Fate Therapeutics, Inc.

Good day, ladies and gentlemen, and welcome to the Fate Therapeutics first quarter 2021 financial results conference call. This call is being webcast live on the investor section of Fate Therapeutics website at fatetherapeutics.com. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at the time. If anyone should require operator assistance, please press star then 1. Sorry, press star zero on your touchtone phone. As a reminder, this call will be recorded. I will now turn the call over to Scott Walshko, President and CEO of Fate Therapeutics. Scott, you may begin.

Thank you. Good afternoon, and thanks, everyone, for joining us for the Fate Therapeutics first quarter 2021 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 section of our website under Press Releases. In addition, our Form 10-Q for the quarter ended March 31, 2021 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 market today, as well as the risk factors included in our Form 10-Q for the quarter ended March 31, 2021 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 facts and circumstances underlying these forward-looking statements may change. Except as required by law, 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 Chiu, our Senior Vice President of Clinical Development, Ed Duloc, our Chief Financial Officer, and Bob Valimer, our Chief Research and Development Officer. Today, we will highlight our clinical progress and plans for each of our disease franchises, including our plans to share interim clinical data for off-the-shelf IPS-derived NK-cell programs in acute myeloid leukemia and in B-cell malignancies. We will also discuss the expansion of our FT538 program into solid tumors, where our IND application was recently allowed by the FDA for conduct of a multi-dose, multi-cycle phase one clinical trial in combination with certain monoclonal antibodies targeting tumor-associated antigens EGFR, HER2, and PD-L1. This marks the 12th IND allowed by the FDA for our IPSC product platform. Alongside the 24th annual American Society of Gene and Cell Therapy meeting being held virtually next week, We plan to share interim phase one clinical data for FT516 and FT538 programs in relapsed refractory AML. We believe this clinical update will be insightful on multiple fronts. For example, there is clinical precedent across numerous single center investigator initiated academic studies that donor NK cells can drive anti-leukemic activity. However, these approaches rely on the use of NK cells that are matched to the patient, that are manufactured solely for that patient, and that are delivered to that patient in a hospital setting following intensive conditioning therapy. FT516 and FT538 are iPSC-derived NK cell product candidates that are administered off the shelf, in the outpatient setting, and without patient matching. Additionally, these Phase I clinical studies of FT516 and FT538 are designed to assess the inherent capacity of the product candidate to target and kill leukemic blasts as a monotherapy. As we have shown encouraging Phase I clinical data of FT516 in combination with rituximab in relapsed refractory B-cell lymphoma, we believe there is an opportunity to build off of this foundation and combine with ADCC-competent monoclonal antibodies in relapsed refractory AML. To this end, an investigator-initiated study of FT538 in combination with daratumumab designed to target CD38 positive leukemic blasts and further enhance anti-leukemic activity is expected to begin later this year. Finally, although patients have been treated in the first dose cohort only with FT538, we are assessing early translational observations that might indicate whether FT538, with its additional engineered modalities, has superior functionality compared to FT516. Patients with relapsed refractory AML often have high leukemic blast burden, prolonged impairment of hematopoietic function, and exceptionally poor outcomes. Median overall survival rates are less than six months, and five-year overall survival rates are 10 to 15%. The only proven curative therapy is allogeneic stem cell transplant. However, many patients are often ineligible due to their leukemic burden or not deemed fit to tolerate the procedure due to the intensity of chemotherapy conditioning. There is a significant need for therapies that can clear the bone marrow of leukemic blasts, which can enable patients to qualify for allogeneic transplant or can enable a durable response without further therapy. For example, a recent study in relapsed refractory AML showed that patients achieving an initial response per the 2017 ELN response criteria defined as either achieving a complete response, CR, a complete response with incomplete hematologic recovery, CRI, or morphologic leukemia free state, MLFS, had statistically significant improvement in overall survival. Given the significant unmet need for patients with AML, several therapies have been approved in recent years based on single arm studies demonstrating response rates of 20 to 30% with eight to 12 months median duration of response. These include therapies designed to target specific mutations that cause bone marrow dysfunction, such as IDH1, IDH2, and FLT3 inhibitors. Emerging therapies, including T-cell engagers and CAR T-cells, have also shown similar response rates in early phase testing. However, significant toxicities have been reported, including rates of cytokine release syndrome in excess of 50%. In many respects, our interest in off-the-shelf IPS-derived NK cell therapy dates back to conversation in early 2015 with Dr. Jeff Miller, professor of medicine, University of Minnesota, and deputy director of the Masonic Cancer Center, and Dr. Sarah Cooley, who was at the time a leading clinical investigator in the emerging field of NK cell therapy at the University of Minnesota, and now is Senior Vice President Translational Medicine at Faith Therapeutics. Doctors Miller and Cooley were conducting studies using ex vivo cytokine activated peripheral blood NK cells to treat patients with relapsed refractory AML with the goal of bridging patients to transplant. In single center investigator initiated academic studies, ex vivo cytokine activated donor NK cell therapy has shown responses of 20 to 35%, including in studies run by doctors Miller and Cooley. And while we believe these response rates are comparable to recently approved therapies, significant challenges have limited clinical advancement of donor NK cell therapy. For example, the current paradigm of donor NK cell therapy resembles a transplant-like process. Patients are hospitalized, receive intense lymphodepleting chemotherapy, and are administered NK cells from donors that are specifically manufactured for and matched to the patient. Additionally, very large numbers of NK cells, oftentimes in excess of several billion cells per dose, are required to be administered to patients to achieve responses. And production of such large numbers of NK cells often necessitates weeks of complex manufacture while the patient remains untreated and is at high risk for disease progression. In contrast, our FT516 and FT538 programs are off-the-shelf IPS-derived cell products, which are available on demand for administration in the outpatient setting without patient matching. and therefore have the potential to efficiently and effectively treat many patients with AML. The phase one study of FT516 as a monotherapy has enrolled the first and second dose cohorts of 90 million and 300 million cells per dose. And dose escalation is ongoing with enrollment in the third dose cohort of 90 million cells per dose. The phase one study of FT538 as a monotherapy is ongoing with enrollment in the first dose cohort of 100 million cells per dose. As a reminder, AML is a very heterogeneous disease, and patient outcomes do vary depending on cytogenetics, mutation status, and leukemic burden. Key objectives in dose escalation are safety of our engineered IPS-derived NK cell products, tolerability of the off-the-shelf multi-dose treatment schedule, and anti-leukemic activity, including in consideration of patient and disease baseline characteristics. Certainly, we will consider objective responses in dose escalation based on the established 2017 ELN response criteria, which is broadly accepted as the gold standard for assessing AML patient outcomes as encouraging evidence that our off-the-shelf IPS derived NK cell franchise may hold therapeutic promise for patients with AML. We are also interested in early translational comparisons between FT516 and FT538. At a feature symposium at ASGCT, Dr. Miller is scheduled to highlight the unique properties of FT538 resulting from the deletion of the CD38 gene. In preclinical models, the engineered functionality of FT538 imparts metabolic, transcriptional, and functional properties that are substantially similar to those of adaptive NK cells. A discrete subset of memory-like NK cells that exhibit increased cytokine production, enhanced persistence, resistance to oxidative stress, and potent serial cytotoxicity. We look forward to reviewing early clinical data of our FT538 program that might indicate whether its engineered functionality confers superior therapeutic advantages. At the 2021 American Society of Clinical Oncology Annual Meeting being held virtually from June 4th through the 8th, we plan to present new clinical data from our phase one study of FT516 in combination with rituximab for the treatment of relapsed refractory B cell lymphoma. We believe the interim phase one clinical data of FT516 in combination with rituximab previously presented at our investor event in December were compelling and suggest that FT516 can be administered in the outpatient setting The high-affinity, non-cleavable CD16 receptor of FT516 can effectively synergize with rituximab in patients that have relapsed following or are refractory to rituximab-containing regimens. FT516 may have a differentiated safety profile compared to T-cell-based therapies, including T-cell engagers and CAR T-cell therapies. And FT516 may confer rates of response in relapsed refractory B-cell lymphoma that are similar to those of T-cell-based therapies. The ASCO presentation will cover a total of 13 patients that have completed dose escalation at the first three dose levels of 300 million cells, 900 million cells, and 300 million cells per dose. Note that the FT-516 clinical protocol does allow for patient backfill in the event a dose level has cleared toxicity and shown activity so that more than three patients may be enrolled at a given dose level. Dose escalation in our phase one study is currently ongoing with enrollment at 900 million cells per dose. We are preparing to initiate multiple dose expansion cohorts. We're also preparing to explore combinations of FT516 with standard of care regimens containing CD20-targeted therapy and without CyFlu chemotherapy conditioning to assess its therapeutic potential in earlier line therapy. We continue to be pleased with the progress in our Phase I clinical trial of FT596. are off-the-shelf iPSC-derived CAR and K-cell product candidate designed to target multiple antigens through its high-affinity, non-cleavable CD16 receptor and its CD19-targeted CAR, an approach that we believe may hold best-in-class potential for the treatment of B-cell malignancies. Dose escalation in our Phase I study of FT596 is ongoing, with enrollment in the third single dose cohorts of 300 million cells as monotherapy and at 300 million cells in combination with rituximab for B-cell lymphoma, as well as in the first single dose cohort of 30 million cells as monotherapy for chronic lymphocytic leukemia. We plan to begin enrollment in combination with abinituzumab upon clearance of this first monotherapy dose cohort in CLL. In addition, since we believe that relapse refractory patients with aggressive cancers will be best served by administration of multiple doses during the first weeks of treatment, we have now submitted a protocol amendment to enable multi-dose treatment schedules for FT596 in addition to the current single dose treatment schedule. We plan to introduce the multi-dose treatment schedule in each of the four regimens at the highest dose level cleared for the single dose treatment schedule in that particular regimen. In late July or early August, we plan to hold an investor event to feature our FT-596 program where we expect to share interim phase one clinical data covering approximately 20 patients. In the second quarter, we expect to initiate clinical investigation of our iPSC product platform in multiple myeloma. Similar to our approach in lymphoma, we are beginning clinical investigation in multiple myeloma by leveraging our high affinity non-cleavable CD16 receptor And we are combining FT538 with daratumab to maximize ADCC. While daratumab effectively targets CD38 expressed on myeloma cells and induces cell death, it also induces NK cell fratricide, which significantly impairs the effectiveness of ADCC. NK cell function is often impaired in patients with multiple myeloma, further reducing the potential therapeutic activity of daratumab. Collectively, preclinical and clinical observations suggest a potential therapeutic benefit of maintaining NK cell numbers and function. Enrollment of FT538 in combination with daratumab will commence at 100 million cells per dose. We are also preparing to initiate a Phase I clinical trial of FT576, our off-the-shelf IPS-derived CAR-NK cell product candidate designed to target multiple antigens through its high-affinity non-cleavable CD16 receptor and its BCMA-targeted CAR, an approach that we believe may hold best-in-class potential for the treatment of multiple myeloma. At the American Association for Cancer Research annual meeting in April, We presented preclinical data demonstrating that the multi-antigen targeting functionality of FT576 exhibits greater in vivo efficacy compared to the combination of BCMA targeted CAR T cells and a gamma secretase inhibitor. The clinical protocol for a phase one clinical trial of FT576 includes dose escalation, both as monotherapy and in combination with daratumab to enable dual antigen targeting of BCMA and CD38 on myeloma cells. Additionally, the protocol includes assessment of both single dose and multi-dose treatment regimens to maximize the therapeutic index during the first 30 days following infusion. As I mentioned during our last quarterly update, We are enthusiastic about the potential of NK cells to treat a wide range of solid tumors. And we are pleased with the progress we are making in building our pipeline of off-the-shelf, multiplexed engineered product candidates. An initial therapeutic strategy of particular interest to us is exploiting ADCC, which is a potent anti-tumor mechanism by which NK cells recognize, bind, and kill antibody-coated cancer cells, and which has been shown to improve progression-free survival in patients with solid tumors. However, significant limitations in the functional capacity of a patient's NK cells, which are often depleted in number or impaired, including through CD16 shedding, can compromise the potency of ADCC in patients with solid tumors. We believe off-the-shelf administration of an ADCC-optimized NK cell can augment the activity of monoclonal antibodies that are currently approved for the treatment of many solid tumors. To this end, we are currently enrolling patients in the third dose cohort of our Phase I study of FT516 in combination with a Velumab, an ADCC-competent anti-PD-L1 checkpoint inhibitor therapy. I am pleased to announce today that we are significantly expanding on this therapeutic strategy. Last month, the FDA allowed our IND application for clinical investigation of FT538 in combination with an array of monoclonal antibodies, including those that target the tumor associated antigens EGFR, HER2, and PD-L1. This marks the 12th IND allowed by the FDA for our iPSC product platform. Under the clinical protocol, each patient is eligible to receive up to two FT538 treatment cycles, with each cycle consisting of three days of outpatient lymphoconditioning, three once-weekly infusions of FT538, and monoclonal antibody therapy. We intend to initiate clinical investigation of three independent regimens, combining FT538 with EGFR-targeted cetuximab, HER2-targeted trastuzumab, and PD-L1-targeted evelumab. And we expect to initiate enrollment in the second half of 2021. Finally, I would like to take a moment and sincerely thank the patients, caregivers, and investigators who participated in the PROTECT study of pro-immune. While our full attention and resources are focused on our deep pipeline of off-the-shelf IPS-derived cancer immunotherapies, we are disappointed to announce that the PROTECT study did not meet its primary endpoint of prevention of acute graft-first host disease following allogeneic stem cell transplant, and we will stop all further development of pro-immune. We intend to share the clinical results of the PROTECT study with our investigators and the broader transplant community to assist in their continuing efforts to improve the curative potential of allogeneic transplant for patients. I would now like to turn the call over to Ed to highlight our first quarter financial results.

Thank you, Scott. Turning to our financial results. Revenue was $11.1 million for the first quarter of 2021, compared to $2.5 million for the same period last year. Revenue in the current quarter was derived from our collaboration with Janssen and Ono Pharmaceutical. Research and development expenses for the first quarter of 2021 were $44.9 million, compared to $29.3 million for the same period last year. The increase in our R&D expenses is attributable primarily to an increase in employee headcount and compensation, including share-based compensation and in expenses associated with clinical trial costs. General and administrative expenses for the first quarter of 2021 were $12.5 million, compared to $7.7 million for the same period last year. The increase in our G&A expenses was attributable primarily to an increase in headcount and employee compensation, including share-based compensation. Total operating expenses for the first quarter of 2021 were $44.4 million, net of $13 million in non-cash, share-based compensation expense. In the first quarter, we recorded a non-cash $0.7 million non-operating benefit associated with the fair value of contingent milestone payments under our IPSC-derived CAR T-cell collaboration with Memorial Sloan Kettering. In the event a certain clinical milestone is achieved with an IPSC-derived CAR T-cell product candidate, up to three milestone payments may be owed to MSK based on subsequent trading values of the company's common stock, ranging from 50 to $150 per share. These milestone payments in the aggregate total up to $75 million, and no amounts have been paid or are currently owed to MSK. We will remeasure this liability currently valued in the aggregate at $47 million on a quarterly basis, and changes in the fair value will be recorded in our earnings as a non-operating income or expense. In January, we completed a public offering of common stock, whereby we issued 5.1 million common shares. In addition, in lieu of common stock, we issued 257,000 pre-funded warrants. The net proceeds from the financing were approximately $432 million. The company ended the first quarter of 2021 with $888 million of cash, cash equivalents, and investments. Common stock outstanding was 94 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. I would now like to open the call up to any questions.