Fate Therapeutics Inc (FATE) 2014 Q2 法說會逐字稿

Welcome to Fate Therapeutics' second-quarter 2014 financial results conference call. (Operator Instructions).

This call is being webcast live on the investors and media section of Fate's website at fatetherapeutics.com. This call is the property of Fate Therapeutics and recordings, reproduction, or transmission of this call without the expressed written consent of Fate is strictly prohibited. As a reminder, today's call is being recorded.

I would now like to introduce Scott Wolchko, Chief Financial and Operating Officer of Fate Therapeutics.

Thank you. Good afternoon and thanks, everyone, for joining us for the Fate Therapeutics second-quarter 2014 earnings call.

At 4 PM Eastern Time today, we issued a press release with our second-quarter financial results, which can be found on the investors and media section of our website under press releases. In addition, our second-quarter 2014 10-Q was filed shortly thereafter and can 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. 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 in the Company's SEC filings included in our Form 10-Q for the quarter ended June 30, 2014, 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, Fate Therapeutics disclaims any obligation to update these forward-looking statements to reflect future information, events, or circumstances.

Joining me on the call today are Dr. Christian Weyer, President and Chief Executive Officer; Dr. Pratik Multani, Chief Medical Officer; and Dr. Peter Flynn, Senior Vice President of Early Program Development.

Christian will begin with an overview of our corporate progress and accomplishments in the second quarter. Pratik will then provide details on our clinical and regulatory progress with our PROHEMA program. Next, Pete will provide a brief update on our muscle regeneration program; and finally, I will review our financial results for the second quarter of 2014 before turning the call back over to Christian for some concluding remarks and to take any questions that you might have.

I will now turn the call over to Christian to provide an update on our key corporate developments.

Thank you, Scott, and good afternoon, everyone.

At Fate Therapeutics, our mission is to pioneer novel stem cell therapeutics to improve outcomes in patients with rare, life-threatening diseases. In the second quarter of 2014, we continued to make strong progress in support of that mission.

PROHEMA, our lead clinical-stage product candidate, is a pharmacologically optimized HSC therapeutic that has the potential to promote rapid and durable hematologic and immunologic reconstitution. PROHEMA has been granted orphan status by the FDA for the enhancement of stem cell engraftment in patients undergoing allogeneic HSC transplantation.

At the beginning of this year, we set out to initiate a multipronged clinical development strategy aimed at demonstrating the therapeutic potential of PROHEMA in patients across a wide range of ages and a broad spectrum of life-threatening malignant and rare genetic disorders. I'm very pleased with our execution against this strategy as we have achieved multiple important clinical and regulatory milestones over the past several months.

First, in March 2014, we launched our Phase II PUMA study of PROHEMA in adult patients with hematologic malignancies. Earlier today, we announced that the first of two scheduled interim data reviews by the study's independent Data Monitoring Committee has been successfully completed. The independent Data Monitoring Committee did not identify any safety signals and supported continuation of the PUMA study, based on its evaluation of the available data on the first 10 patients in the trial, including data on seven patients that received PROHEMA.

A second interim analysis review is scheduled after data are available for the first 12 PROHEMA patients. Enrollment remains on track and we look forward to providing a clinical update on the PUMA study during the fourth quarter of 2014, following the completion of the second interim review.

In addition to our clinical activities in adult patients, we are keenly focused on addressing the large unmet need in pediatric patients with hematologic malignancies. In the US alone, over 3,500 children are diagnosed with leukemia each year, many of whom ultimately require HSC transplantation.

During the second quarter of 2014, we announced that the FDA cleared our IND amendment to enable the clinical evaluation of PROHEMA in pediatric patients with hematologic malignancies. Our PROMPT study, which expands our clinical investigation of PROHEMA to patients as young as 1 year of age, is expected to begin in the third quarter of 2014.

Based on the current enrollment rates in the PUMA study and the expected timing of our initiation of the PROMPT study, we believe we remain well positioned to report data on both studies in mid-2015.

As these studies progress and data becomes available across a larger number of patients, we plan to initiate regulatory interactions to support the advancement towards registration, our intention being to conduct a single registrational program for PROHEMA that will include both adult and pediatric patients with hematologic malignancies.

Moving beyond our plans in hematologic malignancy, it is remarkable and well recognized that allogeneic HSC transplantation holds potential as a one-time definitive therapy for over 50 rare genetic disorders. In July 2014, we announced that the FDA cleared our IND for the study of PROHEMA in pediatric patients with inherited metabolic disorders. This will present a significant strategic milestone for us as it enables the first expansion of our clinical investigation of PROHEMA beyond hematologic malignancies into the non-malignant, rare genetic disease setting.

Our Phase Ib PROVIDE study will evaluate PROHEMA in up to 12 patients with inherited metabolic disorders, focusing on those with significant CNS involvement.

Let me pause and take a moment to discuss our belief in the potential of PROHEMA in treating rare genetic disorders, including inherited metabolic disorders. Since PROHEMA is derived from normal, healthy donor HSCs, we believe the product candidate has the inherent potential to correct genetic defects across a wide range of rare genetic disorders, where they are caused by genetic defects or defective genes encoding enzymes, hemoglobin, or other essential proteins.

Inherited metabolic disorders include a range of genetic enzyme deficiencies that interfere with critical metabolic pathways necessary to maintain normal organ function. In many of those disorders, the enzyme deficiency leads to a cellular accumulation of toxic intermediates within the brain, causing progressive neurological damage that cannot be addressed with enzyme replacement therapy.

For those inherited metabolic disorders, which include over 20 lysosomal and peroxisomal storage diseases, such as Hurler and Hunter syndrome, Krabbe disease, and multiple leukodystrophies, allogeneic HSC transplantation holds promise as a one-time definitive therapy.

Following allogeneic HSC transplantation, donor-derived cells can migrate to an engraft in the brain, providing a long-term supply of otherwise deficient enzyme to the central nervous system in a process known as cross-correction.

In in vivo murine models of allogeneic HSC transplantation, we have demonstrated that the use of PROHEMA as compared to unmanipulated HSCs led to a significant increase both in the engraftment of donor HSCs and in the donor-derived expression of enzyme in the brain.

We believe PROHEMA has the potential to significantly improve the course of disease progression in pediatric patients with rare genetic disorders, such as IMDs, and as an important next steps, we look forward to initiating our PROVIDE study in the fourth quarter of 2014.

Finally, in late July we announced that we secured a debt facility with Silicon Valley Bank for up to $20 million and that we have access to $10 million of the available amount. Importantly, this facility strengthens our balance sheet and insures operating runway through 2015. We now have the necessary cash resources to achieve clinical readouts across the PROHEMA franchise and also to invest in our early pipeline, including iPSC-derived cellular therapeutics.

I will now turn the call over to Pratik to provide you with an update on our PROHEMA clinical program.

Thank you, Christian.

As Christian mentioned, earlier this month the independent Data Monitoring Committee for the PUMA study conducted its first of two scheduled interim data reviews of this 60-patient randomized, controlled Phase II clinical trial of PROHEMA in adults with hematologic malignancy undergoing double umbilical cord blood transplant.

Seven patients who received PROHEMA plus an unmanipulated cord blood unit and three control patients who received two unmanipulated cord blood units were included in this interim data review.

The iDMC reviewed a broad spectrum of patient data, including safety, time to engraftment, rates of graft failure, early mortality, infection, and graft versus host disease rates. Based on its review of the data available on these first 10 patients, the iDMC did not identify any safety signals and supported continuation of the study.

Enrollment in the PUMA study is continuing at 10 major transplant centers across the United States and we are pleased with the level of participation we are seeing from these centers.

As a reminder, the primary endpoint of the PUMA study is based on a categorical analysis of the cumulative incidence of neutrophil engraftment in patients in the PROHEMA treatment arm who engraft prior to a prespecified median control day. The trial is designed to demonstrate with statistical significance that 70% of patients treated with PROHEMA along with an unmodulated cord blood unit during double cord blood transplant engraft before the prespecified median control day.

It is important to point out that while we believe this method of analysis is appropriate for a Phase II clinical trial and will provide clinically meaningful insight to guide the design of a registrational study, our preliminary discussions with the FDA indicate that a time-to-event analysis of neutrophil engraftment would be an appropriate design for such a Phase III clinical trial. A time-to-event analysis incorporates the entire distribution of engraftment events across the study population and would more appropriately consider, for instance, patients in the tail of the engraftment curve with either delayed or failed engraftment who have the highest risk of early mortality.

Additionally, as part of the PUMA study, we will be evaluating other key parameters contributing to patient outcomes, including treatment-related mortality, viral and bacterial infections, graft-versus-host disease rates, and delayed immune reconstitution. We believe a sizable reduction in any one of these parameters would be highly clinically meaningful and provide strong rationale and guidance for Phase III development.

Turning now to our expansion of the PROHEMA franchise to pediatric patients, our IND amendment enabling the clinical investigation of PROHEMA in pediatric patients for the treatment of hematologic malignancies was cleared by the FDA in the second quarter this year.

The PROMPT study, or PROHEMA for the treatment of hematologic malignancies in pediatric patients undergoing single umbilical cord by transplantation, is designed to enroll up to 18 patients between the ages of 1 and 18 years of age in three cohorts of patients, aged 1 to 4 years, 4 to 12, and 12 to 18 years old.

The primary endpoint of this study is safety as assessed by neutrophil engraftment, and the study will also evaluate other parameters of efficacy, including platelet engraftment and rates of graft failure, graft-versus-host disease, serious infection, and disease-free and overall survival.

Our team has been working closely with three study sites on preparations to begin the clinical trial, which is expected by the end of the third quarter of this year. Consistent with the current timing of initiation of enrollment, we expect primary results of the PROMPT study to be available in mid-2015 and in the same timeframe as primary results from our PUMA study patients in adults, providing the basis for a combined Phase III registrational study across both adult and pediatric patients with hematologic malignancies.

Finally, we have also now expanded our PROHEMA franchise beyond hematologic malignancies and into rare genetic disorders, having received clearance from FDA of our IND to clinically evaluate PROHEMA in pediatric patients with inherited metabolic disorders. We currently plan to begin our Phase Ib PROVIDE study, or PROHEMA evaluation for the treatment of inherited metabolic disorders in pediatric patients, in the fourth quarter of 2014.

The PROVIDE trial is designed to enroll up to 12 patients with various forms of inherited metabolic disorders between the ages of 1 and 18 at up to three leading US pediatric transplant centers. While the primary endpoint of the PROVIDE trial is safety as assessed by neutrophil engraftment, we plan to follow patients for two years, regularly assessing them for a variety of neurocognitive and developmental outcomes related to the CNS manifestations of their respective enzyme deficiencies.

We are keenly interested in getting an early look at whether ex vivo pharmacologic modulation of hematopoietic stem cells may have a beneficial effect not only on near-term outcomes, such as engraftment, but also on long-term cognitive and neurologic function.

I will now turn the call over to Pete for an update on the Wnt7a and iPSC programs.

Thanks, Pratik.

In addition to the Company's focus on hematopoietic stem cell biology, we have established expertise in skeletal muscle stem cell biology and the development of therapeutic intervention strategies for promoting muscle regeneration.

We have shown Wnt7a, a signaling protein that drives expansion of muscle satellite stem cells, to be a key regulator of skeletal muscle regeneration. We believe we're the first company to focus on developing Wnt proteins as therapeutic products. Over the past several months, we have further evaluated our Wnt7a analogs in preclinical rodent models and conducted non-GLP safety assessments.

Additionally, we have generated manufacturing cell lines for assessing and optimizing cGMP protocols.

We have not yet selected a lead product candidate for advancement into late-stage preclinical development, although we continue to progress our two lead analogs with diligence, evaluating therapeutic index, dosing regimens, and amenability to clinical-scale manufacture.

Building upon our deep expertise in stem cell biology and therapeutic intervention strategies to promote muscle regeneration, we are excited to announce that we have expanded our skeletal muscle franchise through initiation of a program focused on the development of an induced pluripotent stem cell derived myogenic progenitor cell therapeutic, or iMPC. Myogenic progenitor cells are precursor cells capable of populating the muscle satellite stem cell niche contributing to muscle fiber regeneration and repair.

The Company is currently optimizing the generation of iMPCs and assessing the therapeutic potential in models of degenerative muscle disease.

Initiation of this iMPC program marks the selection of the first investigational cell therapeutic to emerge from the Company's proprietary iPSC platform. Since the Company's founding, we have investigated potential applications for iPSC technology.

The power of iPSC technology, recognized through the 2012 Nobel Prize in Medicine, is the ability to take a cell from any individual patient or donor, reprogram it back to a state similar to that of an embryonic stem cell, expand these cells indefinitely, and subsequently differentiate them into a cell type with therapeutic potential.

In collaboration with two of our scientific founders, Dr. Rudolf Jaenisch of the Whitehead Institute for Biomedical Research and Dr. Sheng Ding of the Gladstone Institutes at UCSF, we have developed a proprietary platform for the generation of iPSC-derived cell therapeutics over the past five years. We believe this powerful technology can enable entirely new classes of autologous, allogeneic, and genome edited cellular therapeutics with a disease-transforming potential.

I will now turn the call over to Scott to review the financial results for the second quarter.

Thanks, Pete.

Turning to our financial results, for the three months ended June 30, 2014, Fate Therapeutics reported a net loss of $6.1 million, as compared to a net loss of $5.5 million for the second quarter of 2013. The Company did not generate any revenues in the second quarter of 2014, compared to approximately $290,000 for the second quarter of 2013.

Research and development expenses for the second quarter of 2014 were $4 million, compared to $3.1 million for the second quarter of 2013. This increase was primarily related to additional headcount and costs associated with the clinical and preclinical development of our product candidates. The overall increase is comprised of an increasing compensation and benefits expense, including stock-based compensation expense, and professional consultant and service provider expenses related to the conduct of our PUMA study.

General and administrative expenses for the second quarter of 2014 were $2.1 million, compared to $1.5 million for the second quarter of 2013. This increase was primarily related to additional headcount and increase in employee compensation, including salaries, benefits, and stock-based compensation expense, and incremental legal, accounting, and insurance expenses, primarily to support public company operations.

Total operating expenses for the second quarter of 2014 were $6.0 million, compared to $4.6 million for the second quarter of 2013. After adjusting for stock-based compensation expense of approximately $400,000, total operating expense for the second quarter of 2014 were $5.6 million.

At the end of the second quarter of 2014, our cash and cash equivalents were $42 million, our debt outstanding under our facility with Silicon Valley Bank was approximately $750,000, and we had approximately 20.6 million shares outstanding.

As Christian mentioned, on July 30, 2014, we renewed our banking relationship with Silicon Valley Bank, entering into an amended and restated loan and security agreement under which SVB agreed to make loans to us in an aggregate principal amount of up to $20 million. We accessed $10 million under the first tranche of the debt facility, generating net proceeds of $8.8 million after the retirement of outstanding amounts owed to SVB under our prior loan agreement and transaction fees.

During the first 12 months of the term, we are required to make monthly payments of interest only.

Additionally, following the independent Data Monitoring Committee's second interim data review and the continuation of our Phase II PUMA study, we have the opportunity to access up to an additional $10 million of debt under the SVB's facility.

Considering our cash position of $42 million at the end of the second quarter, plus the additional $8.8 million in net proceeds under the first tranche of the SVB debt facility, we believe we have sufficient cash resources to provide operating runway through 2015.

I will now turn the call back over to Christian for some concluding remarks.

Thank you, Scott.

Stepping back from the quarter to look at the bigger picture, as I said at the outset our goal is to bring novel, potentially transformative stem cell therapeutics to patients with real life-threatening disorders.

In keeping with that goal, our focus at the beginning of the year was on further enhancing the potency and efficacy of our lead optimized HSC therapeutic, PROHEMA, by incorporating an improved nutrient-rich media formulation for use in clinical development. We were successful in this effort and we have already achieved an important clinical milestone in advancing PROHEMA through its first interim data review in our Phase II PUMA study.

Over the next few months, we expect to have three separate clinical trials of PROHEMA ongoing, generating data across adult and pediatric patient populations with hematologic malignancy and pediatric patients with inherited metabolic disorders.

This would not be possible without the hard work and dedication of our employees and our positive collaborative relationship with a growing number of study sites. I want to acknowledge this hard work, as well as our shared vision of bringing new therapeutic solutions to the field of HSC transplant and to the patients that need and deserve better outcomes for their serious life-threatening conditions.

Our team and our clinical study partners remain highly focused on executing on our clinical programs according to plan. We continue to run the business with a high degree of operational efficiency and look forward to reaching significant clinical milestones in our development of PROHEMA over the next 12 months across multiple fronts.

In addition, we continue to advance our preclinical programs in Wnt7a and iMPC and anticipate providing further updates on our progress with these programs in coming months.

And with that, I would like to turn the call over to the operator for any questions.

(Operator Instructions). Boris Peaker, Cowen.

Good afternoon and thanks for taking my questions. I am just curious for the DMC interim review, was there any efficacy criteria, maybe number of patients, engraftments, or anything else, or was it based solely on the total number of patients enrolled?

Hi, Boris, this is Christian speaking. I will turn this to Pratik to answer that question.

This was a protocol specified review, based upon having six -- at least six PROHEMA patients with engraftment data available, and it was a safety review. There were no efficacy criteria applied.

However, in the context of transplant, efficacy and safety are very -- they are two sides of the same coin in terms of engraftment, graft failure rates, et cetera. But this was designed as a safety review.

So can we read into this -- so there [remains] -- there were seven patients treated with PROHEMA and it means six out of those had an engraftment? Is that correct?

No, no, no. So we had seven patients' worth of data.

So, there is no further information that I would expect you to read into that, except that the safety review found no safety signals after review of both PROHEMA patients, as well as the control patients that we provided.

Got you. And also, I am curious, so the second interim safety look is when 12 treated patients -- when 12 patients are going to be treated on PROHEMA. I am just curious why the number is so low. I would imagine 12 on PROHEMA, maybe another three, four in control, out of 60 patients, it seems kind of a low number to do a second and last interim look.

Go ahead, Pratik.

Part of the rationale for having these early looks was based upon the introduction of our new media formulation into the manufacturing process, and so the early looks are to essentially assess that we are not seeing any safety signals with that change in manufacturer. Like I said, we are happy to say that we have passed that first safety hurdle.

Got you. And my last question, I am just curious with the interim update now in the public domain and certainly people feeling a little more, I think, confident in the safety, do you think that is going to impact enrollment rate in any way?

I think as you get further into a study and pass hurdles, yes, we would hope that it would help improve enrollment, but we will wait and see.

Great. Thank you very much for taking my questions.

Nick Abbott, BMO Capital Markets.

Thanks for taking my questions and congratulations on the progress. I have what might seem a bit of a silly question to start off with, and that is for the PUMA study, how do you define a day? And by that, I mean if you receive your umbilical cord transplant at 6 AM in one patient and 6 PM on the same day, the same patient, by the time you come to look at engraftment on day one, one patient could have had 12 hours head start.

So, is it just the day after or you are going down to trying to measure 24 hours post receiving the infusion?

The convention in transplant literature is to just use calendar days. I think we are looking for a treatment effect that wouldn't rely on a more fine-grained analysis of looking at hours. And so, the convention is, and that is what we are following, is to use calendar days.

I can say that we are capturing every -- collection times down to the minute, so we do have all the data available to us.

Okay. And then in terms of the PROVIDE trial, the use of the -- obviously, the sites are approving the protocol. Do you expect there will be a wait list of patients because, obviously, this is pretty exciting, a pretty exciting opportunity?

And then, what about screening and failure rates? Do you think a lot of patients are going to come -- want to get on this study who perhaps have more advanced disease, and so those developmental and neurocognitive milestones that you're going to be looking at, they may be too advanced to benefit from those?

So, this is Christian. Let me take the first question. So, I think it would be premature for us to speculate as to whether there are wait lists for the study.

I think one of the things that we called out in our prepared remarks that we are excited about just in general for the patient population, but also for the conduct of the trial, is that the PROVIDE trial -- by the very nature of the therapeutic intervention, PROHEMA is not confined to a single inherited metabolic disorder. And in fact, the inclusion criteria for the study PROVIDE, as we said in our prepared remarks, for the inclusion of patients with a host of different lysosomal and peroxisomal storage disorders, so that should certainly help enrollment.

Pratik, can I turn it over to you for (multiple speakers)

We are intending to work not just with transplant centers that have an expertise in cord blood, but have as particular expertise in transplant for inherited metabolic disorders.

So, we would not anticipate a significant screen failure rate, because these centers are expert at identifying appropriate patients, but it is premature to speculate much more than that. We will wait and see once we get the study open.

And then just one last one, and that's on the muscle program. So you have the Wnt7a compounds and then the new myogenic precursor cells. Do you see these heading into different diseases or do you think they might have applicability in the same degenerative muscle disease?

This is a great question, and we absolutely look at this as a potentially complementary intervention. The therapeutic approaches are different, but even within a given muscle disorder, we believe that, depending on progression, there is different therapeutic applications. Pete, can I turn this over to you?

Yes, I think it is a great question. It is obviously something that we thought very long and hard about. But we have an inherent interest in the stem cell biology of muscle, and muscle being one of the most regenerative tissues in the body, it has a pretty unique stem cell population.

We view, as Christian said, that either in different indications, one or other may be more or less applicable or even in the same indication. An example that I'd point to is muscular dystrophy, most notably Duchenne muscular dystrophy, where depending on the stage of the disease, there is either some stem cells remaining or the stem cell population is being truly exhausted.

And so, you can see how a therapeutic that acts on the endogenous stem cells could be applicable in earlier stages of disease, whereas in later stages, a transplant would be more applicable.

So we are evaluating both programs in a range of different preclinical models and we will select lead indications for two a little further down the road.

Excellent, thanks. I look forward to further updates. Congrats.

(Operator Instructions). At this time, I see no further questions in queue. I would like to turn the call back over to you, Mr. Weyer.

With that, thank you all for your participation in today's call. We certainly look forward to updating you again in the near future. Thank you.

Ladies and gentlemen, this concludes today's presentation. Thank you once again for your participation. You may now disconnect. Everyone, have a great day.