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May 15, 2023

Fate runs out of excuses

In recent years Fate has managed to weather several storms, but yesterday the

In recent years Fate has managed to weather several storms, but yesterday the excuses ran out. Termination of a discovery alliance with Johnson & Johnson has prompted Fate to go back to the drawing board, discontinuing lead NK cell projects and cutting 40% of its staff to save money.

It is remarkable that it has taken the end of what was ultimately a low-key deal with a modest up-front fee to push Fate over the edge. The company, once worth $10bn, had long struggled to justify its valuation, and the J&J deal termination is just one in a series of setbacks that have included delays and disappointing presentations of clinical data on Fate's NK cells.

The most recent let-down came at Ash last month, where Fate's BCMA-directed multiple myeloma Car-NK project FT576 managed a response rate of just 22%. This was the highlight of an Ash that the company had already said would be low-key, instead directing investors to a "comprehensive update" in the first quarter.

That update turned out to be a disaster as yesterday Fate revealed that J&J, which had paid it $100m in a discovery alliance three years ago, had apparently wanted to renegotiate the deal. Fate "declined the proposal ... on revised terms and conditions", and as a result the tie-up was scrapped.

Discontinued

The J&J deal had yielded two disclosed preclinical assets, a Car-NK against GPRC5D (FT555), and an anti-KLK2 Car-T project. Both will presumably now be discontinued.

Also being discontinued are Fate's own NK cell projects FT516, FT596 and FT538, the group revealed in what looked like a move to kitchen sink bad news. That leaves Fate's clinical pipeline with just two assets, but these barely look viable: one is FT576, and the other the CD19-directed Car-T therapy FT819, which also put up disappointing data at Ash.

Stifel analysts downgraded Fate, and removed FT576 from their forecasts for the company, saying the investment case now rested on FT819. Fate also highlighted some preclinical assets, including a next-generation anti-CD19 Car-NK project with "five additional features", but the company's clinical pipeline has effectively been wiped out.

Fate's pipeline has imploded spectacularly in spite of a logical effort to add increasing levels of editing and complexity to endow each additional project with better features than the last. So how could things have gone so badly wrong?

Stifel reckons the problem lies in the basic fact that NK cells do not expand like T cells. This means that the actual initial cell dose matters a lot more for NK than for T cells, and despite raising doses Fate ultimately failed to give enough NK cells to achieve the peak levels possible with Car-T cell expansion.

If this is the case then Fate pressing on with ever higher doses of FT576, as it pledged to do yesterday, might be doomed. And it would explain the company's slow drift towards work with T cells, having initially started out as a pure NK cell player.

Other companies focused on NK cells, including Nkarta, Affimed, Immunitybio and Century Therapeutics, now need to take a long, hard look at their own work. For Fate, whose stock crashed 60% this morning, the sad fact is that it now looks like a technology play with no clinical validation.