Fate Therapeutics, Inc.

Welcome to the FATE Therapeutics First Quarter 2020 Financial Results Conference Call. At this time, our participants are in a listen-only mode. This call is being webcast live on the Investors and Media section of FATE's website at fatetherapeutics.com. As a reminder, today's call is being recorded. I would now like to introduce Scott Washko, President and CEO of Faith Therapeutics.

Thank you. Good afternoon and thanks everyone for joining us for the Faith Therapeutics First Quarter 2020 Financial Results Call. Shortly after 4 p.m. Eastern Time today, we issued a press release with these results, which can be found on the Investors and Media section of our website under Press Releases. In addition, our Form 10Q for the quarter ended March 31, 2020 was filed shortly thereafter and could be found on the Investors and Media 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. Thank you for joining us today. Thank you for joining me today. Dr. Bob Valamehr, our Chief Development Officer, and Dr. Wayne Chu, our Senior Vice President of Clinical Development. Today, I will comment on the impact of the COVID-19 pandemic on our business, highlight key milestones we achieved during the past several months, and discuss the transformative collaboration we recently entered into with Janssen. The global COVID-19 pandemic has significantly impacted our daily lives, and we have been compelled to change our day-to-day operations to confront with these unprecedented times. We have taken numerous measures to protect the health and safety of our employees, their families and the extended community while continuing to operate our business. Shortly after the JPMorgan conference, we reassessed our preparedness for a potential pandemic and began implementing changes to our operations. We confirmed that our master IPSC lines and our manufactured clinical products were inventoried in redundant locations, and we stocked clinical sites with our clinical products to enable off-the-shelf administration to patients. We also worked with our suppliers to accelerate the sourcing of key materials to support the conduct of our planned in-house GMP manufacturing campaigns. We implemented a work-from-home policy and restricted on-site personnel to those conducting essential laboratory and manufacturing activities. We worked closely with our clinical trial sites and investigators to promote the safety and continued care of study participants, implemented remote site activation and patient monitoring, and preserved data integrity. We believe we have established operational capabilities, including full control of GMP manufacture, that will allow us to operate with resolve and advance our business objectives. The commitment, resourcefulness, and resilience of our employees have carried us through these challenging weeks. We have been disrupted by the COVID-19 though, as the cadence of new clinical trial site initiation and patient enrollment has been slowed. While we remain committed to our clinical programs and development plans, These disruptions have introduced some uncertainty with respect to our projected timelines for enrollment and data readouts across our clinical trials. Nevertheless, we have maintained significant business momentum across our three clinical programs, all of which have continued to enroll patients. For each of our programs, we have manufactured hundreds of cryopreserved infusion-ready doses are immediately available for use in our clinical studies. With respect to our FT500 program, we have now treated three patients with FT500 at the 300 million cell dose level in combination with checkpoint inhibitor therapy. and successfully completed enrollment in the dose escalation stage of the FT500 phase one clinical trial in advanced solid tumors. We believe this is a significant clinical milestone as our FT500 phase one study is the first ever clinical trial in the United States of an IPS derived cell product. Additionally, it is one of the first ever clinical trials of a cell therapy to evaluate a novel Multidose Treatment Course consisting of outpatient lymphoconditioning followed by three once-weekly doses of FT500 over up to 230-day treatment cycles. I'm pleased to report that, consistent with our prior clinical observations in the dose escalation stage of the FT500 Phase 1 study, there were no dose-limiting toxicities No FT500 related grade three or greater adverse events or serious adverse events and no incidence of cytokine release syndrome, neurotoxicity, graft versus host disease reported by investigators in these three patients. Enrollment in the dose expansion stage of the FT500 phase one study is proceeding at three clinical sites in patients with non-small cell lung cancer. were up to 40% of patients with resistance to checkpoint inhibitor therapy exhibit partial or complete loss of MHC class 1 expression, making these cancers highly susceptible to NK cell recognition and killing. We expect to treat up to 15 patients in the outpatient setting in the dose expansion stage, administering three once-weekly doses of FT500 at 300 million cells per dose over up to two 30-day cycles along with IL-2 cytokine support and with the checkpoint inhibitor on which the patient failed or progressed. FT516 is the second program emerging from our IPSC product platform and the first engineered IPS-derived cell therapy in the world to undergo clinical investigation. We continue to conduct the dose escalation stage of the FT516 Phase 1 clinical trial as a monotherapy for AML and in combination with rituximab for advanced B-cell lymphoma. We have successfully activated two additional sites for a total of three active sites. And we are currently working with two additional sites on remote activation. In addition, We successfully expanded the clinical scope of our FT516 program to advance solid tumors. In January, the FDA allowed our second IND application for FT516, enabling clinical investigation in combination with PD-L1, PD-1, EGFR, and HER2-targeted monoclonal antibody therapies across a broad range of solid tumors. We intend to initially evaluate FT516 in combination with Avelumab, an ADCC-competent anti-PD-L1 immune checkpoint inhibitor, in patients with advanced solid tumors who are refractory to or have relapse following at least one line of anti-PD-L1 therapy. We expect first patient enrollment in combination with Avelumab in the coming months. With respect to our FT596 program, we treated the first patient in the dose escalation stage of the FT596 phase one clinical trial for advanced B-cell malignancies and chronic lymphocytic leukemia. We are particularly excited about this clinical milestone. FT596 is the first ever cellular immunotherapy engineered with three active anti-tumor components to be evaluated in patients. and is uniquely designed to target multiple tumor-associated antigens expressed on cancerous B cells for best-in-class potential. In addition to a proprietary CAR targeting CD19, FT596 expresses our novel high-affinity non-collievable CD16 FC receptor, enabling multiple antigen targeting of CD19 and additional tumor-associated antigens such as CD20. FT596 also expresses a novel IL-15 receptor fusion, a potent cytokine complex that promotes survival, proliferation, and transactivation of NK cells and CDAT cells without the need for systemic cytokine support. One site is currently active, and we are currently working with three additional sites on remote activation. In addition, I'm also pleased to announce that we have successfully expanded the clinical scope of our FT-596 program, as the FDA allowed a second IND application for FT-596. Sponsored by investigators from the Masonic Cancer Center University of Minnesota, this new Phase I clinical study is intended to assess the potential of FT-596 to prevent relapse in patients undergoing autologous hematopoietic stealth transplant for the treatment of non-Hodgkin lymphoma. The clinical trial is expected to enroll up to 18 patients considered high risk for early relapse based on failure to achieve complete or partial remission on or relapse within 12 months of prior therapy. Up to three dose levels of FT596 will be administered in combination with rituximab 30 days following transplant. We also continue to be excited about our rate of preclinical innovation, including our ability to add on additional engineered features and functionality, rapidly build next generation product candidates, and advance our pipeline of engineered IPS-derived NK cell product candidates into clinical development. I'm pleased to announce that we have recently submitted an IND application to the FDA for FT538, the first CRISPR-edited IPS-derived cell therapy. FT538 is derived from a clonal iPSC line engineered with HNCD16 and our IL-15 receptor fusion and edited for elimination of CD38 expression to mitigate anti-CD38 antibody-mediated fracturicide. We intend to clinically investigate FT538 in combination with anti-CD38 monoclonal antibody therapy for the treatment of multiple myeloma. In addition to FT538 as a clinical candidate, we believe the clonal master-engineered iPSC line for FT538 may serve as a foundational cellular backbone for the building of future IPS-derived NK cell product candidates. For example, at this week's American Society of Gene and Cell Therapy virtual annual meeting, we will highlight the creation of a master-engineered IPSC line for FT576, Our off-the-shelf IPS-derived CAR-BCMA and K-cell product candidate, using an existing master-engineered IPSC line from the FT538 program as starting material. Similarly, at ASGCT, we will also present preclinical data for our recently announced CAR-MIC-A-MIC-B program, targeting pan-tumor-associated stress proteins. where the initial product candidate forms have been developed using an existing master engineered IPSC line from the FT538 program. As many of you know, about five years ago when we set out on this journey to bring IPS-derived cell-based cancer immunotherapy to patients, our mission included both NK cells and T cells. as the delivery of both cell types may ultimately play a critical role in curing cancer. We formed a foundational collaboration in 2016 with Memorial Sloan Kettering, led by Dr. Michelle Satterline, to guide our path in developing off-the-shelf IPS-derived CAR-T cell therapy. Over the years, we've followed the science and the clinical learnings emerging from the autologous CAR-T cell field and continue to innovate to include state-of-the-art features and functionality in our IPS-derived CAR T-cell programs. We pioneered the creation of a clonal master IPSC line engineered with a CAR inserted into the tract locus to regulate CAR expression, optimize cytotoxic activity, and eliminate T-cell receptor expression for mitigation of graft-first host disease risk. We refined our differentiation protocol with the goal of making potent alpha-beta T cells that closely match their naturally occurring counterparts. And we raced our IPS-derived CAR T cell product candidates against primary CAR T cells in the most stringent preclinical models under our collaboration with the founder of CAR T cell therapy. I'm pleased to announce that we remain on track to submit our IND application to the FDA in the second quarter for FT819, the world's first off-the-shelf IPS-derived CAR-T cell therapy. FT819 is derived from a clonal master iPSC line engineered with a novel 1XX CAR targeting CD19 inserted into the tract locus and edited for elimination of of TCR Expression. We continue to strive to bring FT819 to the first patient in 2020. Finally, I'd like to make a few comments about our newly formed collaboration with Janssen. The partnership is transformative for us, and I believe it significantly increases our ability to invest in innovation, build commercial-scale IPSC manufacturing operations, bring best-in-class IPS-derived cell-based cancer immunotherapies to patients and deliver value to shareholders. The collaboration brings together Janssen's scientific leadership and deep domain expertise in oncology and our industry-leading IPSC product platform. Our mutual objective is to research, develop, and commercialize novel, off-the-shelf IPS-derived CAR-NK and CAR T-cell products. With respect to the collaboration scope, the collaboration is antigen targeted based and includes both CAR NK and CAR T-cell candidates directed to up to four tumor associated antigens. The binding domains directed to the four antigen targets are proprietary to and are being contributed by Janssen for construction of the CAR constructs. The cancers we are seeking to treat include both hematologic malignancies and solid tumors. Note that this is a deep collaboration in that it is not limited to a specific number of collaboration candidates. In fact, we can continue to innovate and develop next generation collaboration candidates together against those four specific antigen targets. Under the collaboration, we will drive and conduct innovation, preclinical development, and conduct IND-enabling activities for each IPS-derived CAR-NK and CAR-T cell collaboration candidate. Importantly, all these activities are entirely funded by Janssen, and we will receive full funding for all innovation, preclinical development, and the IND-enabling activities that we perform under the collaboration. Upon the completion of activities sufficient to allow for submission of an IND, Janssen will have the right to exercise an exclusive option and obtain an exclusive license for the clinical development and commercialization of the collaboration candidate. Janssen will be solely responsible for worldwide clinical development and commercialization and we will be primarily responsible for the manufacture at Janssen's cost of the collaboration candidate. For each collaboration candidate, upon Janssen's attainment of clinical proof of concept, we have the right to elect to co-commercialize and share equally in the profits and losses in the United States, subject to sharing in certain development costs. I'd like to emphasize that the collaboration candidates under the Janssen collaboration do not include any product candidates that are currently under clinical or preclinical development by us or otherwise part of our current product pipeline. We will continue to independently innovate and exploit our deep pipeline of wholly owned product candidates. With respect to the collaboration economics, We received $100 million in April, of which $50 million was an upfront cash payment and $50 million was in the form of an equity investment at $31 per share. For the first antigen target, we are eligible to receive up to $898 million upon the achievement of specified development, regulatory, and sales milestones for the first collaboration candidate and up to 460 million in milestone payments for each additional collaboration candidate. For each of the second, third and fourth antigen targets, we are eligible to receive up to 706 million in milestone payments for each of the first collaboration candidates and up to 340 million in milestone payments for each additional collaboration candidate. In total, assuming only one collaboration candidate across each of the four antigen targets. We are eligible to receive payments of up to $1.8 billion upon the achievement of development and regulatory milestones and up to $1.2 billion upon the achievement of commercial milestones. In the event we elect to co-commercialize a particular collaboration candidate with the benefit of sharing equally in the profits and losses in the United States, These milestone payments are subject to reduction. In addition, we are eligible to receive double-digit royalties ranging up to the mid-teens on net sales of collaboration products that are commercialized by Janssen. With respect to the collaboration's strategic value, I would highlight several key points. First, we have partnered with one of the strongest oncology teams in the entire industry, one with outstanding scientific, clinical development and commercialization expertise. We will be building collaboration candidates using proprietary binding domains identified and optimized by Janssen, creating the opportunity to develop highly differentiated products. Second, Janssen has committed substantial dollars to the collaboration's work plan, and we will be receiving significant annual research and development payments to drive innovation. including for the research and development of next generation features and functionality and for the scaling of our GMP manufacturing processes to support commercial scale operations. Importantly, we retained rights to this innovation for use across our IPSC product platform. Furthermore, the collaboration represents an opportunity for us to leverage our industry leading IPSC product platform and expand our product pipeline. We have not encumbered our existing product pipeline in any way whatsoever. For each collaboration candidate, we retain significant economic interest with the rights to opt in to co-commercialization and equal share of profits and losses in the U.S. Lastly, I would highlight that we retain responsibility for the manufacture of collaboration products. Under the collaboration, we have formed a joint manufacturing committee where Janssen can provide advice and support for our activities in building and scaling a world-class cell therapy manufacturing operation. I would like to thank the Janssen Oncology team. These are uncertain times, and we're all facing new challenges during this COVID-19 pandemic. Janssen was unwavering in their commitment to this partnership, and I'm really appreciative and sincerely grateful for the significant time and effort that Janssen dedicated to finalizing this collaboration in the midst of the pandemic and that the trust that the Janssen team has placed in our team. I'm really excited to lead Faith Therapeutics as we begin this transformative collaboration together and dedicate ourselves to build novel off-the-shelf CAR-NK and CAR-T cell cancer immunotherapies and bring life-changing medicines to patients. Turning to our financial results, revenue was $2.5 million for the first quarter of 2020, compared to $2.6 million for the same period last year. Revenue in the current quarter was derived from the company's IPS-derived CAR T-cell collaboration with Ono Pharmaceutical. Research and development expenses for the first quarter of 2020 were $29.3 million. compared to $17.7 million for the same period last year. The increase in our R&D expenses was attributable primarily to an increase in employee compensation, including share-based compensation, and expenses associated with the clinical development and manufacture of our product candidates, the conduct of research activities, including under our collaboration with Ono, and the facility lease for our new corporate headquarters. General and administrative expenses for the first quarter of 2020 were $7.7 million, compared to $5.4 million for the same period last year. The increase in our G&A expenses was attributable primarily to an increase in employee compensation, including share-based compensation, and in legal and accounting fees. Total operating expenses for the first quarter of 2020 were $30.1 million net of non-cash share-based compensation expense of $6.9 million. The company ended the first quarter of 2020 with $219 million of cash, cash equivalents and investments, which excludes $100 million received in April in connection with the Janssen Collaboration. Common Stock Outstanding was 76 million shares and Preferred Convertible Stock Outstanding was 2.8 million shares, each of which is convertible into five shares of common stock under certain conditions. Common Stock Outstanding excludes the issuance of 1.6 million shares in April in connection with the Janssen Collaboration. The global pandemic has shaken all our lives, and many of us are experiencing first-time challenges and significant instability. I want to thank our employees for their passion, commitment and resiliency. I'm proud that we have demonstrated our ability to act swiftly to changing times and remained unwavering in our commitment to bring our pipeline of engineered IPS-derived NK cells and T-cell cancer immunotherapies to patients during these unprecedented times. I sincerely hope that all of you and your family members are well and staying safe and I'd now like to open up the call to questions. Thank you.

To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ted Tinshoff with Piper Sendler.