Raymond James: Fate Therapeutics & Ocata Expected To Beat Market

• Fate Therapeutics Inc FATE shares are down 5 percent since July 7, while shares of Ocata Therapeutics Inc OCAT have lost 10 percent over the same period.
• Raymond James’ Reni Benjamin initiated coverage of both the companies with Outperform ratings and price targets of $8.
• Benjamin recommended the shares of both these biotechnology companies to risk-tolerant investors.

Innovation In Cellular Therapy

Analyst Reni Benjamin said that Fate Therapeutics has a platform technology that uses small molecules to control the intrinsic properties of both stem cells and immune related cells. The company has initiated a randomized and controlled study for evaluating its flagship product, PROHEMA, in adults undergoing hematopoietic stem cell transplants, or HSCT.

“While the full study results are likely to be reported in 4Q15, we believe the future value driver for the program to be PROTMUNE, the enhanced mobilized peripheral blood (mPB) therapeutic for HSCT (IND to be filed in 4Q15),” Benjamin wrote.

Fate Therapeutics and Juno Therapeutics have inked a four-year collaboration, in which the latter has paid $5 million in upfront fees and has taken an $8 million equity stake in Fate. The collaboration seeks to screen for small molecules that could improve the therapeutic potential of CAR-T cells.

Although the results may take a while, it has the potential of generating a number of compounds, which may allow companies to “tailor cell therapies based on the genetic make-up of the individual patient,” the analyst said.

Benjamin commented, “With the PROHEMA franchise already in the clinic, data read-outs in the next 6-12 months, the potential to establish additional partnerships, and a cash position of approximately $74 million (pro forma), we recommend Fate shares to risk-tolerant investors.”

Aiming At Macular Degeneration Markets

Ocata Therapeutics has a platform technology that harnesses the regenerative potential of human embryonic stem cells [hESCs] as well as induced pluripotent stem cells [iPSCs] to address large areas of unmet need.

In the report Raymond James noted, “In a Phase I/II study evaluating the company’s hESCs-derived retinal pigmented epithelium (RPE) cells in patients with dry age-related macular degeneration (AMD) or Stargardt’s macular degeneration (SMD), the cell therapy achieved both an increase in subretinal pigmentation and improvement in visual acuity.”

Benjamin estimates AMD to represent a global market opportunity of more than $20 billion and SMD to represent a combined US and EU market potential of about $6 billion. Since there are no approved treatments in either of these indications, Ocata’s RPE cell therapy could gain rapid adoption, if it gets the necessary approvals.

“With RPE treatment programs targeting multi-billion dollar underserved indications; compelling results demonstrated in humans, with pivotal studies underway; and a current cash position of $32.8 million (pro forma) which should last until key data milestones, we recommend Ocata shares to risk-tolerant investors,” the analyst added.