Fate Therapeutics Inc (FATE) 2018 Q2 法說會逐字稿

Welcome to the Fate Therapeutics Second Quarter 2018 Financial Results Conference Call. (Operator Instructions) This call is being webcast live on the Investors & Media section of Fate's website at fatetherapeutics.com. As a reminder, today's call is being recorded. I would now like to introduce Scott Wolchko, President and Chief Executive Officer of Fate Therapeutics.

Thank you. Good afternoon, and thanks, everyone, for joining us for the Fate Therapeutics Second Quarter 2018 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 & Media section of our website under Press Releases. In addition, our Form 10-Q for the quarter ended June 30, 2018, was filed shortly thereafter and can be found on the Investors & 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, 2018, 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. Chris Storgard, our Chief Medical Officer; and Dr. Dan Shoemaker, our Chief Scientific Officer. Today, I will highlight progress against our key 2018 operational objectives and review our financial results for the second quarter, after which we will open the call up to questions and further discussion.

I am very pleased with our execution over the first 6 months of 2018 across the business. We are well positioned to continue to read out clinical data in the next several months for both ProTmune, our next-generation hematopoietic cell graft, and for NK100, our first-in-class adaptive memory NK cell cancer immunotherapy.

Additionally, with the submission of our landmark IND application to the FDA for FT500, a first-of-kind NK cell cancer immunotherapy derived from a master iPSC line, we are now poised to usher in a new era in the clinical development of cell therapies, one that utilizes renewable, master iPS lines for the mass production and off-the-shelf delivery of universal cell products. Overall, I believe we made important strategic and operational strides this past quarter toward achieving our mission of transforming the lives of patients with cancer and immune disorders.

Turning first to ProTmune. We have seen significant acceleration of subject enrollment in our ongoing Phase II PROTECT study, the randomized, controlled and double-blinded clinical trial of ProTmune, in which we intend to treat up to 60 adult subjects with hematologic malignancies undergoing matched unrelated donor hematopoietic cell transplantation.

During the second quarter of 2018, a total of 14 subjects were administered either ProTmune or a conventional mobilized peripheral blood graft, bringing the total number of subjects treated in the ongoing Phase II PROTECT study to 20. We attribute this acceleration to investigator enthusiasm following our presentation of initial clinical data from the Phase I stage of PROTECT at the ASH Annual Meeting in December and at the ASBMT Annual Meeting in March.

The Phase I data for ProTmune that we presented at these meetings on the PROTECT study's primary endpoint, the cumulative incidence of acute GvHD by Day 100 as well as on cancer relapse, have been encouraging.

We are continuing to follow these Phase I subjects. At the 2018 ASH Annual Meeting, we intend to present additional clinical data from the 7 subjects administered ProTmune in the Phase I stage of PROTECT, including data on the PROTECT study's secondary endpoint, freedom from moderate to severe chronic GvHD, cancer relapse and death at 1 year following HCT. We believe this secondary endpoint best captures the ideal state at 1 year that defines a successful long-term outcome for patients undergoing HCT, that is alive, without cancer relapse and without active GvHD.

We also achieved several clinical milestones with NK100, our first-in-class allogeneic donor-derived natural killer cell cancer immunotherapy comprised of adaptive memory NK cells. We have treated subjects in all 3 clinical trials of NK100: VOYAGE for the treatment of refractory or relapsed AML; APOLLO for the treatment of recurrent ovarian cancer; and DIMENSION for the treatment of advanced solid tumors, including in combination with FDA-approved monoclonal antibody therapy.

In each of these 3 studies of NK100, subjects have significant tumor burden at the time of enrollment, are heavily pretreated, including, in some cases, with experimental therapies, and have no other approved treatment options. At this time, looking across all 3 studies, there have been no reported dose-limiting toxicities related to NK100, including no reported events of GvHD, cytokine release syndrome or neurotoxicity.

Additionally, antitumor activity of NK100 has been observed as we have previously disclosed that our second subject in the VOYAGE study achieved a morphologic leukemia-free state at Day 14, and that our subject in the APOLLO study achieved stable disease with evidence of tumor shrinkage at Day 28 following a single administration of NK100. I am also pleased to announce that we have added a second leading cancer research center for enrollment in the DIMENSION study, Baylor Charles A. Sammons Cancer Center in Dallas and that this center has already enrolled its first subject.

At the Society for Immunotherapy of Cancer in November 2018, we plan to host an investor event, along with our NK100 investigators, to review initial clinical data and biological observations from the 3 Phase I studies of NK100.

A top operational objective for the company in 2018 is to pioneer the clinical development of a new class of cell products for patients with cancer. We are seeking to initiate groundbreaking, first-in-human clinical trials of cell products that are made using master induced pluripotent stem cell lines. The use of master iPSC lines enables the manufacture of NK and T cell products that are uniformly engineered, extensively characterized and homogeneous in composition and can be mass produced and delivered to patients in an off-the-shelf manner.

Within the last 30 days, we submitted a landmark Investigational New Drug application to the U.S. Food and Drug Administration for FT500, the first universal off-the-shelf NK cell product emerging from our iPSC product platform. We intend to initially develop FT500 as a rescue therapy for patients that are resistant to checkpoint inhibitors.

We believe our IND package is strong. The CMC data is supported by 3 successful pilot manufacturing runs. The non-clinical data is supported by a GLP toxicity and tumorigenicity study, which evaluated multi-dose administration of FT500 at 2 different dose levels in an animal model. The results of the study demonstrated that FT500 was well tolerated.

Specifically, there were no adverse clinical observations related to the administration of FT500, there were no FT500-related -- cell-related changes in hematology or clinical chemistry parameters. There were no palpable masses or evidence of tumors, and there were no mortality events in animals administered FT500.

To our knowledge, this is the first IND application submitted to the FDA that uses a master iPSC line as a renewable source for producing an off-the-shelf cell product. It is an original first-of-kind IND application. Notably, it is certainly not uncommon for FDA allowance of first-of-kind IND applications to extend beyond the standard 30-day review period. Similarly, we are prepared for FDA allowance of our FT500 IND application to take longer than 30 days.

We believe allowance to initiate clinical investigation of an iPS-derived cell therapy by the FDA would be a transformative milestone for the company as well as the entire field of cell therapy. There are already several iPS-derived cell therapies undergoing first-in-human clinical investigation in Japan, including 2 trials that were just allowed in the past couple months: one, using iPS-derived dopaminergic progenitors for Parkinson's disease; and another using iPS-derived cardiac muscle cells for heart failure.

The era of iPS-derived cell therapy is upon us, and we are excited and honored to be working with the FDA to pioneer the clinical investigation of this new paradigm in the United States.

The knowledge gained through our engagement with the FDA in the review of our FT500 at IND application is very powerful as it also provides a detailed road map for us to initiate clinical development of additional product candidates emerging from our iPSC product platform.

In the second quarter of 2018, we successfully generated and selected the single iPSC clone for producing FT516, our second universal off-the-shelf NK cell product, which uniformly expresses a high affinity non-cleavable CD16 Fc receptor. From this single iPSC clone, we made the master cell bank for FT516, which has been extensively characterized for genomic stability, copy number variation and the exact integration site of the CD16 transgene in the genome.

Additionally, we initiated a GLP toxicity and tumorigenicity study for FT516. We expect to receive a $1.1 million milestone payment from the California Institute for Regenerative Medicine during the third quarter of 2018 in connection with the achievement of these milestones. We aim to submit an IND application for FT516 by the end of 2018 and expect that the specific timing of the FT516 IND submission will be guided by our current interactions with the FDA under our FT500 IND submission.

I would also like to highlight our progress in the preclinical development of FT819 under our exclusive collaboration with Dr. Michel Sadelain at Memorial Sloan-Kettering for the research and development of iPS-derived T cell immunotherapies. FT819 is our first-of-kind universal, off-the-shelf CAR T cell product candidate, which is derived from a single iPSC clone, engineered to completely eliminate the expression of the T cell receptor and to precisely insert a CAR-targeting CD19 into the TRAC locus.

We believe the engineering of a single iPSC clone, rather than the engineering of a large batch of primary T cells, is a best-in-class approach and ensures that each cell in the final drug product is completely free of its alloreactive TCR and has uniform CAR expression for enhanced T cell potency.

During the second quarter of 2018, we expanded our existing license agreement with Memorial Sloan-Kettering to further enable the development of off-the-shelf CAR T cell immunotherapies, including FT819. The newly licensed portfolio of intellectual property covers certain recent inventions made by Dr. Sadelain relating to novel CAR constructs with improved therapeutic potency as compared to conventional CAR constructs that are widely used today in CAR T cell field.

We have evaluated these novel CAR constructs, assessed the properties and functionality of iPS-derived CAR T cells incorporating these novel CAR constructs and identified a specific CAR construct that significantly improves antitumor activity and target specificity in preclinical models.

During the second half of 2018, we expect to select the single iPSC clone and make and characterize the master cell bank for FT819. And we plan to engage the FDA in a pre-IND meeting in partnership with Dr. Sadelain to discuss the clinical development of FT819.

Finally, I'm pleased to announce that we, along with our collaborators, submitted 6 abstracts covering our iPSC-derived cancer immunotherapy pipeline for presentation at the 2018 ASH Annual Meeting, and we plan to hold an investor event at ASH to highlight our universal off-the-shelf NK cell and T cell product candidates.

Turning to our financial results. For the second quarter ended June 30, 2018, Fate Therapeutics reported a net loss of $19.7 million or $0.37 per common share as compared to a net loss of $9.6 million or $0.23 per common share for the same period. The second quarter net loss included a onetime expense of $5.3 million associated with the in-license of additional intellectual property from Memorial Sloan-Kettering. Excluding this onetime expense, net loss for the second quarter ended June 30, 2018, was $14.4 million or $0.27 per common share.

Revenue was $1 million for the second quarter of 2018 as well as for the second quarter of 2017. Revenue in both periods was generated from our strategic research collaboration with Juno Therapeutics. Research and development expenses for the second quarter of 2018 were $16.8 million compared to $7.9 million for the same period last year.

The increase in our R&D expenses was attributable primarily to the onetime expense of $5.3 million associated with the in-license of additional intellectual property from Memorial Sloan-Kettering and an increase in expenses associated with the clinical development of NK100 and with regulatory and manufacturing activities to support the submission of our FT500 IND application.

General and administrative expenses for the second quarter of 2018 were $3.8 million compared to $2.7 million for the same period last year. The increase in our G&A expenses was attributable primarily to employee compensation associated with growth in headcount and increased advisory fees, including general, legal and intellectual property-related expenses.

Total operating expenses for the second quarter of 2018 were approximately $13.3 million after adjusting for the onetime expense of $5.3 million as well as for research funding proceeds from Juno Therapeutics of $500,000 and for stock-based compensation expense of approximately $1.5 million. Total operating expenses, as adjusted, for the second quarter of 2018 of $13.3 million represents an increase of approximately $0.1 million compared to the first quarter of 2018.

At the end of the second quarter of 2018, cash, cash equivalents and short-term investments were approximately $78 million; common stock outstanding was approximately 53.4 million shares; and preferred convertible stock outstanding was approximately 2.8 million shares, each of which is convertible into 5 shares of common stock under certain conditions.

In closing, I'd like to thank each and every employee of Fate Therapeutics as well as our collaborators. Your creativity, innovative spirit and unrelenting commitment to our mission has progressed the field of cell therapy to a new era. We are excited and honored to be working with the FDA to pioneer the clinical development of iPS-derived cellular immunotherapies as an important part of our mission to transform the lives of patients with cancer and immune disorders.

And with that, I'd like to open up the call to questions.

(Operator Instructions) Our first question comes from Ted Tenthoff with Piper Jaffray.

Congrats on all the progress and on the IND filing. Two questions if I may. Firstly, Scott, I think you're right to kind of caution for potentially a little bit longer review with respect to the iPSC filing.

What do you think the FDA is going to take more time on? Is this going to be CMC issues, safety plans? What are you foreseeing as items in the first-ever IND filing that may take a little bit longer? And then I have a quick follow-up.

Sure. Thanks, Ted. Yes, honestly, it's hard for me to comment on that at this time. We feel like we had 2 really good pre-IND meetings with the FDA with respect to iPS-derived products. In the first meeting, we spent a lot of time focusing on the reprogramming and creation of an iPS cell line in a master cell bank. And in our second pre-IND meeting, we spent time discussing the creation of an off-the-shelf NK cell product from that master cell bank.

So I think in our 2 pre-IND meetings, we did a good job of covering the totality of the products that we intend to generate from our iPSC product platform. But as I mentioned, we are within the first 30 days of submission. It is an original first-of-kind IND application. So we should know fairly shortly the FDA's views on this landmark IND submission.

Excellent. And then a question for you and Dan. And it's just about kind of taking it to the next level with respect to CRISPR editing. What's the latest there? And how are you guys going to use CRISPR through that new MSK partnership to potentially edit the cell lines?

Sure, I'll let Dan handle that.

Thanks, Ted. Yes, so it's been an interesting time in the gene editing field as we get a better idea on the on-target and off-target activity of these different platforms. But I'd really like to highlight that independent of which approach you're taking, I think you're going to face significant challenges with heterogeneity when you're editing batches of billions of cells, and this is especially true if you're going after multigene targets.

And thinking about these batches of billions of cells, even low levels of incompletely edited TCRs, translocations or deletions can serve as a potential safety concern. And I really like the approach that we've taken here at Fate, where we get around this heterogeneity problem by selecting individual clonal iPSC lines, again, where we could extensively characterize them during the clone selection process for both on-target and off-target activity.

And using this, you end up with a homogeneous clonal master cell bank that, again, serves as the starting point for all of our manufacture of our iNK and IT products. So anyway, I think that heterogeneity is something to keep our eye on, and I think our clonal approach really is a great solution for that very important problem.

Great. Well, I'm looking forward to the updates at SITC and ASH in the back half.

Our next question comes from Robyn Karnauskas with Citi.

I guess, can you help us just understand how you're going to disclose or in what ways you'll disclose the progress with the IND?

Will the next time we just hear about it be status, or will you be able to give some color around if it is on hold, what kind of conversations you're having? Or then -- will you press release when it's finally accepted? Or would you wait until you have an earnings call or an event like that?

Yes, I think it's too early to say. I don't want to speculate on what the nature of the feedback will be from the FDA as we work through this submission. We have disclosed obviously that it is an original first-of-kind application, and it's not uncommon for FDA allowance of first-of-kind applications to extend beyond the 30-day period, especially in the cell therapy space.

So we're certainly planning for that. Ultimately, the allowance and clearance, I believe, is an important event for the company. So we look forward to achieving that and certainly announcing that.

And then on ProTmune, do you have -- you accelerated enrollment. When will we learn about these additional patients, the 13 patients? How soon did that enrollment happen? Why won't we learn a little bit more at ASH?

Yes, so at the ASH update, the ASH update that we'll provide is from the Phase -- the 7 Phase I subjects that were administered ProTmune. And so we will give an update, all the -- all those subjects will have progressed and, obviously, we will give a 1-year update on the Phase I subjects.

The Phase II subjects, where we're intending to enroll up to 60 subjects, where 20 have been enrolled as of the end of the second quarter, it's a randomized, blinded and controlled study. So we are looking for data in the Phase II study in 2019.

Our next question comes from Do Kim with BMO Capital Markets.

For the ProTmune Phase II study, can you say whether you've reached a stable rate of enrollment and provide sort of general time frame for enrollment completion?

Yes. So we've disclosed that enrollment in the second quarter were 14 subjects. It's hard for me to say whether or not that is a stable rate. It represents a significant acceleration.

And as we discussed, I believe, that acceleration is based on the encouraging data that we presented both at ASH as well as ASBMT. Obviously, if that rate continues, even at a flat pace, we should be in a terrific position with respect to full enrollment early in 2019.

Great. And when you think about what the important endpoints are for the Phase II portion from what you've learned from the Phase I, what are you focusing on? And what would that mean for a Phase III trial design?

Yes, I can -- I'll comment on it and I'll let Chris comment on it as well. I mean, we continue to believe that the cumulative incidence of a Grade 2-4 acute GvHD is a important readout at Day 100. We have Fast Track designation around incidence and severity of acute GvHD at Day 100.

It's an important readout, absolutely since treatment of patients with acute GvHD is typically done with high-dose immunosuppressive agents that are given systemically, and that can certainly have an effect on rates of cancer relapse. So from our perspective, that Day 100 endpoint, at the rates of acute GvHD, the severity of GvHD can foretell ultimately what long-term outcomes are.

That said, we are actively measuring and our key secondary endpoint is how patients perform in their outcomes at 1 year. We're at -- it is a curative procedure, it's performed within curative intent. So from our perspective as we look at the totality of outcome, certainly, cancer relapse and survival is key.

Great. And one last question on FT516, the grant funding that you received, what are the other milestones for the installments? And what is the milestone that the last installment is dependent on? Is it Phase I start or Phase I completion?

I believe the last milestone is based on submission of the IND.

Our next question comes from Jim Birchenough with Wells Fargo Securities.

Congrats on all the progress. Just on the timelines for the IND clearance, when you think about other first-in-class novel products like this, particularly in the cell therapy space, what's the best precedent here? And what's a frame of reference for time lines that you've seen previously? And is FATE-NK100 a potential frame of reference here? And then I've got a follow-up.

Yes. I think, at least in our experience, I mean, I would point to NK100. NK100 from submission to allowance was about 3 months. That was for the first submission, which was relapsed/refractory AML.

As you know, we're in 3 studies, so there were 3 different submissions with respect to NK100, the last submission being the DIMENSION study. The last submission for the DIMENSION study of NK100 was allowed in 30 days.

And then Scott, is there any chance, to the extent that this is novel and first-in-class, that FDA may want to see the preclinical safety data for FT516? Or do you -- is there any suggestion they'd want to look at that before they allow the FT500 IND?

There's been no suggestion of that. I think they're completely unrelated.

And then, I guess, just finally in terms of expectations for NK100 and whether that's kind of a leading indicator for 500, do you expect FT500 to be as active as NK100, more active? How should we think about the data from NK100 as a leading indicator of what to expect for FT500?

I think, I mean, they're fundamentally different products. I mean, NK100 obviously is a donor-derived product. So like all patient-derived and donor-derived products, there is heterogeneity associated with it.

And I would also point out, quite frankly, that the studies that we plan on pursuing are significantly different. FT500 is intended to be, from the get-go, a multi-dose paradigm in combination with checkpoint inhibitors, which is very different than the strategy we're pursuing with NK100 currently.

Got it. And maybe just one final one on ProTmune. When you think about the secondary endpoint of patients who are alive, relapse-free and without moderate to severe GvHD at Day 100, as we think about the update we'll get at ASH from the Phase I, what would you expect from standard of care? What's the benchmark for a successful result? And what are you expecting to see from the control group in the Phase II portion of the study?

Sure. Unfortunately, like a lot of data points that are reported in the hematopoietic cell transplantation space, there is a fairly wide range with respect to this secondary endpoint.

But somewhere approximately in the range of 25% to 35% of patients, only that percent of patients successfully meet that hurdle. It is a -- unfortunately, most patients at 1 year have either died, relapsed or are living with active GvHD.

Our next question comes from David Nierengarten with Wedbush Securities.

I had one on thinking about dosing on 516. In other words, if you're dosing 500 with checkpoint inhibitors, one, I presume you're using the standard checkpoint inhibitor dose.

And then going forward with 516, do you imagine, given a slightly different or more than slightly but different mechanism, are you planning to use, again, standard doses of Herceptin or other approved antibodies? Or do you anticipate needing to explore a dosing on the antibody side?

Sure. With respect to both checkpoint inhibitors as well as monoclonal antibodies, the clinical trials that we have proposed to run are based on settings where those agents are approved, and those agents will be given at approved doses.

(Operator Instructions) Our next question comes from Ren Benjamin with Raymond James.

A couple of them, I guess, just starting off with NK100. Scott, you mentioned a couple of notable responses, I think both in VOYAGE and APOLLO, didn't mention anything from DIMENSION. Does that mean that there just haven't been any responses yet in DIMENSION or it's, maybe, too early to tell? And will you be increasing doses in all 3 studies?

And I guess, just finally related to NK100, you mentioned that at an upcoming conference, which I failed to write down, if you could remind me, you're going to be reporting the data from all 3 studies. About how many patients do you think in each study you'll have?

Okay. So a couple questions in there. And I apologize if I don't hit them all, so feel free to repeat them. So we did not disclose data in the DIMENSION study yet simply because historically, we have not disclosed data. The data points I mentioned, we've historically disclosed at medical conferences.

And so we've been committed as a company to releasing NK100 data as part of medical conferences. There certainly is data already in the DIMENSION study. And we did commit to provide an update with respect to NK100 across all 3 studies at SITC in early November.

Got it. And just can you give us a sense as to how many patients' worth of data you think you'll have then?

We'll provide an update at SITC in November.

Got it, okay. Switching gears to FT500. Just assuming that, let's say, the IND gets accepted, what do the initial trials kind of look like? Where are you guys going to be evaluating this?

Chris here. As Scott mentioned, the initial trial is in combination with checkpoint inhibitors in the population of patients, who are using it for approved indications and are either refractory to or have relapsed on the checkpoint inhibitor. So that's the initial population. It'll be initial dose escalation Phase I study followed by an expansion.

Got it. So an all-comer study, so it's not necessarily focused on one indication or another?

That's correct. It's in populations where checkpoint inhibitors are currently approved.

Got it. And can you talk a little bit about your, maybe, ex U.S. regulatory or clinical development strategies and maybe any thoughts regarding potential partnerships either worldwide or ex U.S.?

Yes. So at this point in time, we have had meetings ex U.S. with respect to pioneering our iPSC product platform with multiple different agencies outside the United States. We've not yet committed to pursue those opportunities, although we are open to pursuing those opportunities in collaboration with partners.

Okay. And then one final one for me. It's probably a geek question, so Dan may like this one. Can you talk a little bit about genomic, I guess, I've always kind of wondered about the genomic stability of when you're starting off with one clone and then expanding it to not just therapeutic doses but batches that could treat hundreds, if not thousands, of patients and how you guys monitor that genomic stability?

Yes, it's a great question, and we do pay special attention to the passage number of our iPSC banks with respect to our characterization. And we have a variety of approaches where we look at genome stability, translocations, deletions and just have a fairly comprehensive characterization strategy, which again, we've developed in discussions with the FDA over several pre-IND meetings.

And it's one thing to perform these tests right after you've selected your optimally edited iPSC clone, but it's another question as you then passage this to a sufficient degree, secrete a master cell bank and working cell banks as well as the ultimate products. And again, this has been a very important dialogue that we've had with the FDA on when to perform which test.

But I could just tell you that you have to perform all the tests at the right relevant passage numbers relative to the hydrocele therapies that we're going to be taking forward into the clinic.

Congrats on the progress.

I'm not showing any further questions at this time. I would now like to turn the call back over to Scott Wolchko for any closing remarks.

Thank you very much. Thank you all for participating in today's call, and we look forward to speaking with you again in the future.

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