Fate Therapeutics, Inc.

Welcome to the FATE Therapeutics second quarter 2023 financial results conference call. At this time, all participants are on 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 Walshco, President and CEO of FATE Therapeutics.

Thank you. Good afternoon, and thanks, everyone, for joining us for the FATE Therapeutics second quarter 2023 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 June 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 June 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, 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 Ed Duloc, our Chief Financial Officer, and Bob Vollumer, our Chief Research and Development Officer. During today's discussion, we will cover the recent IND allowance for our FT522 RNK cell program in B-cell lymphoma, which is our first product candidate to incorporate our proprietary allodefense receptor technology. The phase one clinical trial is designed to assess FT522 with and without administration of intensive conditioning chemotherapy to patients. Study startup activities are ongoing, and we plan to enroll the first patient in the second half of 2023. We will also highlight our continued investment in our multiplexed engineered iPSC-derived CAR T-cell franchise for solid tumors, where we are advancing our FT825 HER2-targeted CAR T-cell program in collaboration with Ono Pharmaceutical toward an IND submission in the second half of 2023. Finally, we will provide some additional guidance on our progress toward expanding the clinical reach of our iPSC product platform beyond oncology and into autoimmunity. Before we review our progress and the key milestones that we are striving to achieve in the second half of 2023, I would like to turn the call over to Ed to elaborate further on our financial results where, in the wake of our strategic pipeline prioritization and corporate restructuring in January, we have controlled our cost structure, posted a reduction in operating expenses and cash burn, and successfully created operating runway through multiple potential data readouts and into the second half of 2025.

Thank you, Scott, and good afternoon. Faith Therapeutics is in a solid financial position to advance our pipeline. Our cash, cash equivalents, and investments at the end of the second quarter were approximately $385 million. In the second quarter of this year, and consistent with our guidance, revenue declined significantly to $900,000, compared to $18.5 million for the same period last year. As we 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. We expect this amount to total about $800,000 per quarter through the third quarter of 2024. As a reminder, after opting into a U.S. and European co-development and co-commercialization arrangement with ONO for FT 825 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. Research and development expenses for the quarter decreased by 50% compared to the same period last year to $40.9 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 companies restructuring the first quarter, and from lower demand for R&D supplies, materials, and equipment. General and administrative expenses for the second quarter increased by 11% compared to the same period last year to $22.6 million. The increase in our G&A expenses was attributable primarily to an increase in legal-related fees. Total operating expenses for the second quarter declined 25% compared to the same period last year to $63.5 million. which includes $12.9 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. We assessed the fair value of these contingent milestone payments, currently valued at $1.7 million on a quarterly basis. In the second quarter, we recorded a non-cash $390,000 non-operating benefit associated with the change in fair value. Our net loss for the quarter was $52.8 million or 54 cents per share. As we consider the remaining two quarters of the year, our demonstrated ability to wind down costs associated with our discontinued programs and additional ongoing cost rationalization efforts position us well to manage our balance sheet and advance our product candidate portfolio. As a result, we reiterate guidance for full-year GAAP operating expenses to be in the range of $265 to $285 million and expect that our year-end cash and investments will exceed $300 million. I will now turn the call back over to Scott to discuss our second half 2023 program milestones. Thanks, Ed.

While we have successfully reduced our operating expenses and controlled our cost structure, Our employees have shown great resilience in advancing our multiplexed engineered iPSC-derived CAR-NK and CAR-T cell programs. In the second quarter, we submitted, and the FDA allowed, our investigational new drug application for FT522, our off-the-shelf CD19-targeted CAR-NK cell program for B-cell lymphoma. Notably, FT522 is the company's first product candidate to incorporate our proprietary alloimmune defense receptor, or ADR technology, which is designed to engage 401 expressing host immune cells and induce NK cell activation and functional persistence. In preclinical studies, we've shown that ADR-armed, IPS-derived CAR and K cells exhibit potent anti-tumor activity in the presence of alloreactive T cells. These data suggest that 522 has the potential to drive clinical responses without administration of intense conditioning chemotherapy to patients, which may enable 522 to be therapeutically differentiated and seamlessly combined with standard of care immunotherapies widely used in the community-based settings. We are currently conducting study startup activities at multiple sites. The study is designed to assess a three-dose treatment schedule of 522 in combination with CD20-targeted monoclonal antibody therapy, including with and without administration of conditioning chemotherapy to patients. The study includes two regimens, regimen A, which consists of three days of standard conditioning chemotherapy, one dose of rituximab, and three doses of 522, and regimen B, which consists of one dose of rituximab and three doses of FT522 without conditioning chemotherapy. Each three-dose treatment regimen will commence at 300 million cells per dose. Patient enrollment in regimen A will open first. Subject to clearance of dose-limiting toxicities, patient enrollment into regimen B will then open at 300 million cells per dose. Dose escalation of each regimen will proceed independently, with each regimen permitted to dose escalate at up to three times its then current tolerated dose level. The study's eligibility criteria allow for enrollment of patients with relapsed refractory disease following at least one prior systemic regimen containing an anti-CD20 monoclonal antibody and does not require that patients receive prior treatment with a T-cell engager. or with autologous CD19-targeted CAR T-cell therapy. That said, we expect to initially enroll patients that are heavily pretreated, including patients that have previously been treated with autologous CD19-targeted CAR T-cell therapy. We remain on track to enroll the first patient in the second half of 2023. We are also pleased with recent clinical progress in the conduct of our dose escalating phase one studies of FT576 in multiple myeloma and of FT819 in B cell lymphoma. In our dose escalating phase one study of FT576, we have now enrolled the first patient in the three dose treatment cohort at one billion cells per dose. in combination with CD38-targeted monoclonal antibody therapy. No dose-limiting toxicities were observed in the two-dose treatment cohort at 300 million cells per dose. Similarly, in our dose-escalating phase one study of FT819, we did not observe any dose-limiting toxicities in the single-dose treatment cohort at 540 million cells. And we have now expanded patient enrollment in that single-dose cohort. Each phase one study is now open for patient enrollment at over 10 sites. During the second half of 2023, we believe we are well-positioned to effectively drive patient enrollment with FT576 in the three-dose treatment cohort at 1 billion cells per dose, and with FT819 in the single-dose treatment cohort at 540 million cells. We expect that the clinical and translational data from these cohorts will be sufficient to inform each program's therapeutic profile. While the field of autologous CAR T-cell therapy has delivered remarkable outcomes for patients with hematologic malignancies, significant hurdles have stifled the safety and effectiveness of CAR T-cell therapy in treating solid tumors. We believe our multiplex engineered IPSC derived CAR T cell product platform is uniquely suited to bring a constellation of anti-tumor mechanisms to the fight against solid tumors. Our first product candidate emerging from our CAR T cell product platform for solid tumors is being co-developed under our collaboration with Ono Pharmaceutical. FT-825 incorporates seven novel synthetic controls designed to enhance effector cell function, including a novel CAR targeting HER2, a high-affinity non-cleavable CD16-FC receptor, a synthetic TGF-beta signal redirect receptor, and a synthetic CXCR2 receptor. In preclinical studies, FT825 demonstrated potent and preferential targeting of HER2-expressing tumors across a range of expression levels. Additionally, FT825 resisted TGF-beta mediated suppression, maintaining robust activity across multiple rounds of tumor challenge and TGF-beta exposure. and also showed potent migration to CXCR2 ligands, which are often expressed on solid tumors. Robust anti-tumor efficacy in vivo has been observed in various subcutaneous HER2-positive xenograft models. Under our collaboration with Ono, we are currently conducting IND-enabling activities and GMP manufacture. And alongside the Ono clinical development team, we are jointly finalizing the phase one study design for clinical investigation. At this time, we plan to assess the safety and activity of A25 as a monotherapy. In addition, while antibody-dependent cellular cytotoxicity, or ADCC, is commonly associated with innate immunity, we also plan to clinically assess the safety and activity of FTA25 in combination with monoclonal antibody therapy, leveraging the potential of the product candidate's high affinity non-cleavable CD16 receptor to exploit ADCC, enable dual antigen targeting, and overcome solid tumor heterogeneity. We remain on track to submit an IND application in the second half of 2023 for FT825, in patients with HER2-expressing solid tumors. Finally, we continue to assess with keen interest the potential to bring off-the-shelf cell therapies to patients with severe autoimmune diseases, where there is significant need for therapeutic solutions that can durably deplete a patient's pathogenic immune cells, drive immunologic reset, and meaningfully improve quality of life. We are continuing our preclinical assessment with FT819 as well as with FT522, including in combination with monoclonal antibody therapy to selectively target and durably deplete pathogenic B cells, plasma cells, and autoreactive T cells. As part of our ongoing assessment, we have now reviewed phase one clinical data from our FT819 CAR-T cell and our FT596 CAR-NK cell studies in patients with B-cell malignancies with the intent of assessing the kinetics and depth of B-cell depletion observed in the clinical setting during the first 30 days following treatment. We identified a cohort of six patients from our FT819 phase one study and a cohort of seven patients from our FT596 phase one study that had measurable B cells prior to treatment. We were encouraged to observe through this translational analysis that most patients in these cohorts experienced rapid and complete B cell depletion following treatment, with the durability of depletion extending out for at least three to four weeks. We are in the process of reviewing these proof of concept clinical data with multiple key opinion leaders and potential investigators to support extending the clinical reach of our IPSC product platform into autoimmunity. Based on our conversations to date, we believe that the value proposition for an off-the-shelf cellular therapy in autoimmune diseases is compelling with the potential to afford a significant therapeutic advantage as compared to autologous CAR T-cell therapy. In closing, we've made great strides during the first six months of this year in focusing our operations on our most innovative and differentiated programs, reducing our cost structure, and extending our operational runway to reach key inflection points across our pipeline. We remain confident in our belief that our proprietary IPSC product platform is uniquely suited to create highly differentiated, multiplexed engineered product candidates that incorporate novel synthetic controls of cell function with the potential to deliver multiple mechanisms of action and therapeutic benefit to patients with cancer and autoimmune disorders. I would now like to open the call up to any questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Again, to ask a question, please press star 1-1. We do ask that you please limit yourself to one question. One moment for our first question. Our first question comes from the line of Yagail Nachamovitz of Citi. Your line is open.

Hi, team. This is Ashok Mubarak. Thanks for taking my questions. I guess first on 522, congrats on getting that closer to entering the clinic, how are you thinking about the sort of threshold for engraftment with or without SIFLU, and what do you think you would need to see to sort of choose between either of those regimens for future advancement? And then a similar question between regimen A and regimen B, how are you thinking, you know, maybe dose escalation may diverge as you go higher in dose, or is your expectation that they should remain relatively similar, at least in the early innings? Thanks.

Yes, starting with the last question first. You know, both arms can escalate in parallel. So, assuming there is patience for enrollment, I'd expect us to maximize enrollment slots, to maximize sort of the timeframe under which we can enroll, and also compare the two arms. So, sitting here today, I would say that, you know, again, pending patient availability, we're very excited to enroll both arms in parallel and would look to compare, including both clinically and translationally, the results from both arms to really inform the performance of the cells with and without side flu. Certainly, we have an entire battery of translational assessments that we are going to conduct in to inform us with respect to the activity of the cells and the influence of potential conditioning on how those cells perform.

Okay.

Thank you. One moment, please. Our next question comes from the line of Michael Yee of Jefferies. Your line is open.

Hey, guys, can you hear me okay?

Yes.

Great. Hey, Scott. We want to ask on the new CD19 NK program, can you talk a little bit about Two parts. One is, at what point do you feel like you would be convinced that efficacy and durability is, I guess, at least as good, obviously better than the prior first and second generation programs? I think that's something that we and investors are trying to understand. At what point would you know that? And then secondly is, can you remind us or walk us through the with and without the conditioning process? How would that work in the phase one? Because obviously the without conditioning is an important part. So, you know, the first, these two questions are kind of related.

Sure. Let me start with the first question, and I'll try and answer your second question. And if I don't, feel free to sort of clarify. So I think we can, based on the data that's publicly disclosed, I think we might agree that the data sets we have seen historically with 516 and 596, have been more modest with respect to response and potentially durability of response in specifically aggressive lymphoma. Conversely, I think we might agree that the response rates we have seen in indolent lymphomas, including durability of responses with indolent lymphomas, have been quite impressive, at least from our standpoint. And so I think part of our enrollment strategy, and again, we have to balance this with navigating through dose escalation. But part of our enrollment strategy is with CyFlu to understand the product's therapeutic profile in aggressive lymphoma. Are we seeing a different profile emerge with FT522 in aggressive lymphoma than we've seen historically with 516 and 596? Now, without side flu, I think it would be very interesting to observe a continued high rate of response and durability of response in, as an example, indolent lymphoma. We've historically seen very high response rates, and I think it would be very compelling for us to continue to see high response rates in indolent lymphoma without side flu. And so, at some level, I think, you know, and we can have this conversation, I think that's initially how we're looking at these data sets, assuming we can target and enroll patients perfectly into those cohorts. I think that's how we're initially looking at this with respect to side flu in an aggressive lymphoma setting to see if we have a differentiated product profile from potentially what we've seen in the past. And with no side flu, are we continuing to see very high rates of response and durability in indolent lymphoma without side flu? Both of those early sort of experiments and data sets would potentially indicate or lead to differentiating observations with respect to this product candidate versus 516 or 596. Perfect.

So it's a difference between aggressive and indolent, and then we'd want to follow up durability, which will take some time to get our answer and compare to 516 and 596.

Correct. And obviously, we have a lot of historical data. on both 516 and 596 with which we can make these comparisons both clinically as well as from a translational perspective. Got it. Thank you. I think ultimately, to be fair, if we, in the no side flu arm, were able to substantially change historical observations and have a competitive product profile with autologous caloric C-cell therapy with respect to no side flu, I mean, that is just, obviously that's game changing across the entire lymphoma landscape, whether it's aggressive or indolent.

Thank you.

Sorry, your second question real quick, and hopefully I addressed it. Your second question, we will start out, the very first cohort starts out regimen A with side flu. We will, it's a standard three by three design. So we will enroll the first three patients Assuming no DLP in those first three patients, two things happen. We are able to dose escalate regimen A with CyFlu, and we could go up to 900 million cells. In addition, the other thing that happens is after those first three patients, assuming no DLT, regimen B opens. and we begin dosing without SIFLU. So, for instance, the fourth patient, as an example, could be without SIFLU. And then that regimen B would dose escalate independently from regimen A. Thank you.

Our next question is from Peter Lawson of Barclays.

Your line is open.

Hi, this is Cheyenne for Peter. Thanks for taking our question. Apologies if I missed us from joining late, but I believe before we were thinking that we would see data for 819 and 576, potentially not at ASH, but maybe early 2024. Is there any other guidance now that we're getting a little bit closer to when we might see data for both of these and how substantial the data updates might be? Thank you.

I think at this point in time, I think we'd reiterate that guidance. I think with both 819 as well as 576, we've currently opened and enrolled cohorts that we are most interested in to define the therapeutic profile of the products and inform future development strategies. I think certainly we want to be able to assess responses in these cohorts as well as a bit of durability of response. So I think we would reiterate our guidance with respect to data on those programs with early next year and the first half of next year.

Perfect. Thank you so much.

Sure.

Thank you. One moment, please. Our next question comes from the line of Mara Goldstein of Mizuho. Your line is open.

Hi, this is Jerry Gongong for MERA. Thanks for taking our question. Looking at FD576 and more broadly the broader CAR-NK, CAR-D programs, when do you think you'll be done dosing? And if a final dose is not determined yet, do you think you would continue to increase the number of cells given or give a fourth dose as well? Thank you.

Sure. So with 576, we are now at a dose and a dose schedule. And again, just to be clear, three doses of billion cells per dose with FT576. And we were able to enroll monotherapy patients as well as patients in combination with daratumab. We do believe that this dose and dose schedule is going to be sufficient to define the product candidate's therapeutic profile based on data we've seen with other NK cell programs as well as preclinical data. So we are looking at this next cohort of patients at this dose-in-dose schedule as defining the therapeutic profile.

Thank you.

One moment, please. Our next question comes from Andrea Tan of Goldman Sachs. Your line is open. Again, Andrea Tan of Goldman Sachs. Your line is open.

Hi, this is Rachel on for Andrea. What type of opportunity do you see in the post-auto CAR T setting in relapsed refractory VCL for 819 given Precision's move to partner their asset recently rather than bring forward this pivotal trial themselves?

Yeah, I think, I mean, I'll reserve my comments more generally. I tend to think whether it be 522, 819, a cell therapy, post-autologous CAR T cell therapy. Generally, I continue to believe, and this is based on conversations that Fate has also had with the FDA, I continue to believe that development, post-autologous CAR T cell therapy, is an exciting opportunity with significant unmet need, and I would extend that obviously also to myeloma. I tend to believe autologous CAR T-cell therapy. There are multiple different autologous CAR T-cell therapies that are approved both in lymphoma and myeloma. I tend to believe those programs will try and be utilized as early as possible. I think there absolutely are going to be challenges and limitations to reaching into the community, But I do think, generally speaking, that the availability of autologous CAR T-cell therapy for patients will generally increase. I do think that that will afford a tremendous development opportunity and unmet need for patients post-CAR T-cell therapy.

And I think that's a very exciting area for development, quite frankly. Thank you.

Thank you. One moment, please. Our next question comes from the line of Jack Allen of Baird. Again, Jack Allen of Baird, your line is open.

Great. Thank you so much for taking the question, and congratulations on the progress this quarter. It sounds like we're expecting FT819 data next year. I was hoping you could talk a little bit about what we should expect as it relates to the size of the cohort and potential follow-ups. And I guess, should we assume that the dose that you have here, the single dose of 540 million cells is what you're going to plan to move forward potentially?

Yeah, I think right now with respect to both 5, 7, and 6, where we're looking at three doses at a billion cells per dose, as well as with FT819, where we are at 540 million cells single dose, Look, I think our goal is to enroll, you know, somewhere in the neighborhood of let's call it 10 patients in the second half of this year. And we, like I sort of, I've mentioned before, I do think that that cohort of patients on both 576 and 819 can really help define the therapeutic profile of the product candidates.

Thank you.

One moment, please. Our next question comes from the line of Bill Morgan of Canaccord Genuity. Your line is open.

Hi, thanks. So if the ADR technology works exactly as intended in humans, how confident are you that that factor is sufficient to produce a clinically relevant duration of response? from 522, or I guess stated differently, what are the chances that there are some other limiting factors that are going to have to be addressed? Thank you.

Yeah, sure. It's a great question, and honestly, we don't know the answer to that question yet. I think obviously we have to see attractive response rates. in order to have an opportunity to have an attractive durability of response. I'll turn it over to Bob, and certainly he can give you a preclinical perspective with what we've seen with respect to durability of response when we've armed these cells with ADR. Yeah, I'll let Bob speak to it.

Thanks. That's a really good question. I'll start off by saying replacing side flu has multiple factors. Obviously, there's an anti-tumor factor associated with it in lymphoma. There is the creation of space, availability of cytokines, as well as avoidance of rejection by the host immune compartment. So is ADR, is the five-point edited CAR-19 product going to overcome all those? We hope so. The clinical model says that the CAR-19 and the CD16 targeting anti-CD20 or CD20 positive cells in combination is It's very robust. This 522 has a stronger chassis than 596, so we expect a more potent response from the CAR and the CD16. The ADR technology appears to protect cells against the alloreactive attack, so we expect the cells to be there and protect themselves, so that part of Sykes Blue may not be necessary. But as your question is graded, also, as Scott mentioned, hard to answer until we see some of the clinical data. Preclinically, we see enhanced potency, enhanced protection, and enhanced activity. So we're hopeful that we'll see good responses, but we'll need to wait for clinical data to finalize.

Great. I appreciate the commentary. Thank you.

Thank you. I'm showing no further questions at this time. Let's turn the call back over to Scott Walshko for any closing remarks.

Great. Thank you all for participating in today's call. Be well. Look forward to seeing you all soon.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.