is currently active but not recruiting. On August 1, 2013, FATE submitted an IND amendment to the FDA, which contained preclinical and product development data to support the incorporation of the NRM formulation for the manufacture of ProHema. Based on recent communications with the FDA regarding this amendment, and expects to resume enrollment of the Phase 2 clinical trial of ProHema incorporating the NRM formulation in the first half of 2014, with the goal of generating full data from this trial in mid-2015.

FATE also expects to commence an additional clinical trial in children and adolescents with hematologic malignancies in 2014.

The therapeutic potential of HSCT procedures in LSDs has been demonstrated in clinical studies showing that many neurological manifestations of LSDs can be prevented or substantially reduced through early HSCT intervention.

These effects have been attributed to the ability of HSCs to home to and engraft within the CNS, where they give rise to cells that correct the underlying enzyme deficiency in the brain.

FATE has demonstrated in a preclinical model that the ex vivo modulation of HSCs increased the number of transplanted cells that home to the CNS.

FATE plans to initiate a clinical trial of ProHema in patients with LSDs in 2014, with the goal of generating data from this trial in 2015. FATE is also developing second-generation HSC therapeutics to further improve the CNS-homing ability of modulated HSCs.

Intellectual Property

FATE's intellectual property portfolio is currently composed of 46 issued patents and 174 patent applications that FATE licenses from academic and research institutions and 40 patent applications that FATE owns, and these patent and patent applications generally provide FATE with the rights to develop product candidates in the United States and worldwide.

This portfolio covers (I)the HSC modulation platform, including ProHema; (ii) the SSC modulation platform, including Wnt7a analogs and (III) other technologies, such as our iPSC technology. FATE believes that it has a significant intellectual property position and substantial know-how relating to the modulation of adult stem cells, including HSCs and SSCs.

Intellectual Property Relating to the HSC Modulation Platform and ProHema

FATE owns six families of pending U.S. and foreign patent applications covering our HSC modulation platform. This portfolio includes 14 pending applications relating to ProHema and other therapeutic compositions of stem cells that have been pharmacologically modulated to enhance their therapeutic properties, and methods of manufacturing the cellular compositions.

Applications in this portfolio include claims covering a therapeutic composition of human HSCs that Any U.S. patents issued from these applications will have statutory expiration dates between 2030 and 2034.

FATE has an exclusive license to a portfolio consisting of two families of issued patents and pending patent applications co-owned by the Children's Medical Center Corporation and The General Hospital Corporation.

FATE currently has exclusive rights to nine issued patents and 27 pending patent applications in the United States and worldwide relating to methods for promoting tissue growth or regeneration (including of the hematopoietic system) using modulators that up-regulate the prostaglandin signaling pathway or its downstream mediators.

FATE is currently the exclusive licensee of 45 issued or pending U.S. and non-U.S. patents or patent applications relating to ProHema and other therapeutic compositions of stem cells that have been pharmacologically modulated to enhance their therapeutic properties, methods of manufacturing the cellular compositions, and methods of promoting hematopoietic reconstitution, expansion and self-renewal using modulators that increase prostaglandin signaling activity.

FATE currently have exclusive licenses to 18 patents and patent applications relating to Wnt analogs, covering compositions of matter, processes for preparing such Wnt proteins and formulations, and the modulation of SSCs.

Competition

There are several clinical-stage development programs that seek to improve human UCBT through the use of ex vivo expansion technologies to increase the quantity of HSCs for use in HSCT or the use of ex vivo differentiation technologies to increase the quantity of hematopoietic progenitor cells for use in HSCT. Companies active in this area include, but are not limited to, Gamida Cell Ltd., Biotest Pharmaceuticals Corporation, Aldagen, Inc., a wholly-owned subsidiary of Cytomedix, Inc., Novartis Pharmaceuticals Corporation and Celerant Technology Corp.

Currently, there are no approved pharmaceutical products specifically developed for the treatment of muscular dystrophies. FATE is aware of several other companies developing therapies that are in various stages of development for the treatment of muscular dystrophies, including Prosensa Holding B.V., Sarepta Therapeutics Inc., PTC Therapeutics, Inc., Summit Corporation plc, Halo Therapeutics LLC, and Tivorsan Pharmaceuticals, Inc.

5% stockholders pre-IPO

ARCH Venture Fund VI, L.P., 16.8%
Entities affiliated with Polaris Venture Partners, 16.8%
Entities affiliated with Venrock, 16.8%
Entities affiliated with OVP Venture Partners, 15.4%
Entities affiliated with Fidelity Investments, 9.2%

Use of Proceeds

FATE expects to net $53 million from its IPO.

Proceeds are allocated as follows:

$24.0 million to fund research and development activities to advance the HSC modulation platform and the clinical and preclinical development of its product candidates, including the conduct of a Phase 2 clinical trial of ProHema in patients with orphan hematologic malignancies;

$16.0 million to fund research and development activities to advance the SSC modulation platform and the preclinical development of its product candidates, including the conduct of preclinical studies of Wnt7a analog product candidates; and

Remainder for working capital and general corporate purposes.