Fate Therapeutics, Inc.

Welcome to the Fate Therapeutics second quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. This call is being webcast live on the investor 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 Fate Therapeutics. You may begin.

Thank you. Good afternoon and thanks everyone for joining us for the FATE Therapeutics second 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 investor section of our website under press releases. In addition, our form 10Q for the quarter ended June 30, 2021 was filed shortly thereafter and can be found on the investor 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 the 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, 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 the facts and circumstances underlying these forward-looking statements may change. Except as required by law, Faith 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 Vallamere, our Chief Research and Development Officer. Today, we will briefly highlight our clinical progress and plans for each of our disease franchises with focus on our FT516 and FT596 programs for the treatment of B-cell lymphoma and our plans to share interim phase one clinical data from these programs at our August 19th investor event. I would like to begin today's conversation, though, marking what is a landmark achievement in the field of cell-based cancer immunotherapy. are treatment of the first patient with the first ever off-the-shelf iPSC-derived T cell therapy. FT819 is a first-of-kind allogeneic off-the-shelf CAR T cell therapy that is manufactured from a clonal master-induced pluripotent stem cell line. The clonal master iPSC line is derived from a single iPSC, which is precisely engineered to insert a novel 1XX anti-CD19 CAR construct under the regulation of the T cell receptor alpha constant or tract locus. Preclinical studies have shown that this precise configuration optimizes T cell effector function and anti-tumor activity and completely eliminates T cell receptor expression abrogating the risk of graft-verse host disease. Unlike the manufacture of patient and donor-derived CAR T cells, which require batch-to-batch sourcing and engineering of primary T cells, the use of a clonal master-engineered iPSC line serves as a renewable starting cell source and ensures mass production of uniformly engineered CAR T cells in an efficient and consistent manner. Our GMP manufacturing run for FT819 produced over 25 billion CAR T cells in a single, small-scale campaign, representing an implied yield of 250 doses at 100 million cells per dose. Release testing showed that the drug product is well-defined. and comprised of greater than 99% CD45 positive, CD7 positive lymphocytes with greater than 99% CAR expression. The phenotype of FT819 exhibits high level expression of the activation marker CD25 and the trafficking marker CXCR4 and low level expression of the checkpoint proteins PD1, TIM-3, CTLA-4, and LAG-3. In July, the first patient was treated with FT-819, which is the first-ever treatment of a patient with an IPS-derived T cell product candidate. The patient, a 61-year-old male with refractory acute lymphoblastic leukemia, was treated with a single dose of FT-819 at 90 million cells. The multicenter phase one clinical trial is assessing dose levels ranging up to 900 million cells. Three FT-819 dosing regimens are being tested. FT-819 administered as a single dose. FT-819 administered as a single dose in combination with IL-2. And FT-819 administered as fractionated doses. on days one, three, and five. Each dosing regimen is being tested for the treatment of B-cell lymphoma, chronic lymphocytic leukemia, and acute lymphoblastic leukemia. The advancement of FT819 into clinical development ushers in a new era for T-cell-based cancer immunotherapy with the promise of multiplexed engineered functionality, off-the-shelf availability, on-demand treatment, and greater patient accessibility. We've confronted countless obstacles on our five-year journey to the clinic, including some that seemed insurmountable at the time. We are certainly excited to have reached this landmark achievement in bringing iPS-derived T cells to patients. I would like to thank the employees of Fate Therapeutics and our collaborators at Memorial Sloan Kettering Cancer Center, especially Dr. Michelle Satterline, who began this important work with us back in 2016 when the steps ahead were anything but clear. Turning to our off the shelf IPS derived NK cell programs. We are very pleased with the progress and the early clinical data from our FT516 and FT596 programs for the treatment of relapsed refractory B cell lymphoma. The ongoing phase one study of FT516 is assessing up to two treatment cycles, each cycle consisting of three days of CyFlu chemotherapy conditioning, a single dose of rituximab, and three weekly doses of FT-516 each with IL-2 cytokine support. At the ASCO conference in June, we presented positive interim phase one data where eight of 11 patients achieved an objective response. including six patients that achieved complete response in dose cohorts two and three of 90 million cells per dose and 300 million cells per dose, respectively. Importantly, the two patients treated in dose cohort one of 30 million cells per dose had progressive disease, suggesting that SIFLU, rituximab, and IL-2 may not be sufficient to induce clinical responses absent clinically relevant doses of FT-516. The observed safety profile of FT-516 was favorable and is potentially differentiated from that of T-cell based therapies, including T-cell engagers and CAR T-cell therapies. No FT-516 related SAEs or FT-16 related grade three or greater AEs were observed. and no events of any grade of CRS, immune effector cell associated neurotoxicity syndrome, or GVHD were reported. Dose escalation in our phase one study of FT516 is ongoing with enrollment in dose cohort four of 900 million cells per dose. We are currently planning to initiate multiple dose expansion cohorts to further assess the efficacy of FT516. These cohorts include third line diffuse large B cell lymphoma and third line follicular lymphoma, both in patients that are naive to autologous CD19 CAR T cell therapy. Additionally, since we observed complete responses in two of four patients in dose cohorts two and three, whose disease progressed following autologous CD19 CAR T-cell therapy. We plan to initiate a dose expansion cohort in patients with aggressive B-cell lymphomas that have previously been treated with autologous CD19 CAR T-cell therapy. We believe this dose expansion cohort in particular addresses a growing market segment with a significant unmet need and may offer a potential fast-to-market development path. Finally, since FT516 may be administered in the outpatient setting with no mandatory hospitalization stays, and given its favorable safety profile observed to date, we also plan to initiate a dose expansion cohort of FT516 in combination with bendamustine and rituximab and without psy flu chemotherapy conditioning to explore its use with standard of care, CD20 targeted regimens, and earlier line therapy. In these dose expansion cohorts, we intend to include sites that serve patients in the community setting. We are also pleased with the progress in our phase one clinical trial of FT596. are off-the-shelf IPSC-derived CAR-NK cell product candidate designed to target multiple antigens through its CD19-targeted CAR and its high-affinity non-cleavable CD16-FC receptor. Unlike the FT516 Phase I study, the FT596 Phase I study is currently assessing a single dose of FT596. Since FT596 incorporates a novel IL-15 receptor fusion for cytokine activation, FT596 is being administered without IL-2 cytokine support. The monotherapy arm of the FT596 phase one study is intended to evaluate the activity of our novel CD19 targeted CAR construct, which is optimized for NK cell biology and is comprised of an NKG2D transmembrane domain, a 2B4 co-stimulatory domain, and a CD3 zeta signaling domain. The combination arm is intended to evaluate the potential of FT596 to target multiple antigens through its CD19 CAR and its high affinity non-cleavable CD16 FC receptor. An approach that we believe may hold best in class potential in addressing tumor heterogeneity and antigen escape. A total of 20 patients, 10 in each arm, have been treated in dose cohorts one, two, and three at 30, 90, and 300 million cells respectively. No dose-limiting toxicities have been observed, and dose escalation in both arms is ongoing with enrollment in dose cohort four of 900 million cells. As we have cleared the single dose treatment schedule at 300 million cells in both arms, we are preparing to initiate a two dose treatment cycle under an amended protocol with FT596 administered on days one and 15, beginning at 300 million cells per dose. On August 19, we will host a 90-minute investor event to present interim phase one clinical data for our FT516 and FT596 programs in relapsed refractory B-cell lymphoma. During the investor event, we plan to share the following data. For FT516, we plan to present duration of response for the 11 patients treated in dose cohorts 2 and 3 of 90 million cells per dose and 300 million cells per dose, respectively. This will provide the first indication as to whether FT516 can effectively drive durable responses against CD20-positive tumors, including in patients that have progressed on autologous CD19 CAR T-cell therapy. For FT596, we plan to present safety and overall response rates for 10 patients in the monotherapy arm and for 10 patients in the rituximab combination arm, so 20 patients total. As a reminder, the FT596 Phase 1 study is open to patients that have previously been treated with autologous CD19 CAR T-cell therapy. With respect to the monotherapy arm, since FT596 does not benefit from the addition of rituximab for CD20 targeting, we will look to these first 10 monotherapy patients to assess the potential of our novel CD19 targeted CAR to drive objective responses especially in those patients that are naive to autologous CD19 CAR T cell therapy. With respect to the combination arm, we also consider the first 10 patients to primarily be a test of the CAR constructs potency, rather than a test of the multi-antigen targeting potential of FT596. Recall, based on our dose dependency observations from our FT516 study, we did not see activity of the HNCD16 construct until a dose of 90 million cells three times once weekly was reached. In other words, a cumulative cell exposure of 270 million FT516 cells. Therefore, at single dose levels of 30 million and 90 million FT596 cells, we would not expect the HNCD16 construct to be a major contributor to efficacy. That said, in the combination arm, we would consider objective responses in patients that have progressed on CD19 CAR T cell therapy as compelling demonstration of the dual antigen targeting functionality of FT596 and the product candidate's unique ability to address tumor heterogeneity and antigen escape. Additionally, patients with clinical benefit after the first FT596 treatment cycle are eligible to receive a second single-dose treatment cycle with FDA consent, and we plan to present safety and response rates after the second FT-596 treatment cycle. Finally, we plan to share certain translational observations from both the FT-516 and FT-596 Phase I studies. Turning to our other disease areas for a brief update, We are encouraged by the interim Phase I clinical data from our FT516 and FT538 programs in relapsed refractory AML that we shared at our investor event in May, which indicated that iPSC-derived NK cells are well tolerated and can induce objective responses with complete leukemic blast clearance in the bone marrow. Importantly, these compelling clinical outcomes were achieved with IPS-derived NK cells administered off the shelf in the outpatient setting and without patient matching. This therapeutic paradigm has the potential to efficiently and effectively treat many patients with AML and overcome the significant challenges that have limited the clinical advancement of donor-derived NK cell therapy. which typically requires use of a transplant-like process where patients are hospitalized, receive intense lymphodepleting chemotherapy, and are administered donor NK cells that are specifically manufactured for and matched to the patient. Dose escalation for FT516 program as monotherapy is ongoing with enrollment in dose cohort three. at 900 million cells per dose, which we expect to complete during the third quarter. No dose-limiting toxicities have been reported, and treatment with FT516 continues to be well-tolerated. Dose escalation for our FT538 program as monotherapy is ongoing, with enrollment in dose cohort one at 100 million cells per dose. No dose-limiting toxicities have been reported. However, we have not yet cleared Dose Cohort 1. Until recently, our FT538 Phase 1 study was open at a single clinical site only. We have now activated multiple additional sites for conduct of our FT538 Phase 1 study and expect to increase the pace of enrollment with these additional sites now open. Upon clearance of dose cohort one, enrollment will also initiate in the investigator initiated study of FT538 in combination with daratumab for relapsed refractory AML. We expect to report additional clinical data from the dose escalation stages of our 516 and 538 phase one studies in relapsed refractory AML. at the American Society of Hematology annual meeting in December. At ASH, we also expect to report the first clinical data from our FT538 and FT576 programs in relapsed refractory multiple myeloma, similar to our approach in lymphoma. We are beginning clinical investigation in multiple myeloma by leveraging our high affinity non-cleavable CD16FC receptor. And we are combining FT538 with the CD38 targeted monoclonal antibody daratumab to maximize antibody dependent cellular cytotoxicity. We have activated multiple clinical sites for conduct of our phase one study. And enrollment of FT538 in combination with DARA will be initiated at 100 million cells per dose upon clearance of dose cohort one in the phase one study of FT538 in relapsed refractory AML. GMP production is underway for FT576, our off-the-shelf IPS-derived carin K-cell product candidate designed to target multiple antigens through its high affinity non-cleavable CD16FC receptor and its high avidity BCMA-targeted CAR, an approach that we believe may hold best-in-class potential for the treatment of multiple myeloma. The multi-center phase one clinical trial is designed to assess both single-dose and multi-dose treatment regimens of FT576 as monotherapy and in combination with DARA. The study will initiate upon completion of GMP manufacture and successful release of drug product. We continue to be pleased with our progress in building a deep pipeline of novel multiplexed engineered IPSC derived CAR and K-cell product candidates for solid tumors. We are well positioned to exploit multiple mechanisms where NK cells may be uniquely advantaged, including targeting tumors with acquired resistance to PD-1 PD-L1 blockade, resulting from loss of MHC class 1 expression, combining with standard of care monoclonal antibodies to maximize CD16 mediated ADCC, and incorporating CARs and other synthetic receptors to directly target cell surface antigens and stress ligands. In the third quarter, we expect to initiate our phase one clinical trial of FT538 in solid tumors. The trial is a multi-armed study and will assess FT538 in combination with checkpoint inhibitor therapy in patients with resistance to PD-1 PD-L1 blockade and in combination with an array of monoclonal antibodies including those that target the tumor-associated antigens EGFR, HER2, and PD-L1. In addition, we intend to submit INDs for three new product candidates over the next 12 months, including FT536 CAR-MgA-MgB, FT573 CAR-B7H3, and our first product candidate under our Janssen collaboration, for which we achieved a preclinical milestone in the second quarter. In the fall, we plan to hold an investor event to further discuss our solid tumor strategy, highlighting our multiplexed engineered pipeline, and presenting phase one clinical data from our FT500 and FT516 studies. I would now like to turn the call over to Ed to highlight our second quarter financial results.

Thank you, Scott. Returning to our financial results, revenue was $13.4 million for the second quarter of 2021, compared to $5.5 million for the same period last year. Revenue in the current quarter was derived from our collaborations with Janssen and Ono Pharmaceutical. Research and development expenses for the second quarter of 2021 were $48 million, compared to $26.7 million for the same period last year. The increase in our R&D expenses was attributable primarily to an increase in employee headcount and compensation, including share-based compensation, and in expenses associated with third-party professional consultants and equipment and materials. General and administrative expenses for the second quarter of 2021 were $12.2 million, compared to $7.5 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 second quarter of 2021 were $46.9 million, net of $13.3 million in non-cash share-based compensation expense. In the second quarter, we recorded a non-cash $8.7 million non-operating expense 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 as of the second quarter of 2021 to MSK. We will remeasure this liability currently valued in the aggregate at $55.7 million on a quarterly basis and changes in the fair value will be recorded in our earnings as a non-operating income or expense. Note that in July, with the treatment of the first patient with FT-819, the clinical milestone was achieved and the first milestone payment in the amount of $20 million is owed to MSK. The company ended the second quarter of 2021 with $845 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. And with that, I would now like to open the call up to questions.