Fate Therapeutics, Inc.

welcome to the fate therapeutics fourth quarter 2022 financial results conference call at this time all participants are on 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 like to introduce scott walshco president and ceo of fate therapeutics thank you good afternoon and thanks everyone for joining us for the fate therapeutics fourth quarter 2022 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 10-K for the year ended December 31, 2022, was filed shortly thereafter and can be found on the investor 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, including in our Form 10-K for the year ended December 31, 2022, that was filed with the SEC today. Undue reliance should not be placed on forward-looking statements which speak only as 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 Chief Medical Officer, Ed Duloc, our Chief Financial Officer, and Dr. Bob Ballimer, our Chief Research and Development Officer. We will focus today's discussion on recent developments that have impacted the company and our employees including the termination of our collaboration agreement with Janssen, as well as our reduction in headcount and operating expenses to extend cash runway. We will also discuss the outcome of our strategic review of our product candidate pipeline, where we elected to focus our resources on the advancement of our most innovative and differentiated off-the-shelf IPS-derived CAR-NK and CAR-T cell programs. Finally, we will highlight our financial results for the fourth quarter 2022, as well as the key initiatives that we are prioritizing across our programs during 2023. As I highlighted during our last quarterly call in early November, we were poised at that time to achieve several key milestones under our collaborations with Ono and Janssen. Indeed, several days later at the CITSE annual meeting, we announced that both Ono and Fate had exercised their respective options to co-develop and co-commercialize FT825, a multiplexed engineered CAR T-cell product candidate for solid tumors. This triggered a $12.5 million option exercise payment to Fate from Ono. Under the Janssen collaboration, FATE was authorized by Janssen in November to submit an IND application for a multiplexed engineered IPFC-derived CAR and K-cell product candidate for the treatment of B-cell lymphoma. That IND was allowed by the FDA in December and triggered a $3 million milestone payment to FATE from Janssen. Janssen exercised a clinical development and commercialization option for its second antigen target, which triggered a $10 million milestone payment to FAPE from Janssen. Given this positive momentum under the Janssen collaboration, we were disappointed to first learn in December that Janssen desired to significantly reduce its 2023 spending under the collaboration. as well as modify certain key financial and intellectual property terms of our agreement. Unfortunately, we were not able to align with Janssen for continuation of our collaboration on revised terms and Janssen exercised its right to terminate the agreement in early January. As a result, all research and development of collaboration candidates are being discontinued and we expect to complete the wind down of the collaboration in early April at Janssen's expense. As a consequence of determination, we were required to significantly reduce our workforce and operating expenses. We also completed a strategic review of our product candidate pipeline and elected to prioritize the company's most innovative and differentiated product candidates having the potential to address large, unmet clinical needs. This strategic review resulted in, most notably, the discontinuation of our first-generation FT596 CAR-NK cell product candidate for the treatment of B-cell lymphoma. While our clinical experience with a three-dose treatment schedule for FT596 was in its early stages, we made the strategic decision to prioritize the advancement of our second generation CD19-targeted CAR-NK cell program, referred to as FT522. FT522 incorporates five novel synthetic controls of cell function designed to increase NK cell potency, enhance functional persistence, and reduce or eliminate the need to administer conditioning chemotherapy to patients. Taken together, we believe FT522 has the potential to improve safety and clinical benefit, reach patients earlier in care, including in the community setting, and seamlessly combine with standard of care regimens, including those that contain CD20, as well as CD38 targeted monoclonal antibody therapies. Importantly, we also believe that novel synthetic controls integrated into 522 broaden the program's potential therapeutic application to include both hematologic malignancies and autoimmune disorders. In the first quarter of 2023, we reduced our workforce to approximately 220 employees in order to provide the necessary cash runway to achieve key clinical milestones across our prioritized IPS-derived CAR-NK and CAR T-cell programs. This was an exceptionally difficult and painful step, and we are greatly saddened to have had to move in this direction. Our employees continually demonstrated the highest level of dedication and commitment to our mission, and we want to extend our deepest appreciation and wish them great success in the future. We are thankful that many of our employees have already found their next home within the thriving biotechnology communities of San Diego and San Francisco. Before I highlight the key program initiatives that we are focused on for 2023. I would like to turn the call over to Ed to discuss our financial results for 2022 and our expectations for the first quarter of 2023.

Thank you, Scott, and good afternoon. Fate Therapeutics is in a strong financial position to advance our prioritized IPSC-derived CAR-NK and CAR-T cell pipeline. Our cash, cash equivalents, and investments at the end of the year including net receivables from success-based milestones achieved in the fourth quarter were approximately $475 million. In the fourth quarter of 2022, our revenue derived from our partnerships with Janssen and Ono Pharmaceutical increased significantly to $44.4 million, compared to $17.1 million for the same period last year. We achieved multiple success-based milestones within our collaborations, which resulted in non-recurring revenue in the amount of $25.5 million in the quarter. Research and development expenses for the fourth quarter increased by $17.7 million to $87.2 million, compared to $69.5 million for the same period last year. The increase in our R&D expenses was attributable primarily to increases in employee headcount and compensation, including share-based compensation, and expenses associated with sublicense fees and the use of third-party consultants. General and administrative expenses for the fourth quarter increased by $4.7 million to $21.6 million, compared to $16.9 million for the same period last year. The increase in our G&A expenses was attributable primarily to an increase in employee headcount and compensation, including share-based compensation and legal fees. Total operating expenses for the fourth quarter were $108.8 million, which includes $19.4 million in 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 assessed the fair value of these contingent milestone payments, currently valued at $3.9 million on a quarterly basis. In the fourth quarter, we recorded a non-cash $5.2 million non-operating benefit associated with the change in fair value. Our net loss for the fourth quarter was $56.4 million, or 58 cents per share. As we turn our focus to 2023, I want to share a few thoughts regarding the restructuring we announced on January 5th and how this will impact our GAAP financial results this year. In connection with the termination of the Janssen Collaboration in the first quarter of 2023, we expect to recognize as revenue $41.2 million that currently sits on our balance sheet as deferred revenue. Additionally, expenses associated with closeout activities are expected to be reimbursed and will be recognized as revenue in the first quarter of 2023 as well. As previously announced, we have discontinued a number of earlier generation IPSC-derived NK cell programs. While we expect a more focused pipeline to generate significant cost savings and operating leverage, the anticipated cost savings from a reduction in force are not likely to be realized until the second quarter of this year. We expect to incur charges of approximately $12 million to $16 million for severance and other employee termination related costs in the first quarter of this year. Additionally, We have many patients that remain on study for programs that have been discontinued. This includes patients who were enrolled in our FT-516 and FT-596 clinical studies and continue to maintain an objective response. And we have elected to follow these patients for up to one year to assess durability of response. As a result, costs and support for these studies will dissipate over the course of the year. I would now like to turn the call back to Scott to discuss our key program initiatives for 2023. Thanks, Ed.