Fate Therapeutics Inc (FATE) 2014 Q4 法說會逐字稿

Welcome to Fate Therapeutics' fourth-quarter 2014 financial results conference call. (Operator Instructions) The call is being webcast live on the Investor & Media section of Fate's website at FateTherapeutics.com.

This call is property of Fate Therapeutics, and recordings, reproductions, or transmission of this call without the express written consent of Fate is strictly prohibited. As a reminder, today's conference is being recorded.

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

Thank you. Good afternoon and thanks, everyone, for joining us for the Fate Therapeutics fourth-quarter 2014 earnings call. At 4:00 PM Eastern Time today, we issued a press release with our fourth-quarter and full-year 2014 financial results, which can be found on the Investors & Media section of our website under Press Releases. In addition, our 2014 10-K was filed shortly thereafter and can be found on the Investors & Media 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 in the Company's SEC filings included in our Form 10-K for the year ended December 31, 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, and Dr. Dan Shoemaker, Chief Research Officer. I will begin the call by reviewing our financial results for the fourth quarter of 2014.

For the three months ended December 31, 2014, Fate Therapeutics reported a net loss of $6.2 million, as compared to a net loss of $5.7 million for the fourth quarter of 2013. Research and development expenses for the fourth quarter of 2014 were $3.9 million compared to $3 million for the fourth quarter of 2013. This increase was primarily driven by an increase in employee compensation expense, including from additional headcount, and by an increase in third-party professional consultant and service provider fees in connection with the conduct of our PUMA clinical study and the preparation for the commencement of our PROMPT and PROVIDE clinical studies.

G&A expenses for the fourth quarter of 2014 were $2.1 million, compared to $1.9 million for the fourth quarter of 2013. This increase was primarily driven by an increase in employee compensation expense.

Total operating expenses for the fourth quarter of 2014 were $5.9 million compared to $4.9 million for the fourth quarter of 2013. After adjusting for stock-based compensation expense of approximately $600,000, total operating expenses for the fourth quarter of 2014 were $5.3 million.

At the end of the fourth quarter of 2014, our cash and cash equivalents were $49.1 million, our debt outstanding under our facility with Silicon Valley Bank was $20 million, and we had approximately 20.6 million shares outstanding. We believe we have sufficient cash resources to provide operating runway at least through the first quarter of 2016.

I will now turn the call over to Christian to provide an update on our key R&D programs and corporate priorities.

Thank you, Scott, and good afternoon, everyone. Over the past three months we have made significant progress in demonstrating the broad potential of our innovative ex vivo cell programming approach for the development of first-in-kind hematopoietic cellular therapeutics.

First, in late December 2014 we reported favorable neutrophil engraftment data from an interim analysis, interim safety review, of the first 12 subjects administered PROHEMA in our ongoing Phase 2 PUMA study, a randomized controlled multicenter clinical trial in adult patients undergoing double umbilical cord blood transplantation for the treatment of hematologic malignancies. These initial data were encouraging on several fronts.

The study's independent Data Monitoring Committee determined that PROHEMA had met established safety criteria and supported continuation of the PUMA study. Additionally, time to achieve neutrophil engraftment was reduced for PROHEMA subjects receiving myoablative or reduced intensity conditioning, the median times was reduced by 6 and 7 days, respectively, as compared to pre-specified median times reported in the literature.

Furthermore, the incidence of early neutrophil engraftment was increased. Six of the nine engrafting subjects administered PROHEMA achieved neutrophil engraftment prior to the pre-specified historical control medians.

In patients undergoing hematopoietic stem cell transplantation, or HSCT, engraftment of donor-derived neutrophils is one of the most crucial early milestones required for the successful reconstitution of a new blood and immune system; and it is well established that patients with delayed neutrophil engraftment have a severalfold higher risk of transplant-related mortality than those who achieve early neutrophil engraftment.

Second, over the past three months we also expanded our HSCT therapeutics pipeline by adding a second development-stage candidate that is based on the programming of hematopoietic cells from mobilized peripheral blood. Mobilized peripheral blood represents the most commonly used hematopoietic cell source for HSCT; and together, umbilical cord blood and mobilized peripheral blood account for approximately 80% of allogeneic HSCT procedures each year.

At the annual meeting of the American Society of Hematology in December, we presented new scientific findings demonstrating that T-cells and CD34-cells from mobilized peripheral blood can be programmed ex vivo, with preclinical evidence pointing to the programmed hematopoietic cells having improved therapeutic potential. Through internal combinatorial screening efforts, we identified a combination of two small molecule modulators that synergize to induce supra-physiologic activation of genes implicated in the immune tolerance and antiviral properties of T-cells, as well as in the homing and engraftment potential of CD34-cells. Specifically, the programmed CD34-cells with this dual combination resulted in a 60-fold increase in CXCR4 gene expression levels and a statistically significant increase in engraftment as compared to unmodulated cells.

Additionally, T-cells that were programmed with this dual combination were found to have a 66% reduction of cell surface protein expression of ICOS, a key T-cell activation marker, in a statistically significant reduction in proliferation rates as compared to unmodulated cells. Collectively, these preclinical findings point to the therapeutic potential of ex vivo programmed hematopoietic cells to mitigate T-cell-mediated complications such as viral infections, graft-versus-host disease, and delayed immune reconstitution, and improve overall outcomes in patients undergoing HSCT with mobilized peripheral blood as a cell source.

We are currently preparing for an IND application, which we plan to submit to the FDA in 2015, to support the initiation of a clinical trial to assess the programmed mobilized peripheral blood candidate in adult subjects undergoing allogeneic HSCT for the treatment of hematologic malignancies.

Third, at the beginning of this year we unveiled a new research initiative aimed at expanding our pipeline of programmed hematopoietic cellular therapeutics beyond the HSCT setting. We maintain a strong conviction that our cell programming approach is broadly applicable to the development of hematopoietic cellular therapeutics for the treatment of severe, life-threatening diseases.

Today, we are pleased to announce our first therapeutic program derived from this research initiative, which is aimed at programming the immunoregulatory properties of CD34-cells, an opportunity which we believe offers a novel approach for therapeutic intervention in various disorders of the immune system. I will now turn the call over to Dan to provide you with further details on this exciting opportunity.

Thank you, Christian. Since our founding, we have been dedicated to the programming of the therapeutic function of hematopoietic cells ex vivo. We have built a platform that enables us to identify small-molecule or biologic modulators that promote rapid and supra-physiologic activation or inhibition of therapeutically relevant genes and cell surface proteins, such as those involved in the homing, proliferation, and survival of CD34-cells or those involved in persistent proliferation and reactivity of T-cells.

We believe that this novel therapeutic paradigm, which involves systematically and precisely programming the biological properties of cells ex vivo, is an elegant, cost-effective, and scalable approach to maximize the safety and efficacy of cellular therapeutics. Because the programming occurs ex vivo and does not entail administration of pharmacologic modulators directly to the patient, it is feasible to apply combinatorial programming approaches using multiple modulators to achieve profound biological effects without the complexities and safety concerns that are typically encountered with in vivo combinatorial treatments.

In the past several months our internal research team has identified a novel combination of three pharmacologic modulators that synergize the programmed supra-physiological expression levels of PD-L1, a key immunosuppressive protein on CD34-cells. We intend to exploit PD-L1 expression on CD34-positive cells as a mechanism to limit the alloreactivity of T-cells that have been activated as part of an inflammatory or autoimmune response.

In recent years the PD-1/PD-L1 pathway has been clinically validated as a promising therapeutic target, and data from large clinical trials with checkpoint inhibitors targeting this pathway provide compelling support for the potent immunosuppressive role of PD-L1. Using our cell programming approach we have achieved a greater than 100-fold up-regulation of PD-L1 gene expression on CD34-cells during a 24-hour ex vivo treatment.

Additionally, in our initial in vitro experiments we have shown that CD34-cells programmed with this triple modulator combination significantly reduce the proliferation rates of activated T-cells as compared to unmodulated CD34-cells. We are currently investigating the in vivo therapeutic potential of PD-L1 programmed CD34-cells to preferentially home to sites of inflammation and to suppress T-cell proliferation and cytokine production in various preclinical models of inflammatory and autoimmune diseases. We believe this intervention strategy offers a novel approach to harness the therapeutic potential of PD-L1 immunosuppressive mechanism and does so in a manner that leverages the clinical safety experience that already exists with CD34-based cellular therapeutics for the treatment of disorders of the immune system.

So having reviewed our recent progress with the programming of cell function, let me next talk about the tremendous opportunity we see for the use of our proprietary iPSC technology to program cell fate. We believe iPSC, or induced pluripotent stem cell technology, offers a disruptive approach to the development of next-generation hematopoietic cellular therapeutics.

Over the past six years we've been dedicated to and have made significant strides in developing optimized and scalable methods for the highly efficient derivation and expansion of human iPSCs for therapeutic use. Today we are highly focused on applying our proprietary iPSC technology to isolate, genetically engineer, and characterize human iPSCs at the single-cell level, which enables subsequent selection, clonal expansion, and differentiation into hematopoietic cell types such as human CD34-positive cells, T-cells, and natural killer cells.

We have already generated definitive CD34-positive cells from human iPSCs using differentiation protocols comprised of only small molecules and cytokines that are efficient, scalable, and cGMP compatible. We've administered these human iPSC-derived CD34-cells to immunodeficient mice and have demonstrated their ability to provide long-term engraftment at 18 weeks.

Furthermore, we have shown that these human iPSC-derived CD34-cells gave rise to hematopoietic cells of both myeloid and lymphoid lineages in vivo, including CD3-positive T-cells. Building upon this progress, we are now continuing to develop our innovative small molecule-based differentiation protocols to further optimize the generation of human iPSC-derived CD34-positive cells, T-cells, and natural killer cells for therapeutic use.

Importantly, in parallel with our technological and scientific advances, we continue to strengthen our intellectual property estate to protect our iPSC technology. During the past three months, five US patents that are exclusively licensed for all therapeutic purposes by the Company have been issued by the U.S. Patent and Trademark Office. These patents, several of which have priority dates as early as November of 2003, cover foundational compositions and methods critical to the derivation of human iPSCs, including issued claims relating to Oct4, which is considered the key pluripotency gene for cellular reprogramming since its expression is required for human iPSC derivation.

So as you can see, we are very excited about our ongoing research programs. With that I will now turn the call over to Christian to summarize our 2015 direction and provide concluding comments.

Thank you, Dan. Looking ahead, in 2015 we believe we are well positioned to validate the disease-transforming potential of PROHEMA in patients across a wide range of ages and a broad spectrum of life-threatening, malignant, and rare genetic disorders and to further apply our cell programming approach in optimizing the therapeutic potential of CD34-cells and T-cells.

With respect to PROHEMA, our ongoing Phase 2 PUMA study is poised to generate a robust, informative set of data on multiple clinical endpoints that contribute to the overall morbidity and mortality of HSCT. We expect to report data on the primary endpoint, which is based on the incidence of neutrophil engraftment prior to the prespecified historic median times, in the second half of 2015.

Additionally, we expect to share data related to the therapeutic effect of ex vivo programming on donor-derived T-cells, including rates of viral reactivation, graft-versus-host disease, and immune reconstitution. In particular, we are keeping a keen eye on the rates of reactivation of cytomegalovirus and Epstein-Barr, virus which are major clinical challenges during the first 100 days following HSCT.

Recall that in our Phase 1b study subjects who received PROHEMA showed an increase proportion of naive and early memory T-cells within the CD8-positive T-cell compartment at day 100 following HSCT; and low rates of CMV and EBV reactivation were observed as compared to rates reported in the literature.

In addition to our conduct of the PUMA study, we continue to make progress in the clinical expansion of our PROHEMA franchise to pediatric patients undergoing single cord blood transplantation. We are in final preparations to initiate our Phase 1b PROVIDE study, which is designed to investigate the potential of PROHEMA to provide cellular enzyme replacement therapy for the treatment of inherited metabolic disorders.

We have also increased the number of study sites in our Phase 1b PROMPT study for the treatment of hematologic malignancies. And we expect to report engraftment data from both pediatric studies in 2015.

Our programming of both cell function and fate underlies our long-term vision of developing first-in-kind hematopoietic cellular therapeutics for the treatment of severe, life-threatening diseases. 12 months ago our efforts were largely focused on programming CD34-cells in umbilical cord blood. Over the past 12 months, we have demonstrated the therapeutic potential and broad applicability of our cell programming approach.

We have identified additional modulators of hematopoietic cells, including modulators of T-cells. We have applied modulators in combinatorial fashion that synergize to drive therapeutically relevant functional improvements to the biological properties of CD34-cells and T-cells. And using those modulators, we are now researching and developing programmed hematopoietic cellular therapeutics for mobilized peripheral blood HSCT, the predominanT-cell source used in HSCT, and in therapeutic areas beyond HSCT, including for the treatment of disorders of the immune system.

We are excited about the substantial progress we have made in 2014, and we believe there are significant opportunities on the horizon where we can continue to tap our cell programming approach, including in collaboration with strategic partners, to identify and develop programmed hematopoietic cellular therapeutics for severe, life-threatening diseases.

With that I'd like to turn the call over to the operator for any questions.

(Operator Instructions) Boris Peaker, Cowen and Company.

Great. Thank you for taking my questions. I guess my first question is, for the PD-L1 expression in CD34-positive cells, based on what's known about PD-L1, is there a high level where the amount of this ligand can cause just infection? And if so, just curious, at least based on the models you've tested so far, what is the margin of safety between the PD-L1 level you anticipate to expose patients to and these potentially infectious levels?

Yes, Boris, thanks for your question; this is Christian. First off, this is obviously relatively early stage in the development program, so we do not have at this point extensive preclinical experiments to address some of the questions you are raising. We are taking great comfort out of the clinical data that already exist of intervention in the PD-L1 pathway. Dan, anything you want to add?

No. These are questions that are currently underway in our preclinical models, and we're certainly paying close attention to the levels of PD-L1 that we are achieving both pharmacologically as well as with genetic overexpression systems. But this is definitely something we will keep a close eye on.

Boris, one more thing to add just to keep in mind. As you well know, with our therapeutic approach overall the supra-physiologic changes we are driving on the cell surface of these cells are transient in nature. So I think that is another important thing to consider.

Great. My second question is: in the PUMA study do you monitor CXCR4 gene expression or the ICOS protein expression levels? If so, is that something that you correlate, at least with the initial patient, whether there is a correlation between engraftment time and expression of these markers or not?

Yes, another great question. In addition to collecting the key endpoint parameters, we are obviously characterizing both the cell that actually we administer to patients as well as taking extensive characterization following the actual PROHEMA transplant.

Great. My last question; this is more -- maybe even a basic science question. But like, why does delayed neutrophil engraftment correlate with expression -- with GVHD?

Sorry. Can I ask you to repeat that question one more time?

Sure. You mentioned that delayed neutrophil engraftment in bone marrow transplant correlates with a higher level of GVHD. I'm curious why that is so.

No, I think what I wanted to convey here is that when you do an analysis of a time-to-engraftment in transplant recipients and you analyze the outcomes, the overall transplant-related mortality, and compare that between late engrafters and early engrafters, it is very clear -- based on the literature, and there is multiple multicenter experiences that have been published -- that patients who engraft late have a higher overall mortality risk. I did not refer to GVHD risk in that (multiple speakers)

Oh, sorry. I appreciate the clarification. Yes, I was a little confused by that. Thank you.

Then just to complete this then, the major contributors to that excess risk then include, for instance, risk of serious bacterial and fungal infection. So the longer the patient remains not fully engrafted, the higher the risk of bacterial infections, among other things, and that contributes to the clear association that one sees with time-to-neutrophil engraftment and mortality.

Yes, that makes perfect sense. Thanks again for clarifying that and taking my questions.

David Nierengarten, Wedbush Securities.

Thanks for taking my question. I was just wondering on the study in rare diseases. Where are you in terms of enrolling patients? Are you screening them? Do you have your centers set up? Just if we could get a progress report on that. Thanks.

Yes, absolutely. Hi, David. Happy to answer that question.

We are in, as we said in our prepared remarks, in the final stages of activating and initiating this trial. As you might imagine we are working with sites that have extensive experience, are considered leaders in this field, and we're excited to get this study up and running. We're in the final swings of getting the study activated, start enrolling patients.

Will you -- sorry to be bugging you about the details, but would you press release the first patient that you treat, so we can have an idea when we could see the initial results?

The exact forum in which we would announce this, I am not prepared to disclose or to talk about. But we will definitely keep everyone informed as we make progress on the two studies in pediatric patients, absolutely.

Okay. Understood, thanks.

(Operator Instructions) Ren Benjamin, H.C. Wainwright.

Hi, good afternoon. Thanks for taking the questions. Just jumping back to the PROVIDE study details, I know you mentioned you're in the final stages. Can you comment a little bit about what has taken this significant amount of time?

But probably more importantly from a patient enrollment perspective, is there already a backlog of patients? So during this whole set-up time have they been screening or looking for patients that might be lined up, so that enrollment may occur faster?

Yes, Ren, thanks for the question. Again, this is Christian speaking.

First off we, the team at Fate, are highly focused and working with a great sense of urgency to advance all of our clinical trials. We just had an opportunity to meet with many of our clinical investigators at the annual meeting of the ASBMT here in San Diego last month. I can tell you there is a shared excitement and commitment to advance these programs with a shared ultimate goal of improving patient outcomes.

As I said, there is administrative and just general tasks -- steps we need to take as far as study startup activities. As I mentioned, we are working with sites that are highly specialized in this area that we do not have previous experience with in our other clinical trials.

But we are very pleased with the progress we have been making recently. And as I said, we are very close to initiating that study, we feel.

With respect to the lineup of patients, the thing of course to keep in mind with enrollment in transplant settings or studies is that you have a narrow window of opportunity from a timing perspective to actually -- once an indication for transplant is made, you have a narrow window of opportunity to get this patient consented and screened and enrolled into a clinical trial. So there is not per se a, if you will, backlog of patients who are waiting for the study to start.

That being said, again the centers we are working with are referral centers globally, and so we are quite comfortable that once we get started enrollment will go according to plan. Keep in mind -- and I think we talked about this on a prior call -- that the very nature of PROHEMA being an allogeneic cell therapeutic that's derived from a healthy donor-derived cell, we have the ability to include several types of inherited metabolic disorders. In fact there is 18 of those disorders that are actually eligible for our trial, so that we hope and feel will aid enrollment.

Got it. Okay. Just switching gears to the new program regarding PD-L1 expression on these CD34+ cells. Can you talk a little bit about how long the expression does last? I think you answered that it's pretty transient.

And maybe how you are thinking about moving this forward, would you look for additional modulators to extend the expression? Or do you prefer cell therapies that you can dose multiple times in order to have more control over the process?

Yes, again, great question. The -- overarchingly I think we feel like when these cellular therapies, including CD34-cellular therapies, are administered to patients, there is a tremendous opportunity to -- in the very early days after the administration or transplant of these cells -- to engage very important biological processes that are critical to long-term patient outcomes.

And PD-L1 the program we just talked about and announced is not similar from that. I'll let Dan talk a little bit more about some of the underlying biology and science here.

We are definitely leveraging our preclinical models to explore this parameter. We typically believe our cells remain in an enhanced state for 48 to 72 hours.

Again, multiple dosing is one of the strategies we use to achieve the optimal dosing regimen. But again, it's early and we are using our in vitro assays in preclinical models to guide us on this one.

Okay. Might we see data from this program or even the iPSC program this year? What conferences should we be targeting?

We are not giving exact guidance as to when we would disclose further scientific information on the progress we are making in these clinical assessments. We might do this in future calls.

And then there is the obvious scientific meetings that we tend to attend and have a scientific presence, ASH being one of them.

Perfect. Thanks very much and good luck in 2015.

Thank you.

Thank you. I'm showing no further questions at this time, and I would like to turn the call back to management for any further remarks.

Well, thank you. I appreciate everyone's participation in today's call, and we look forward to updating you again in the near future. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.