Earnings Call Transcript - FATE Q1 2022

Operator, Operator

Welcome to the Fate Therapeutics First Quarter 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode. This call is being webcast live on the Investors Section of Fate's website at fatetherapeutics.com. After the speaker's presentation, there will be a question-and-answer session. As a reminder, today's call is being recorded. I would now like to introduce Scott Wolchko, President and CEO of Fate Therapeutics.

Scott Wolchko, President and CEO

Thank you. Good afternoon and thanks everyone for joining us for the Fate Therapeutics first quarter 2022 financial results call. Shortly after 4:00 PM Eastern Time today, we issued a press release with these results which can be found on the Investors section of our website under Press Releases. In addition, our Form 10-Q for the quarter ended March 31, 2022 was filed shortly thereafter and can be found on the Investors section of our website under Financial Information. Before we begin, I would like to remind everyone that except for statements of historical facts, the statements made by management and responses to questions on this conference call are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. Please see the forward-looking statement disclaimer on the company's earnings press release issued after the close of the market today as well as the risk factors included in our Form 10-Q for the quarter ended March 31, 2022 that was filed with the SEC today. Undue reliance should not be placed on forward-looking statements which speak only as of the date they are made as the facts and circumstances underlying these forward-looking statements may change. Except as required by law, Fate Therapeutics disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. Joining me on today's call are Dr. Wayne Chu, our Chief Medical Officer; Ed Dulac, our Chief Financial Officer; and Dr. Bob Valamehr, our Chief Research and Development Officer. Today, we will highlight the clinical progress we have made during the first few months of 2022 with our off-the-shelf, iPSC-derived NK and T cell programs for the treatment of cancer as well as note several key milestones that we are striving to achieve over the next several months across our four disease franchises. In addition, we continue to advance our collaborations with Janssen and Ono with strong momentum and we will discuss the upcoming milestones that we have the potential to achieve during 2022 under these collaborations. And finally, we will touch on our continued leadership in innovation and highlight certain preclinical programs and data that we featured at the American Association for Cancer Research in April and that we plan to unveil at the American Society of Gene and Cell Therapy in May. I would like to begin today by highlighting our recent progress in advancing our off-the-shelf, iPSC-derived NK and T cell programs for patients with hematologic malignancies and solid tumors...

Ed Dulac, CFO

Thank you, Scott and good afternoon. Fate Therapeutics is in a strong financial position to advance our platform and pipeline. Our cash, cash equivalents and investments at the end of the first quarter of 2022 were approximately $642 million. In the first quarter of this year, our collaboration revenue derived from our partnerships with Janssen and Ono Pharmaceutical increased by $7.3 million to $18.4 million compared to $11.1 million for the same period last year. Research and development expenses for the first quarter increased by $27.3 million to $72.1 million compared to $44.9 million for the same period last year. The increase in our R&D expenses was attributable primarily to increases in employee headcount and compensation, including share-based compensation. The increase in our G&A expenses was attributable primarily to an increase in employee headcount and compensation, including share-based compensation and talent acquisition and facility-related fees. Total operating expenses for the first quarter were $92.9 million which includes $19.2 million of non-cash share-based compensation expense. Note that in connection with the development of our off-the-shelf iPSC-derived CAR T cell product candidate FT819, we previously achieved the clinical milestone set forth in our amended license agreement with Memorial Sloan Kettering Cancer Center which triggered a first milestone payment to MSK in 2021. Up to two additional milestone payments may be owed to MSK based on subsequent trading values of the company's common stock ranging from $100 to $150 per share. We assess the fair value of these contingent milestone payments currently valued at $15.8 million on a quarterly basis. In the first quarter, we recorded a non-cash $8.4 million non-operating benefit associated with the change in fair value. Our net loss for the first quarter of the year was $65.7 million or $0.68 per share. Finally, our year-end cash guidance remains unchanged and we expect to end this year with at least $400 million in cash, cash equivalents and investments. This does not include potential success-based milestone payments from our collaborations with Janssen and Ono Pharmaceutical. I would now like to open the call up to questions.

Operator, Operator

Our first question comes from Tyler Van Buren with Cowen.

Unidentified Analyst, Analyst

This is Tara on for Tyler. I was just wondering if we can get an update on when we might expect initial data from the AML, multiple myeloma and potentially from the solid tumor clinical programs this year?

Scott Wolchko, President and CEO

I think in our prepared remarks we made a statement that we plan on providing clinical updates across our four disease franchises in the second half of 2022.

Unidentified Analyst, Analyst

Can I ask one more question? One thing you mentioned last quarter was the R-Benda combination for FT516, and I didn't hear you address it here. Is that still part of the plan? Also, for FT596 plus R-CHOP, will the patients currently being treated potentially be included in an August update or at ASH?

Scott Wolchko, President and CEO

I mentioned that there are multiple dose expansion cohorts ongoing in the FT516 study, which includes R-Benda. For the FT596 study, we are preparing the clinical protocol for FT596 plus R-CHOP to submit to the FDA. I believe that we plan to start treating patients in the second half of 2022 with FT596 plus R-CHOP, pending its clearance.

Operator, Operator

Our next question comes from Michael Yee of Jefferies.

Michael Yee, Analyst

I have two questions for you. I found your comments about 819, iPSC CAR T quite interesting, and I understand you have started dosing patients. Can you discuss what we should expect regarding your results in relation to your peers? I know you might have some data available by the end of the year. How should we interpret that data compared to others, especially considering you might be using low doses? For my second question, in the context of myeloma, there are high expectations for certain effective drugs, particularly CAR T therapies. You have a drug that targets CD30 and BCMA. Could you explain how we should view the efficacy bar for that drug and whether it would still be effective for patients who may have lost BCMA?

Scott Wolchko, President and CEO

Let me begin with myeloma and then move on to 819. Regarding myeloma, while it's still early, I want to clarify that I won't be surprised if our strategy unfolds in a manner similar to how we are approaching lymphoma. With FT576, we believe its ability to target two antigens may allow it to be used for patients who have previously undergone CAR T-targeted BCMA therapy. In fact, our studies with both 538 and 576 indicate that we have already treated patients with prior experience using the approved CAR BCMA cell therapies. Of course, I need to analyze the data, and we are earlier in myeloma research compared to lymphoma. However, I anticipate a fast-to-market strategy could emerge in myeloma, similar to what we're seeing in lymphoma, particularly following the FDA-approved CAR BCMA treatments. This doesn’t represent the entirety of our development path. We have also developed product candidates that we believe can work in conjunction with daratumumab, which is frequently used early on and across multiple treatment lines. Nevertheless, I foresee a quick market entry strategy evolving in myeloma akin to that in lymphoma, and we are enthusiastic about these opportunities as a first step to establish our product candidates and begin our development around them. As for 819, this marks our first experience with iPS-derived CAR T cell therapy. This development has taken considerable time, as we partnered with Memorial Sloan Kettering back in 2016 to create the first iPS-derived CAR T cell therapy. Now, we are treating patients. Interestingly, we started with a dose of 90 million cells per administration. In examining approved CAR T cell therapies for DLBCL patients and aggressive lymphomas, the typical dose ranges from 100 million to 200 million cells. Starting at 90 million cells per dose doesn’t imply that it’s the optimal dose for efficacy, but it is a starting point that may show activity if we are indeed producing alpha-beta T cells.

Operator, Operator

Our next question is from Yigal Nochomovitz with Citigroup.

Yigal Nochomovitz, Analyst

I'm just wondering with regard to the RMAT meeting that's coming up, could you just clarify as to why FT596 does not appear to be part of that discussion? I would have thought that FT596 would also be a useful option in the post-CD19 CAR T setting for B-cell lymphoma.

Scott Wolchko, President and CEO

To clarify, I firmly believe FT596 is relevant for use in CAR T cell therapy moving forward. The RMAT designation specifically pertains to FT516. Therefore, the upcoming meeting will focus on FT516. However, the topics we will discuss, including clinical study design, endpoints, and CMC, are relevant to FT596 as well. The RMAT discussion will focus on the clinical study design and endpoints, and we have a proposed study design that we intend to present to the FDA. Additionally, there are CMC considerations unique to iPS-derived cell therapies that we plan to address with the FDA. While this meeting is centered on FT516, we believe the outcomes will also significantly benefit FT596. As we move into the second half of 2022, we will decide between FT516 and FT596 for the pivotal study.

Yigal Nochomovitz, Analyst

And then I just had a question on FT596 plus rituximab and the new dosing regimens that you're rolling out. So just curious, based on everything you know about 596 NK cell biology and NK cell persistence, just wondering and asking you to speculate which do you think would be more effective, the single-dose of 1.8 billion or the multi-dose of 900 million given twice which you believe is likely to be superior or do you think they could just end up being very similar?

Scott Wolchko, President and CEO

I have always maintained that the optimal approach for treating patients with NK cells likely involves multiple doses, and I still hold that view. When administering NK cells, their shorter persistence compared to T cells and their lower capacity for expansion and proliferation lead me to believe that a multi-dose regimen will be the most effective strategy. To clarify, we are providing multiple doses of 900 million cells each, as well as a single dose of 1.8 billion cells. Both dosing strategies allow us to reach a total of 1.8 billion cells on day one and day 15, which is our goal.

Yigal Nochomovitz, Analyst

And then, if I could just throw in one more on myeloma. So obviously, you've done a lot of great work building a cell therapy that can function in combination with DARZALEX given the CD38 knockout. Just wondering, how much consideration have you guys given to potential combinations with other standard of care agents in myeloma, for instance, IMiDs or proteasome inhibitors?

Scott Wolchko, President and CEO

We have conducted some preclinical research regarding other combinations, and you are correct. The main focus of our therapeutic design for both FT538 and FT576 was to create a cell type that could uniquely synergize with daratumumab, given the concern about fracture side effects. Activated NK cells and activated T cells express CD38, which raised the potential for these side effects. We always believed there was considerable opportunity to synergize with DARZALEX, and we've conducted preclinical experiments to examine how our product candidate could integrate with existing treatments, including DARZALEX and some IMiDs, as you mentioned. We have not observed any evidence suggesting that those other agents involved in combination therapies would have a negative impact on the cells.

Operator, Operator

Our next question is from Daina Graybosch of SVB Securities.

Daina Graybosch, Analyst

I think a couple for me. One, we're talking so much about dose, 900 million, 1.8 billion cells, I wonder whether you could help put that into context. How many NK cells are circulating in an average patient or healthy human? And how does that compare to, let's say, 900 or 1.8 billion cells?

Wayne Chu, Chief Medical Officer

Sure, I can start. We typically have somewhere between 1 billion to 2 billion. So we're here with each dose at those high doses already constituting the NK compartment of a normal patient.

Daina Graybosch, Analyst

That's an easy answer. The second one for multiple myeloma. Can you elaborate on your binder for BCMA? I believe you've referred to it as avidity. What gives you confidence that your binder will have the same effect as the avidity used successfully in BCMA CAR T?

Bob Valamehr, Chief Research and Development Officer

The binder was thoroughly described in a molecular therapy article in 2018. The research demonstrated that the affinity of the binder enables preclinical studies to target cells with fewer than 1,000 BCMA per cell. It successfully targeted BCMA in the 100 range per cell. This finding gives us confidence that this binder is special. We have compared it to competitors with available sequences, and it performs better. Initial preclinical experiments imply that this binder will be of superior quality and higher avidity, which we hope will lead to improved results and outcomes.

Operator, Operator

Our next question is from Nick Abbott with Wells Fargo.

Nick Abbott, Analyst

I do like to apologize if maybe you addressed that. But maybe starting off with 516 and RMAT. That IND was approved several years ago notwithstanding the fact you've had several INDs approved since, seems like FDA is getting more focus on safety. So do you think there could be any weaknesses in the manufacture of 516 and any weaknesses you think might be there to maybe address without affecting the timeline?

Scott Wolchko, President and CEO

That's a great question and I appreciate your point. Yes, the FT516 IND was approved, I believe, back in 2019. While this is an early generation product candidate, our manufacturing process is not dependent on the master cell line. The methods we're using to create FT596 or FT576 are the same methods we used for FT516. The manufacturing processes we employ today for taking a master cell bank and producing large quantities of NK cells apply across all product candidates. This is why, even as we discuss FT516 in relation to RMAT, many of the questions we want to address pertain to the platform itself.

Nick Abbott, Analyst

And then on 516, I'm looking at the press release. I'm trying to pass the terms progressed or relapsed following prior FDA approved CAR T. They're almost seems same to me but I'm sure you pulled over this press release. What is the difference between some of those progressed or relapsed following prior CAR T?

Scott Wolchko, President and CEO

I don't have the press release in front of me, but I can refer back to it. The focus is on patients who have previously been treated, have progressed, and may not have responded or have relapsed after an initial response. This is the patient population we are targeting for CAR T.

Nick Abbott, Analyst

So does that include patients then who are primary refractory?

Scott Wolchko, President and CEO

It could include patients that are primary refractory, that is correct.

Nick Abbott, Analyst

And then just in terms of the R-CHOP combo, these patients are going to be treated in the community. That's where they've been treated today. So is this a study that you can do in a sort of true community setting as opposed to in kind of outpatient setting of MGH, for example?

Scott Wolchko, President and CEO

Yes, I think we're pretty confident in that. I mean, I'll turn it over to Wayne and he could talk about this a little bit more because he's done a lot of work here, working with the investigators and the KOLs that helped us develop the protocol.

Wayne Chu, Chief Medical Officer

We have engaged extensively with investigators and key opinion leaders on this concept. At its core, it involves the standard dose and schedule of R-CHOP followed by the administration of FT596 after each cycle of R-CHOP. Our Phase 1 data shows that FT596 is quite safe at the doses tested, with minimal occurrences of cytokine release syndrome, no ICANS, and no GvHD. When we established the protocol in collaboration with investigators, they felt assured from a safety standpoint that there were no disqualifying factors for starting the study. Additionally, they were confident about their ability to treat patients conveniently, administering FT596 in an outpatient setting. We are optimistic that this will lead to strong enrollment in the trial.

Nick Abbott, Analyst

So if I can just follow-up on that. I mean, I can envisage a situation where the patient gets a R-CHOP in the oncology office. It sounds like then you might be sending the patients to the local CAR T treatment center?

Scott Wolchko, President and CEO

No, that's not what's contemplated here. That's not what's contemplated. This is community setting outpatient treatment.

Operator, Operator

Our next question is from Michael Schmidt with Guggenheim.

Kelsey Goodwin, Analyst

This is Kelsey on for Michael. For 596 plus rituximab, I guess, up to how many dose cycles can be administered? And can you just remind us what patients are eligible to receive additional cycles now that the protocol amendment I think is in place? And then just a quick follow-up on that. I guess, there was some competitor CAR NK cell data last week. And I think for them, at least, the data suggested that three doses per cycle was better than two doses. I guess, is this something that you guys would consider looking at your treatment schedules or are you pretty set on two doses per cycle for 596 at this time?

Scott Wolchko, President and CEO

I'll start by addressing the last question. Yes, we are administering two doses of FT596 on day one and day 15, along with 576 on those same days. We've observed responses from single doses, and based on extensive translational data, we are confident in the functional persistence profile lasting about two weeks. Therefore, we are comfortable with the two-dose schedule, considering the responses we've already seen with single doses. Additionally, our protocols provide significant flexibility, allowing us to add patients to a three-dose cohort if we decide to pursue that option. We have a lot of flexibility within the existing protocols. Similarly, regarding treatment cycles, the protocols are structured for a first cycle and a second cycle, and under the current protocols, patients do have the option to continue to additional cycles. Wayne, would you like to add anything about the cycles?

Wayne Chu, Chief Medical Officer

Yes, that's absolutely correct. Right now, because of the FDA allowing us to proceed directly to a second cycle, we consider an initial treatment course with FT596 consisting of up to two cycles. And then in addition to that, specifically in patients who have an initial response and then subsequently progress, we have the option for retreatment of those patients as well.

Operator, Operator

Our next question is from Mara Goldstein with Mizuho.

Mara Goldstein, Analyst

Scott, I want to be respectful obviously of trade secrets and the like but maybe you can talk a little bit about the CMC and what would be considered from your viewpoint a positive outcome from FDA with respect to the upcoming meeting? And really, maybe if you could just give us something to think about in terms of what are the types of questions that you might be asking? And then I just had a question on the 516 trial. I'm curious if the protocol allows for the individual set of relapsed patients versus refractory patients?

Scott Wolchko, President and CEO

Can you clarify the second question first? Are we treating refractory patients with relapsed therapy, as opposed to relapsed therapy? Is that the question regarding relapsed therapy?

Mara Goldstein, Analyst

Right. Can you provide insight into the outcomes within those different subgroups or is it just a global subgroup of relapsed/refractory patients?

Scott Wolchko, President and CEO

Currently, the cohorts consist of relapsed and refractory patients within the same group, but we can separate them going forward if we decide to treat them as distinct populations. At this point, the cohorts include patients receiving relapsed therapy and those in refractory therapy. I appreciate your acknowledgment of trade secrets. Historically, cell therapy companies have faced challenges, particularly with potency assays. We aim to address these aspects in our discussions with the FDA regarding the potency assays we have developed. While potency assays for therapies like CAR19 or CAR BCMA might not reveal many trade secrets or innovative elements, CD16 is a significant factor. We suspect that a potency assay for CD16 may be necessary. This is something we want to discuss with the FDA due to the widespread relevance of CD16, particularly with the high affinity non-cleavable CD16 receptor utilized in our product candidates. Many questions we plan to address are pertinent not just for product 516, but also for 596 and our overall platform. Another important topic for FDA discussions includes not only potency assays but also various release specifications essential for cell therapies, with the aim of establishing agreements on release specifications for conducting pivotal studies, which would apply broadly to our candidates.

Mara Goldstein, Analyst

And if I could just ask a question. I mean, clearly, you have a lot of resources. You end this year with $400 million. I understand not including any types of milestones or whatnot. But given the pipeline that you have and the plans to go into additional bigger and potentially more complex studies, I mean, how do you think about financing post-2022?

Scott Wolchko, President and CEO

Look, I think we have two terrific collaborations with Ono and J&J that can provide meaningful streams. Do I think they're going to offset the entire burn of the company? No, I don't. But I do think the Ono and Janssen collaborations, we have strong momentum. We're seeing success. It's publicly out there, maybe not exactly with respect to timelines and milestones at each stage but it's publicly out there what the milestones can represent with respect to each and every product candidate. And currently, I alluded to the fact that we think we have three product candidates emerging from the two collaborations. And I do think there's the room for the company to do more collaborations. And I think we are actively in discussions to engage in more collaborations.

Operator, Operator

Our next question is from Robyn Karnauskas from Truist Securities.

Robyn Karnauskas, Analyst

I could spend the whole day on your new technology but let me just ask a few. So on the dose, there's another question on the competitor data. That data used very high doses of 1 billion to 1.5 billion cells multiple times in AML and DLBCL. I was just curious your thoughts on the read here despite to your whole program in dosing that high. Like does the cell type matter, like ITC versus just either donor-derived or another form of an NK cell or does this tell you that high doses really might work the best? I mean, you may have to get up to that 1 billion to 1.5 billion dose. The second question is just how high for dose will you go? And then I had a follow-up on the RMAT trial.

Scott Wolchko, President and CEO

I have a few points to make. Firstly, regarding dosing, there is substantial literature and clinical experience comparing NK cells to T cells, especially in the context of lymphoma. In this area, the available CAR T treatments have relatively modest doses, typically in the range of 100 million to 200 million cells. For example, YESCARTA has a recommended single-dose of 100 million to 200 million cells, which pales in comparison to NK cell doses. Historically, donor-derived NK cell therapies have involved doses as high as 5 billion, 6 billion, 7 billion, or even 8 billion cells to achieve modest efficacy. This leads back to the question about NK cell therapy; to enhance the effectiveness of NK cells, it's essential to incorporate functional elements. With these engineered components, such as CARs or CD16 receptors, we may see lower doses of NK cells that are still more effective, but they will likely require higher doses than T cells. This is partly due to the biological differences between T cells and NK cells. When a T cell is activated, it can undergo considerable expansion and proliferation, and they tend to persist longer than NK cells, which do not expand or persist functionally for as long. Therefore, we have always anticipated that NK cell dosing and treatment schedules would differ from those of T cells. However, a positive aspect for the NK cell community is that, despite needing higher or multiple doses, the safety profile of NK cells is significantly differentiated from that of T cells.

Robyn Karnauskas, Analyst

And since you don't know how durable the chances are yet, would you dose higher than where your...

Scott Wolchko, President and CEO

Yes, I think that's the feedback we received at ASH from our investigators. We still don’t know the durability of an NK cell compared to a T cell. That question remains unanswered in the community regarding the durability of an NK cell. Considering the safety profile, we absolutely will continue to dose escalate. We believe we have a platform that supports the delivery of high doses if needed and multiple doses.

Robyn Karnauskas, Analyst

And then a follow-up question on the RMAT 516 meeting. Do you have a sense of for your clinical trial how far out you might have to follow patients? There's been a lot of discussion versus the early CAR T studies that you kind of knew like within six months that there was durability or deep response. Can you give any sense of that? And then I'm sorry, squeeze this one in for your ADR, how close to the market are you? And no more questions.

Scott Wolchko, President and CEO

Let me talk about the clinical trial design with the FDA and the potential endpoints. One thing to note is that, at least in the post-CAR T cell patient population, I've mentioned some benchmarks related to therapies currently being utilized by physicians. The complete response rates range from 5% to 25%, and overall survival is approximately six months. Therefore, we are looking at a challenging patient population where outcomes are determined quickly. Regarding ADR, we have extensive preclinical data, but we have not yet decided which product candidate will incorporate ADR technology. Nevertheless, we believe that ADR technology, along with the concept of chemotherapy-free conditioning and the delivery of cell therapy, is the direction the field needs to take. We strongly believe that reliance on Cy/Flu long-term hinders the full potential of cell therapy, and new technologies must be developed to lessen this dependence. We are targeting 2023 for the integration of ADR technology.

Operator, Operator

And at this time, I would now like to turn the conference back to Scott Wolchko.

Scott Wolchko, President and CEO

Thank you very much. I appreciate everyone's time this afternoon. Thank you all for participating. Be well and we look forward to catching up soon.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.