Fate Therapeutics, Inc. (NASDAQ:FATE) Q2 2023 Earnings Call Transcript

Fate Therapeutics, Inc. (NASDAQ:FATE) Q2 2023 Earnings Call Transcript August 8, 2023

Fate Therapeutics, Inc. beats earnings expectations. Reported EPS is $-0.54, expectations were $-0.58.

Operator: Welcome to the Fate Therapeutics Second Quarter 2023 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. 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: Thank you. Good afternoon, and thanks, everyone, for joining us for the Fate Therapeutics second quarter 2023 financial results call. Shortly after 4:00 p.m. 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 June 30, 2023, was filed shortly thereafter and can be found on the Investors section of our website under Financial Information. Before we begin, I’d 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 market today as well as the risk factors included in our Form 10-Q for the quarter ended June 30, 2023, 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 Ed Dulac, our Chief Financial Officer; and Bob Volmer, our Chief Research and Development Officer. During today’s discussion, we will cover the recent IND allowance for our FT522 CAR-NK cell program in B-cell lymphoma, which is our first product candidate to incorporate our proprietary allo defense receptor technology. The Phase I clinical trial is designed to assess FT522 with and without administration of intensive conditioning chemotherapy to patients. Study start-up activities are ongoing, and we plan to enroll the first patient in the second half of 2023. We will also highlight our continued investment in our multiplexed engineered iPSC-derived CAR T-cell franchise for solid tumors where we are advancing our FT825 HER2 targeted CAR T-cell program in collaboration with ONO Pharmaceutical toward an IND submission in the second half of 2023.

Finally, we will provide some additional guidance on our progress toward expanding the clinical reach of our iPSC product platform beyond oncology and into autoimmunity. Before we review our progress and the key milestones that we are striving to achieve in the second half of 2023, I would like to turn the call over to Ed to elaborate further on our financial results, where in the wake of our strategic pipeline prioritization and corporate restructuring in January, we have controlled our cost structure, posted a reduction in operating expenses and cash burn and successfully created operating runway through multiple potential data readouts and into the second half of 2025.

Ed Dulac: Thank you, Scott, and good afternoon. Fate Therapeutics is in a solid financial position to advance our pipeline. Our cash, cash equivalents and investments at the end of the second quarter were approximately $385 million. In the second quarter of this year and consistent with our guidance, revenue declined significantly to $900,000 compared to $18.5 million for the same period last year. As we indicated last quarter, our revenue is now derived exclusively from our collaboration with ONO Pharmaceutical and specifically reflects research funding associated with the development of a second product candidate against an undisclosed target in solid tumors. We expect this amount to total about $800,000 per quarter through the third quarter of 2024.

As a reminder, after opting into a U.S. and European co-development and co-commercialization arrangement with ONO for FT825 in the fourth quarter of last year. We now account for that program’s reimbursable expenses as an offset within our research and development costs. Research and development expenses for the quarter decreased by 50% compared to the same period last year to $40.9 million. The decrease in our R&D expenses was attributable primarily to a decrease in salaries and benefits, including share-based compensation expense following the company’s restructuring in the first quarter and from lower demand for R&D supplies, materials and equipment. General and administrative expenses for the second quarter increased by 11% compared to the same period last year to $22.6 million.

The increase in our G&A expenses was attributable primarily to an increase in legal related fees. Total operating expenses for the second quarter declined 25% compared to the same period last year to $63.5 million, which includes $12.9 million in noncash 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 2 additional milestone payments may be owed to MSK based on subsequent trading values of the company’s common stock. We assess the fair value of these contingent milestone payments currently valued at $1.7 million on a quarterly basis.

In the second quarter, we recorded a noncash $390,000 nonoperating benefit associated with the change in fair value. Our net loss for the quarter was $52.8 million or $0.54 per share. As we consider the remaining 2 quarters of the year, our demonstrated ability to wind down costs associated with our discontinued programs and additional ongoing cost rationalization efforts position us well to manage our balance sheet and advance our product candidate portfolio. As a result, we reiterate guidance for full year GAAP operating expenses to be in the range of $265 million to $285 million and expect that our year-end cash and investments will exceed $300 million. I will now turn the call back over to Scott to discuss our second half 2023 program milestones.

Scott Wolchko: Thanks, Ed. While we have successfully reduced our operating expenses and controlled our cost structure, our employees have shown great resilience in advancing our multiplexed engineered iPSC-derived CAR NK and CAR-T-cell programs. In the second quarter, we submitted and the FDA allowed our investigational new drug application for FT522, or off-the-shelf CD19 targeted CAR NK cell program for B-cell lymphoma. Notably, FT5Q2 is the company’s first product candidate to incorporate our proprietary alloimmune defense receptor or ADR technology, which is designed to engage 4-1BB expressing host immune cells and induce NK cell activation and functional persistence. In preclinical studies, we’ve shown that ADR armed IPS-derived carnK cells exhibit potent antitumor activity in the presence of alloreactive T-cells.

These data suggest that 522 has the potential to drive clinical responses without administration of intense conditioning chemotherapy to patients. which may enable 522 to be therapeutically differentiated and seamlessly combined with standard of care immunotherapies widely used in the community-based settings. We are currently conducting study startup activities at multiple sites. The study is designed to assess a 3-dose treatment schedule of 522 in combination with CD20 targeted monoclonal antibody therapy, including with and without administration of conditioning chemotherapy to patients. This study includes 2 regimens: Regimen A, which consists of 3 days of standard conditioning chemotherapy, 1 dose of rituximab and 3 doses of 522. We and Regimen B, which consists of 1 dose of rituximab and 3 doses of FT522 without conditioning chemotherapy.

Each 3-dose treatment regimen will commence at 300 million cells per dose. Patient enrollment in regimen A will open first subject to clearance of dose-limiting toxicities, patient enrollment into regimen B will then open at 300 million cells per dose. Dose escalation of each regimen will proceed independently with each regimen permitted to dose escalate at up to 3x its then current tolerated dose level. The study’s eligibility criteria allow for enrollment of patients with relapsed/refractory disease following at least one prior systemic regimen containing an anti-CD20 monoclonal antibody and does not require that patients received prior treatment with a T-cell engager or with autologous CD19 targeted CAR T-cell therapy. That said, we expect to initially enroll patients that are heavily pretreated, including patients that have previously been treated with autologous CD19 targeted CAR T-cell therapy.

We remain on-track to enroll the first patient in the second half of 2023. We are also pleased with recent clinical progress in the conduct of our dose-escalating Phase I studies of FT576 in multiple myeloma and of FT819 in B-cell lymphoma. In our dose-escalating Phase I study of FT576, we have now enrolled the first patient in the 3 dose treatment cohort at 1 billion cells per dose in combination with CD38-targeted monoclonal antibody therapy. No dose-limiting toxicities were observed in the 2-dose treatment cohort at 300 million cells per dose. Similarly, in our dose-escalating Phase I study of FT819, we did not observe any dose-limiting toxicities in the single-dose treatment cohort at 540 million cells. And we have now expanded patient enrollment in that single dose cohort.

Each Phase I study is now open for patient enrollment at over 10 sites during the second half of 2023, we believe we are well positioned to effectively drive patient enrollment with FT576 in the 3-dose treatment cohort at 1 billion cells per dose and with FT819 in the single-dose treatment cohort at 540 million cells. We expect that the clinical and translational data from these cohorts will be sufficient to inform each program’s therapeutic profile. While the field of autologous CAR-T-cell therapy has delivered remarkable outcomes for patients with hematologic malignancies and Significant hurdles have stifled the safety and effectiveness of CAR T-cell therapy in treating solid tumors. We believe our multiplex engineered iPSC-derived CAR T-cell product platform is uniquely suited to bring a constellation of antitumor mechanisms to the fight against solid tumors.

Our first product candidate emerging from our CAR T-cell product platform for solid tumors is being codeveloped under our collaboration with ONO Pharmaceutical. FT825 incorporates 7 novel synthetic controls designed to enhance effector cell function, including a novel CAR targeting HER2, a high affinity non-cleavable CD16 Fc receptor, a synthetic TGF-beta signal redirect receptor and a synthetic CXCR2 receptor. In preclinical studies, FT-825 demonstrated potent and preferential targeting of HER2 expressing tumors across a range of expression levels. Additionally, FDA 25 resisted TGF-beta-mediated suppression, maintaining robust activity across multiple rounds of tumor challenge and TGF exposure and also showed potent migration to CXCR2 ligands, which are often expressed on solid tumors.

Robust antitumor efficacy in vivo has been observed in various subcutaneous HER2-positive xenograft models. Under our collaboration with Ono, we are currently conducting IND-enabling activities and GMP manufacture. And alongside the ONO clinical development team, we are jointly finalizing the Phase I study design for clinical investigation. At this time, we plan to assess the safety and activity of A25 as a monotherapy. In addition, while antibody-dependant cellular cytotoxicity or ADCC, is commonly associated with innate immunity, we also plan to clinically assess the safety and activity of FTA25 in combination with monoclonal antibody therapy. Leveraging the potential of the product candidate’s high-affinity, noncleavable CD16 receptor to exploit ADCC enable dual antigen targeting and overcome solid tumor heterogeneity.

We remain on track to submit an IND application in the second half of 2023 for FT825 in patients with HER2 expressing solid tumors. Finally, we continue to assess with keen interest, the potential to bring off-the-shelf cell therapies to patients with severe autoimmune diseases, where there is significant need for therapeutic solutions that can durably deplete a patient’s pathogenic immune cells, drive immunologic reset and meaningfully improved quality of life. We are continuing our preclinical assessment with FT819 as well as with FT522, including in combination with monoclonal antibody therapy to selectively target and durably deplete pathogenic B cells, plasma cells and autoreactive T-cells. As part of our ongoing assessment, we have now reviewed Phase I clinical data from our FT819 CAR T-cell and our FT596 CAR-NK cell studies in patients with B-cell malignancies.

With the intent of assessing the kinetics and depth of B-cell depletion observed in the clinical setting during the first 30 days following treatment. We identified a cohort of 6 patients from our FT819 Phase I study and a cohort of 7 patients from our FT596 Phase I study that had measurable B cells prior to treatment. We were encouraged to observe through this translational analysis that most patients in these cohorts experienced rapid and complete B-cell depletion following treatment with the durability of depletion extending out for at least 3 to 4 weeks. We are in the process of reviewing these proof-of-concept clinical data with multiple key opinion leaders and potential investigators to support extending the clinical reach of our iPSC product platform into auto immunity.

Based on our conversations to date, we believe that the value proposition for an off-the-shelf cellular therapy in autoimmune diseases is compelling with the potential to afford a significant therapeutic advantage as compared to autologous CAR T-cell therapy. In closing, we’ve made great strides during the first 6 months of this year in focusing our operations on our most innovative and differentiated programs, reducing our cost structure and extending our operational runway to reach key inflection points across our pipeline. We remain confident in our belief that our proprietary iPSC product platform is uniquely suited to create highly differentiated, multiplexed engineered product candidates that incorporate novel synthetic controls of cell function with the potential to deliver multiple mechanisms of action and therapeutic benefit to patients with cancer and autoimmune disorders.

I would now like to open the call up to any questions.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Yigal Chavetz [ph].

Unidentified Speaker: This is Ashu Babak on for Yigal. I guess first on 522, congrats on getting that closer to entering the clinic. How are you thinking about the sort of threshold for engraftment with or without Cifu – and what do you think you need to see sort of choose between either of those regimens for future advancement? And then a similar question between Regimen A and Regimen B, how are you thinking maybe dose escalation may differ as you go higher in dose or just your expectation that they should remain relatively similar, at least in the early innings?

Scott Wolchko: Yes. Starting with the last question first. Both arms can escalate in parallel. So assuming there is patients for enrollment, I’d expect us to maximize enrollment slots to maximize sort of the time frame under which we can enroll and also compare the 2 arms. So sitting here today, I would say that again, pending patient availability, we’re very excited to enroll both arms. In parallel, and would look to compare, including both clinically and translationally, the results from both arms to really inform the performance of the cells with and without Sifi. Certainly, we have an entire battery of the translational assessments that we are going to conduct to inform us with respect to the activity of the cells and the influence of potential conditioning on how those cells perform.

Operator: Our next question comes from the line of Michael [ph] of Jefferies.

Unidentified Speaker: Guys, can you hear me okay?

Scott Wolchko: Yes.

Unidentified Speaker: Great. We wanted to ask on the new CD19 NK program. Can you talk a little bit about 2 parts. One is, at what point do you feel like you would be convinced that efficacy and durability is, I guess, at least as good, obviously, better than the prior first second-generation programs. I think that’s something that we’re — we and investors are trying to understand at what point would you know that? And then secondly is, can you remind us or walk us through the with and without the conditioning, how would that work in the Phase I because obviously, the without conditioning is an important part. So the first — there’s a few questions are kind of related.

Scott Wolchko: Sure. Let me start with the first question, and I’ll try and answer your second question and if I don’t, feel free to sort of clarify. So I think we can — based on the data that’s publicly disclosed, I think we might agree that the data sets we have seen historically with 516 and 596, have been more modest with respect to response and potentially durability of response in specifically aggressive lymphoma. Conversely, I think we might agree that the response rates we have seen in indolent lymphomas, including durability of responses with indolent lymphomas have been quite impressive, at least from our standpoint. And so I think part of our enrollment strategy, and again, we have to balance this with navigating through dose escalation.

But part of our enrollment strategy is with Siflo to understand the product’s therapeutic profile in aggressive lymphoma. Are we seeing a different profile emerge with FT522 in aggressive lymphoma than we’ve seen historically with 516 and 596. Now with outside flu, I think it would be very interesting to observe a continued high rate of response and durability of response in a as an example, indolent lymphoma. We’ve historically seen very high response rates. And I think it would be very compelling for us to continue to see high response rates in indolent lymphoma without SciFlu. And so at some level, I think we can have this conversation. I think that’s initially how we’re looking at these data sets, assuming we can target enroll patients perfectly into those cohorts.

I think that’s how we’re initially looking at this with respect to Siflo in an aggressive lymphoma setting to see if we have a differentiated product profile from potentially what we’ve seen in the past. And with no Siflu always continuing to see very high rates of response and durability without in indolent lymphoma with alcopop. I think both of those early sort of experiments and data sets would potentially indicate or lead to differentiating observations with respect to this product candidate, bots 516 or 596.

Unidentified Speaker: Perfect. So it’s a difference in the growth indolent and then we want to follow up durability, which will take some time to get our answer and compare it to 516 and 596.

Scott Wolchko: Correct. And obviously, we have a lot of historical data on both 516 and 596, with which we can make these comparisons both clinically as well as from a translational perspective. I think ultimately, to be fair, if we in the nose flu arm, we’re able to substantially change historical observations and have a competitive product profile with autologous or T-cell therapy with respect to with no Cifu, I mean that is just — obviously, that’s game changing across the entire lymphoma landscape, whether it’s aggressive or intel. Sorry, your second question real quick, and hopefully, I address it. Your second question, we will start out the very first cohort starts out regimen A with Siflo — we will — it’s a standard 3×3 design.

So we will enroll the first 3 patients, assuming no DLP in those first 3 patients, 2 things happen. We are able to dose escalate regimen with Cifu, and we could go up to 900 million cells. In addition, the other thing that happens is after those first 3 patients assuming no DLT, regimen B opens, and we begin dosing without silos. So for instance, the fourth patient, as an example, could be without Cifu. And then that regimen B would dose escalate independently from regimen.

Operator: Thank you. Our next question is from Peter Lawson of Barclays.

Unidentified Speaker: This is Cha [ph] on for Peter. Apologies if I missed this on joining late, but I believe before we were thinking that we would see data for 819 and 576, potentially not at ASH, but maybe early 2024. Is there any other guidance now that we’re getting a little bit closer to when we might see data for both of these and how substantial that update might be?

Scott Wolchko: I think at this point in time, I think we’d reiterate that guidance. I think, with both 819 as well as 576. We’ve currently opened and enrolled cohorts that we are most interested in to define the therapeutic profile of the products and inform future development strategies. I think certainly, we want to be able to assess responses in these cohorts as well as a bit of durability of response. So I think we would reiterate our guidance with respect to data on those programs with early next year in the first half of next year.

Operator: Our next question comes from the line of Mara Goldstein of Mizuho.

Unidentified Speaker: This is Jerry [ph] on for Mara. Looking at FT576 and more broadly the broader carnK/PRD programs, when do you think you’ll be done dosing? And if a final dose is not determined yet, do you think you will continue to increase the number of cells given or give a fourth dose as well?

Scott Wolchko: Sure. So with 576, we are now at a dose and a dose schedule. And again, just to be clear, 3 doses of 1 billion cells per dose with FT576, and we were able to enroll monotherapy patients as well as patients in combination with dartumumab. We do believe that this dose and dose schedule is going to be sufficient to define the product candidate’s therapeutic profile based on data we’ve seen with other NK cell programs as well as preclinical data. So we are looking at this next cohort of patients at this dose and dose schedule is defining the therapeutic profile.

Operator: Our next question comes from Ajeya Tan [ph] of Goldman Sachs. Again, Andrea Tan of Goldman Sachs.

Unidentified Speaker: This is Rachel [ph] on for Andrea. What kind of opportunity do you see in the post auto CAR-T setting in relapsed/refractory DCL for 819 given precisions move to partner their asset recently? How does it bring forward this pivotal trial themselves?

Scott Wolchko: Yes. I think — I mean I will go over my comments more generally. I tend to think whether it be 522 819, a cell therapy post autologous CAR T-cell therapy. Generally, I continue to believe, and this is based on conversations that Fate has also had with the FDA I continue to believe that development post autologous CAR T-cell therapy is an exciting opportunity with significant unmet need, and I would extend that obviously also to myeloma. I tend to believe autologous CAR T-cell therapy. There are multiple different autologous CAR T-cell therapies that are approved both in lymphoma and myeloma, I tend to believe those programs will try and be utilized as early as possible. I think there absolutely are going to be challenges and limitations to reaching into the community.

But I do think, generally speaking, that the availability of autologous CAR-T-cell therapy for patients won’t generally increase. I do think that, that will afford a tremendous development opportunity and unmet need for patients post CAR T-cell therapy. And I think that’s a very exciting area for development, quite frankly.

Operator: Our next question comes from the line of Jack Allen of Baird again, Jack Allen of Baird.

Jack Allen: Congratulations on the progress this quarter. It sounds like we’re expecting FT819 data next year. I was hoping you could talk a little bit about what we should expect as it relates to the size of the cohort and potential follow-up. And I guess, should we assume that the dose that you have here, the single dose of 540 million cells is what you’re going to plan to move forward potentially?

Scott Wolchko: Yes. I think right now with respect to both 576, where we’re looking at 3 doses at 1 billion cells per dose as well as with FT819, where we are at 540 million cells single dose Look, I think our goal is to enroll somewhere in the neighborhood of, let’s call it, 10 patients in the second half of this year. And we – like I sort of – I’ve mentioned before, I do think that, that cohort of patients on both 576 and 19 can really help define the therapeutic profile of the product candidates…

Operator: Our next question comes from the line of Bill Morgan Canaccord Genuity Elanco [ph].

Unidentified Analyst: So, if the ADR technology works exactly as intended in humans, how confident are you that, that factor is sufficient to produce a clinically relevant duration of response from 522 – or I guess, stated differently, what are the chances that there are some other limiting factors that are going to have to be addressed.

Scott Wolchko: Yes, it’s a great question. And honestly, we don’t know the answer to that question yet. I think, obviously, we have to see attractive response rates in order to have an opportunity to have an attractive durability of response. I’ll turn it over to Bob, and certainly, he can give you a preclinical perspective with what we’ve seen with respect to durability of response when we’ve armed these cells with ADR. Yes, I’ll let Bob speak to it.

Bob Valamehr: It’s a really good question. I’ll start off by saying replacing side flu has multiple factors. Obviously, the antitumor factor associated with it in lymphoma. There is the creation of space availability of cytokines as well as the border rejection by the hosting compartment. So is ADR is a 5 point edited CAR 19 product going to overcome all those. We hope so for the clinical model as the and the CD16 targeting anti-CD20 cells in combination is very robust as 522 has a stronger chassis that 596, so we expect a more potent response from the CAR and the CD16. ADR technology appears to protect sell against the alloreactive attack. So we expect the cells to be there and protect themselves. So that part of silo may not be necessary.

But as your question is great, it also, as Scott mentioned, part to answer until we see some of the clinical data preclinically, we see enhanced potency, enhanced protection and enhanced activity. So we’re hopeful that we will see good responses but we’ll need to wait for clinical data to final.

Operator: Thank you. I’m showing no further questions at this time. I’d like to turn the call back over to Scott Wasco for any closing remarks.

Scott Wolchko: Great. Thank you all for participating in today’s call. We will look forward to seeing you all soon.

Operator: Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.