Fate Therapeutics, Inc. (NASDAQ:FATE) Q3 2023 Earnings Call Transcript

Fate Therapeutics, Inc. (NASDAQ:FATE) Q3 2023 Earnings Call Transcript November 8, 2023

Operator: Welcome to the Fate Therapeutics Third Quarter 2023 Financial Results Conference Call. At this time, all participants are mode. The 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, Present and CEO of Fate Therapeutics.

Scott Wolchko: Thank you. Good afternoon and thanks everyone for joining us for the Fate Therapeutics third 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 September 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 September 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 Dr. Bob Valamehr, our Chief Research and Development Officer. During today’s discussion, we will cover several key milestones that we recently achieved for our iPSC product platform, including expanding the clinical reach of our iPSC derived CAR T-cell platform to solid tumors, as well as beyond oncology and into autoimmunity. In reaching these milestones, we are now well positioned to achieve important clinical readouts in oncology and autoimmunity across multiple programs in 2024. We’ll also discuss our continued focus on controlling costs that has resulted in a significant decrease in cash utilization, which we believe enables us to extend our operating runway into the second half of 2025.

Beginning with FT522, our off-the-shelf CD19 targeted CAR-NK cell program, I am pleased to announce that our Phase 1 study is open for enrollment in patients with relapsed refractory B-cell lymphoma where we intend to assess FT522 with and without conditioning chemotherapy. FT522 is the company’s first product candidate to incorporate our proprietary, alloimmune defense receptor or ADR technology, which is comprised of a synthetic engineered receptor designed to target 41BB expressed on alloreactive immune cells and induce NK cell proliferation. In preclinical studies we have shown, that the engagement of ADR armed CAR-NK cells with alloreactive immune cells, mitigated rejection, promoted NK cell proliferation, and increased anti-tumor activity.

These preclinical data suggest that 522 has the potential to drive clinical responses without administration of intense conditioning chemotherapy to patients. The Phase 1 study includes two regimens, regimen A or the conditioning arm, which consists of three days of standard conditioning chemotherapy, one dose of rituximab, and three doses of FT522. And regimen B, or the node conditioning arm, which consists of one dose of rituximab and three doses of FT522 without conditioning chemotherapy. Enrollment into regimen A or the conditioning arm has now been opened at the first dose level of 300 million cells per dose and upon clearance of the of dose limiting toxicities at this first dose level. Enrollment into regimen B or the no conditioning arm will commence at its first dose level of 300 million cells per dose.

Each regimen may proceed with dose escalation independently. Today, conditioning patients with intense chemotherapy is a necessary component of the treatment course for cell-based cancer immunotherapy, including for both autologous and allogeneic cell therapies. Conditioning chemotherapy induces toxicities, limits patient access, and prevents combination with standard of care immunotherapies widely used in the community-based setting. We believe we have the opportunity to establish clinical proof of concept for ADR technology and for FT522 program without conditioning chemotherapy early in dose escalation. Turning now to our T-cell programs. We believe our multiplexed engineered iPSC derived CAR T-cell product platform is uniquely suited to bring a constellation of antitumor mechanisms to the fight against solid tumors.

I’m pleased to announce that we have established a new landmark in the field of cell-based cancer immunotherapy, our IND application was cleared by the FDA to initiate clinical investigation of FT825 in patients with solid tumors. From multiplex to engineered iPSC-derived CAR T-cell program, which is being co-developed under our collaboration with ONO Pharmaceutical incorporates seven novel synthetic controls of cell function that are designed to harness the potential of both innate and adaptive immunity and to overcome the unique challenges in treating solid tumors. These novel synthetic controls include a CXCR2 receptor to promote cell trafficking, a chimeric TGF-beta receptor to redirect immunosuppressive signals in the tumor microenvironment, and a high affinity non-cleavable CD16 receptor to promote antibody dependent cellular cytotoxicity.

At the 2023 Society for Immunotherapy of Cancer Annual Meeting, we unveiled that FT825 incorporates a novel cancer-specific antigen binding domain targeting HER2, which was contributed by ONO to our collaboration. Preclinical studies presented at the meeting demonstrated that the binding profile of the cancer specific CAR construct being unique and differentiated from that of trastuzumab, exhibiting similar potency, with greater specificity toward HER2 expressing malignant cells. In subcutaneous xenograft models, FT825 demonstrated robust anti-tumor efficacy against HER2 high, as well as HER2 low expressing tumor cells. Additionally, FT825 resisted TGF-beta mediated suppression maintaining robust cytolytic activity across multiple rounds of tumor challenge and suppressive levels of TGF-data exposure.

And showed potent migration to CXCR2 ligands, which are often expressed in solid tumors. With the clearance of our IND by the FDA, Phase 1 study start-up activities are now ongoing at multiple sites. The dose escalation schema for the Phase 1 study includes two treatment regimens. Regimen A or the monotherapy arm, consists of a standard three day precondition regimen and a single dose of FT825 as monotherapy. Enrollment is the monotherapy arm will commence at the first dose level of 100 million cells. Eligibility includes patients with advanced HER2 expressing solid tumors. Regimen B or the combination arm, consists of a standard three day preconditioning regimen, and a single dose of FT825 in combination with cetuximab, where we seek to additionally exploit innate immunity by leveraging the product candidate’s high affinity non-cleavable CD16 receptor to target EGFR expressed on solid tumor cells.

Enrollment into regimen B will commence at the first dose level of 100 million cells upon clearance of dose limiting toxicities at the first dose level of regimen A. Eligibility includes patients with advanced EGFR expressing solid tumors. While we have made great strides in advancing our most innovative and differentiated clinical programs in oncology, we also remain committed to pursuing new therapeutic opportunities beyond oncology, where cell-based immunotherapies can have a profound clinical benefit for patients. Our initial clinical data are now emerging indicating that CD-19 targeted CAR T-cell therapy has the potential to durably deplete a patient’s pathogenic immune cells, drive immune reset, and meaningfully improve quality of life across a wide spectrum of autoimmune diseases.

We believe there is a very strong value proposition for off-the-shelf cell therapy and autoimmunity, where a relatively short-lived cell can deeply eradicate an aberrant B-cell population and enable rapid reconstitution of a healthy immune system and where patient safety, convenience, accessibility, as well as cost and scale will be a differentiating factor. To this end, I’m pleased to announce the clinical expansion of our iPSC product platform into autoimmunity. In July, the FDA cleared our IND application for clinical investigation of FT819, our off-the-shelf CD-19 targeted CAR T-cell program in patients with SLE, including for patients with active lupus nephritis or active SLE without renal cell involvement. We have now initiated Phase 1 studies startup activities at multiple sites.

The Phase 1 study in SLE is designed to evaluate the safety, pharmacokinetics, anti B-cell activity of a single dose of FT819 administered following a standard conditioning regimen consisting of either cy/flu or bendamustine. Dose escalation will commence at the first dose level of 360 million cells. Importantly, we have previously presented clinical data of a single dose of FT819 at doses up to 360 million cells in the setting of relapse refractory B-cell lymphoma, where we reported safety and clinical activity of the first 11 patients treated with a single dose of FT819 at up to 360 million cells. We observed a favorable safety profile with no immune effector cell associated neurotoxicity, and mild cytokine release syndrome. We observed anti-tumor activity in heavily pretreated patients, including three complete responses, and we observed CAR T-cell expansion that peaked in the peripheral blood between days eight and 11.

The Phase 1 study of FT819 SLE allows for assessment of higher dose levels each up to three times the highest clear dose level, as well as for the opening of multiple dose expansion cohorts, each of which may be enrolled in parallel. We are pleased to receive a favorable review of our FT819 clinical protocol from the clinical experts of the Protocol Design Committee of Lupus Therapeutics and affiliate of the Lupus Research Alliance. We also continue to watch with keen interests, the emergence of additional clinical data in autoimmunity, and we are currently evaluating additional clinical expansion opportunities for FT819 as well as for FT522, where we think the potential to reduce conditioning chemotherapy and to target and deplete B cells, plasma cells, and autoreactive T cells with an off-the-shelf ADR arm CD19 targeted CAR-NK cell offers a highly differentiated therapeutic profile.

We have remained resilient during these challenging times and focused our attention on building a fully integrated operation that leads in the research, development, and manufacturer of multiplexed engineered iPSC derived cellular immunotherapies. As we look towards 2024, we are well positioned to achieve important clinical readouts in oncology and autoimmunity across multiple programs. Clinical activities are now ongoing for our two most innovative oncology programs, FT522, and B-cell lymphoma, and FT825 and solid tumors, as well as for our first autoimmunity program FT819 and SLE. We also continue to advance our Phase 1 study of FT819 in B-cell malignancies where we are enrolling patients in single dose treatment cohorts at 540 million cells in BCL and at 360 million cells in CLL, as well as our Phase 1 study of FT576 in multiple myeloma where we are enrolling patients in three dose treatment cohorts at 1 billion cells per dose as monotherapy and in combination with CD38 targeted monoclonal antibody therapy.

Finally, our investment in innovation continues including under our solid tumor collaboration with ONO, as we continue to advance new multiplexed engineered CAR T-cell programs toward clinical development. We remain confident in our belief that our proprietary iPSC product platform is uniquely suited to create highly differentiated product candidates with the potential to deliver multiple mechanisms of action and therapeutic benefits to patients with cancer and autoimmune diseases. I’d now like to turn the call over to Ed to review our financial results for the third quarter.

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 third quarter for approximately $350 million. In the third quarter of this year, our revenue declined to $1.9 million compared to $15 million for the same period last year. As 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. 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.

We recognized $2.1 million of contra R&D expense in the quarter. Research and development expenses for the quarter decreased by 57% to $34.3 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 clinical trial costs and lower demand for R&D materials and equipment. General and administrative expenses for the third quarter decreased by 12% to $18.9 million. The decline in our G&A expenses was attributable primarily to a decrease in salaries and benefits, including share-based compensation expense. Total operating expenses for the third quarter declined 47% to $53.2 million, which includes $10.1 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 $700,000 on a quarterly basis. In the third quarter, we recorded a non-cash $1 million non-operating benefit associated with the change in fair value. Our net loss for the quarter was $45.2 million or $0.46 per share.

Finally, we reiterate guidance for full year GAAP operating expenses to be in a range of $265 million to $285 million, and that our year-end cash and investments will exceed $300 million. I would now like to open the call for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions]. Our first question comes from Yigal Nochomovitz with Citi. Your line is open.

Ashiq Mubarack: Hi, guys. This is Ashiq Mubarack on for your Yigal. Thanks for taking the questions. I just have a couple. For FT522 in the Phase 1, I am just curious if you think if there is a certain threshold in drop off and engraftment or maybe activity that you believe would be acceptable between patients who receive preconditioning versus those that don’t? Or does there really need to be no drop-off for you to utilize that preconditioning free regimen in future studies? Thanks.

Scott Wolchko: Yes, I don’t I think when we look at the data, I think the data is really going to be driven by the end of the day, patient outcomes and responses, we are definitely interested in understanding the PK profile of FT522 with and without conditioning. And I think that would be help of guide dose escalation. But ultimately, I think it’s about patient benefit and driving patient benefit, potentially with no conditioning, as that being the important element of 522 with respect to its unique profile.

Ashiq Mubarack: Okay. Understood. We will just have to see. I guess for, FT825, I know you have the cetuximab combo. But are you also planning to combine with trastuzumab or maybe trastuzumab direct you can, given different given the differences in binding dynamics you showed SITC. I am just curious if you think an ADC combo might be something that’s actually viable from a safety standpoint, given your comments around the HER2 low opportunity? Thanks.

Scott Wolchko: Yes. Absolutely. We have started this study with combination with cetuximab, but we certainly think there’s opportunity to broaden the clinical profile to include other monoclonal antibodies. There are several that we’re looking at. One of those possibly is actually trastuzumab since there does not appear at least preclinically to be competition between the binding domains. And in fact, we’ve actually seen, and I believe we’ve presented this publicly, we’ve seen quite nice synergy in fact with FT25 and trastuzumab.

Operator: Our next question comes from Michael Yee with Jefferies.

Unidentified Analyst: This is Jenna from Mike. Thanks for taking our questions. We wanted to get your latest take on the landscape. The CD-19 CAR-T is moving into earlier lines and there are new players coming to the market CAR-T and going after post CD-19. So in the context of all of that, where do you see the next-gen CAR NK program, CD-19, ultimately fit into that landscape? And secondly, are you able to comment on how you’re doing on enrollment? Have you enrolled any patients and how soon you think you may be able to start the no chemo arm?

Scott Wolchko: Sure. Not going to comment on enrollment other than to reiterate the comments we made on the call where the study open for enrollment was not announced. The first patient the first no conditioning patient, if you will, that patient has, could be as enrolled as early as patient four. We are required to clear the first dose level in the conditioning arm before opening the no conditioning arm. So first assuming no DLT, the first three patients would receive conditioning and then two events can occur simultaneously. Number one, you can dose escalate the conditioning arm as well as open the no conditioning arm. And so the fourth patient could be a no conditioning patient. In terms of the landscape, completely agree.

It’s a super competitive landscape and I think they’re — I think at the same time there are multiple opportunities that can exist from an off-the-shelf cell therapy. I’ve talked extensively in the past that I absolutely believe there will be a line of therapy that is of allogeneic or off-the-shelf that can exist and will exist post auto car t-cell therapy. I think there’s significant need that exists, whether it lymphoma or myeloma in post auto car t-cell patients. In addition, I think one of the exciting elements of cell therapy, again, to be explored, determined is the potential, especially within NK cell, is to plug into standard immunotherapy regimens, for instance, like in R-CHOP or an earlier line regimen in myeloma. I think those opportunities exist.

I think one of the challenges that exists with whether it be autologous or allogeneic cell therapy. And today, those regimens bring s flu along for the ride. So if you want to combine with an existing regimen and reach patients early, including in the community setting, one of the hurdles to overcome potentially is cy/flu. And that’s one of the reasons we’re very excited about 522 and ADR. And the potential to reduce, significantly reduce the dependency on conditioning and enable a more seamless combination with off, with standard regimens that are used earlier in care in the community.

Operator: Our next question comes from Tyler Van Buren with TD Cowen.

Tyler Van Buren: As we think about the next 6 to 12 months, what will the one or two major value creating events be in your view? And what should investors expect from them?

Scott Wolchko: Yes. I think, high — the three that I think are worth just noting were on I highlighted with my comments. I think we have an opportunity to develop, to demonstrate proof-of-concept with FT522, including in a cy/flu regimen. I think that’s, it can be a pretty game change — there can be game changing cadet potential if you can deliver cell therapies without conditioning chemotherapy. And essentially for all intents and purposes, make a cell therapy look like a monoclonal antibody therapy in terms of how it can be delivered and reach patients. I think that’s pretty game changing if we can demonstrate that with 522, it’s ADR built in and no cy/flu. Also, very excited about FT825 as you are probably well aware, there’s been a lot of challenges in the solid tumor setting with CAR T cells historically.

I think there certainly have been toxicities of note, and I think the activity has been modest at least compared to hematological malignancies. 825 being a pointed edited cell therapy, and what I’ll just sort of consider to be a fine-tuned binding domain against HER 2, I think early on in that study, given that we’re starting at a 100 million cells, we do have the opportunity potentially to show responses and I think — and safely show responses, and I think that would be a significant breakthrough with respect to the use off-the-shelf cell therapies in solid tumors. And then finally, I’ll note, and I did note it in our call, moving into autoimmunity. I think, we are one of the first companies to pioneer an off-the-shelf strategy in autoimmunity.

I realize we’re all sort of beginning this journey at the same time, both autologous and allogeneic. And I think the potential to show, for instance, what’s been shown with the autologous programs in a small number of patients that you can durably deplete an aberrant b-cell population, enable reconstitution of a healthy immune system and do that in a durable way, I think could be really powerful.

Operator: Thank you. Our next question comes from Daina Graybosch with Leerink Partners.