Fate Therapeutics Inc (FATE) 2017 Q3 法說會逐字稿

Welcome to Fate Therapeutics third-quarter 2017 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. 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 third-quarter 2017 financial results call. Shortly after 4 PM Eastern Time today, we issued a press release with these results, which can be found on the investors and media section of our website, under press releases. In addition, our Form 10-Q for the third quarter ended September 30, 2017, 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 the market today, as well as the risk factors in the Company's SEC filings included in our Form 10-Q for the third quarter ended September 30, 2017, 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. I will begin the call today by highlighting four data releases occurring over the next six weeks at prestigious scientific conferences. These include, number one: initial clinical observations from our VOYAGE study of FATE-NK100 in subjects with relapsed/refractory AML.

Number two, day 100 efficacy data from the Phase I stage of our PROTECT study of ProTmune for the prevention of acute graft-versus-host disease in subjects undergoing allogeneic hematopoietic cell transplantation as a curative therapy for certain hematologic malignancies.

Number three, IND-enabling data got our first-of-kind, off-the-shelf NK cell cancer immunotherapy product, FT500, including its production under cGMP compatible conditions from a clonal induced pluripotent stem cell, or iPSC, master cell line.

And number four, breakthrough preclinical results under our off-the-shelf T cell collaboration with Memorial Sloan Kettering, led by Dr. Michel Sadelain, where the group has now generated CD8 alpha beta positive T cells from a clonal iPSC master cell line engineered to express a chimeric antigen receptor.

Chris will then provide an update on FATE-NK100, where two clinical studies are open and enrolling subjects; and an additional clinical trial is being readied for launch for investigation of FATE-NK100 across more than eight different types of hematologic and solid tumor malignancies. As well as ProTmune, where the first subject has been treated in the randomized, controlled, and blinded Phase II stage of PROTECT. Dan will then discuss our proprietary iPSC product platform and progress on our off-the-shelf cancer immunotherapy product candidates emerging from this platform.

We currently remain on track to file, in the first quarter of 2018, a landmark investigational new drug application with the FDA for the conduct of a first-in-human clinical trial of our iPS-derived NK cell product, FT500, in combination with FDA-approved checkpoint inhibitors for the treatment of advanced solid tumors.

In addition, Dan will discuss the initiation of development of our first iPS-derived T cell product candidate, FT819, which is derived from a clonal iPSC master cell line engineered to express a CAR targeting CD19 and edited to remove T cell receptor expression.

I will conclude with a review of our financial results for the third quarter of 2017 before opening the call up to questions and further discussion.

At the upcoming Society of Immunotherapy of Cancer 32nd annual meeting, we will present our first clinical data of FATE-NK100, our first-in-class adaptive memory NK cell cancer immunotherapy. The clinical data will include subjects from the first two dose cohorts in the VOYAGE study of FATE-NK100 for the treatment of refractory or relapsed AML. FATE-NK100 has now safely advanced through these first two dose cohorts.

In AML, patients who were refractory to frontline therapy or relapsed have a very poor prognosis and few clinical options. Several recent clinical studies have shown that the adoptive transfer of NK cells from healthy donors to patients can selectively target and destroy leukemic blasts without causing graft-versus-host disease or triggering significant side effects such as cytokine release syndrome.

Our preclinical findings suggest that FATE-NK100 has significantly enhanced antitumor activity compared to conventional NK cells. FATE-NK100 is comprised of a highly specialized and functionally distinct subset of activated NK cells expressing the maturation marker CD57. CD57 is believed to be a key marker of NK cell potency. In fact, high frequencies of CD57 positive NK cells in the peripheral blood or tumor microenvironment in cancer patients have frequently been linked to less severe disease and better outcomes.

Additionally, our preclinical data suggest that FATE-NK100 exhibits in vivo persistence. Prior clinical studies of the conventional NK cells in AML have indicated that the presence of donor NK cells in the peripheral blood for at least seven days post-infusion is generally associated with improved clinical outcomes. We will look to these first few subjects in the dose escalation stage of VOYAGE to demonstrate safety of FATE-NK100 and to gain initial clinical insights into the unique properties and enhanced functionality of FATE-NK100 that we have observed in preclinical studies.

At SITC, we will report key cell product properties and biomarkers of antitumor activity, including the cell surface expression of CD57, in vitro potency, and day 7 persistence. We will also report the antitumor activity of FATE-NK100, including reduction in the percentage of leukemic blasts in the peripheral blood and bone marrow, as well as overall response rates.

In addition to continuing to enroll subjects in the VOYAGE study, our multi-pronged clinical development strategy for FATE-NK100 continues to progress. The APOLLO study of FATE-NK100 for the treatment of women with ovarian cancer resistant to, or recurrent on, platinum-based treatment, is open for enrollment. Objective response rates in these patients are as low as 10% to 35% with current standard of care therapies. And there remains a critical need for novel therapeutic strategies as current rates of progression free survival are less than six months.

Additionally, we expect to initiate enrollment in the coming weeks in the DIMENSION study of FATE-NK100 in combination with monoclonal antibody therapy for the treatment of advanced solid tumors. We are particularly excited about the DIMENSION study, as this will be, to our knowledge, the first clinical investigation in the US of donor NK cell therapy in combination with Herceptin for advanced HER2 positive cancers, including breast and gastric cancers; and with Erbitux for advanced EGFR1 positive cancers, including colorectal and head and neck cancers. We will continue to look to provide clinical updates on our FATE-NK100 program at relevant scientific conferences as these three studies progress.

Turning to ProTmune, I am pleased to announce that the first subject has been treated in the randomized, controlled, and blinded PROTECT Phase II clinical trial of ProTmune, our next-generation hematopoietic cell graft for the prevention of acute graft-versus-host disease, or GvHD. PROTECT is a combined, open-label Phase I, blinded Phase II clinical trial of ProTmune in subjects undergoing allogeneic hematopoietic cell transplantation as a curative therapy for certain hematologic malignancies.

The Phase II efficacy stage was opened in September, following the completion of a safety review by the PROTECT study's four-member independent data monitoring committee. Based on its review of all available Phase I data on seven subjects receiving ProTmune, the committee unanimously recommended initiation of the randomized, controlled, and blinded Phase II stage of PROTECT. The primary objective of the PROTECT Phase II is to assess the incidence and severity of acute graft-versus-host disease by day 100, following transplantation.

Acute GvHD is a severe immunological disease that commonly arises in patients during the first weeks following allogeneic HCT, when the newly transplanted donor immune cells attack the patient's tissue, resulting in a potentially fatal immune system reaction.

Prospective clinical studies have shown that 40% to 80% of patients undergoing matched, unrelated donor transplant experience acute GvHD, with most incidents occurring by day 60, post-HCT, despite the widespread use of standard prophylaxis regimens. Acute GvHD is the leading cause of early morbidity and mortality in matched unrelated donor transplant, where death directly attributable to acute GvHD, or its treatment, occurs in 10% to 20% of patients.

Since HCT is performed with curative intent for patients with life-threatening hematologic malignancies, a hematopoietic cell graft such as ProTmune must also function to fight against cancer relapse to promote survival. In this respect, we believe that ProTmune is distinct from therapeutic approaches that aim to prevent acute GvHD by depleting or eliminating donor T cells.

These types of approaches have been shown to result in unacceptably high rates of cancer relapse, severe infections, and/or mortality. Therefore, the PROTECT Phase II study will also evaluate additional key endpoints that reflect the curative intent of HCT, including rates of cancer relapse and survival.

At the 59th American Society of Hematology annual meeting in December, we will present day 100 clinical data on all seven subjects administered ProTmune in the Phase I safety stage of PROTECT. Key clinical outcomes on these seven subjects to be released at ASH include incidence and severity of acute GvHD, cancer relapse, and survival at 100 days following HCT.

Additionally, as we announced this morning, two of our iPS-derived cancer immunotherapy product candidates, FT500 and FT819, have been selected for the oral presentations at ASH. This is terrific validation of our proprietary iPSC product platform, which we have built over the past 10 years through our own internal initiatives at Fate Therapeutics and through collaborations with leading researchers and investigators.

Our platform is truly unique, and has remarkable potential for the field of cell therapy. It enables precise, multi-step genetic engineering, high-throughput single cell isolation, and clonal selection of a single input, human-induced pluripotent cell, from which we create clonal iPSC master cell lines.

Similar to master cell lines used for the manufacture of monoclonal antibodies, iPSC master cell lines can serve as a renewable cell source for the consistent and repeated manufacture of homogeneous cell products with the potential to treat many different diseases and many thousands of patients in an off-the-shelf manner. We are very excited for the opportunity to highlight its potential in the field of NK and T-cell cancer immunotherapy at ASH.

One oral presentation at ASH will feature FT500, the Company's first-of-kind NK cell product candidate derived from a clonal iPSC master cell line. Fate Therapeutics has been developing FT500 in collaboration with Dr. Jeffrey Miller, Deputy Director of the Masonic Cancer Center, University of Minnesota.

Our presentation will highlight the achievement of a significant milestone for IND enablement: the efficient production of FT500 from a clonal iPSC master cell line using a GMP-compatible process. The process is capable of yielding, in a single manufacturing run, thousands of doses of homogeneous drug product for off-the-shelf delivery of patients. And since the drug product is derived from a clonal iPSC master cell line that is renewable, manufacturing runs can be consistently and reproducibly repeated.

I'm pleased to announce that we have now successfully completed technology transfer of our iPS-derived NK cell product platform to Molecular and Cellular Therapeutics, a state-of-the-art, GMP-compliant facility. And we have now completed, at MCT, and end-to-end manufacturing run for FT500 at pilot scale. We are poised to begin GMP manufacture of FT500 at MCT to support our first-in-human clinical studies.

We remain on track to file a landmark IND application with the FDA in the first quarter of 2018 to initiate first-in-human clinical investigation of FT500 in combination with FDA approved checkpoint inhibitors for the treatment of advanced solid tumors.

A second oral presentation at ASH will describe an extraordinary recent breakthrough for the development of off-the-shelf CAR T-cell cancer immunotherapy. As previously announced in September of 2016, Fate Therapeutics partnered with Memorial Sloan Kettering Cancer Center for the development of off-the-shelf T cell product candidates using engineered pluripotent cell lines. Research and development activities under the multi-year collaboration are led by Dr. Michel Sadelain, Director of the Center for Cell Engineering. Our collaboration has now resulted in the generation of CD8 alpha beta positive T cells from a clonal iPSC master cell line engineered to express a chimeric antigen receptor.

To our knowledge, this is the first demonstration of the creation of CD8 alpha beta positive CAR T cells from a clonal iPSC master cell line. As part of the collaboration, Fate Therapeutics has created clonal iPSC master cell lines that are engineered to express CARs and are also modified to attenuate alloreactivity and enhance persistence for off-the-shelf CAR T-cell immunotherapy.

With the generation of CD8 alpha beta positive T-cells, we have now initiated preclinical development of the Company's first iPS-derived CAR T-cell product candidate, FT819, derived from a clonal iPSC master cell line engineered to express a CAR targeting CD19 and edited to remove T-cell receptor expression. We expect to initiate technology transfer to the GMP facility at Memorial Sloan Kettering for the production of FT819 in the first half of 2018.

I will now turn the call over to Dr. Chris Storgard, our Chief Medical Officer, who will provide further details of our clinical development of FATE-NK100 and ProTmune.

Thanks, Scott. Over the past three months, we have made noteworthy progress on our clinical programs. Let me update you on some of these advancements. First, with respect to ProTmune, the Phase II stage of PROTECT is now open, and we have enrolled and treated the first subject. The primary endpoint of the PROTECT Phase II is the cumulative incidence of acute-graft-versus host disease, or GvHD, grades 2 through 4, by day 100 following transplantation.

In this Phase II stage, the efficacy of ProTmune is being evaluated in a randomized, blinded, and controlled study in 60 subjects. This study is enrolling at all patients undergoing allogeneic hematopoietic cell transplantation using a mobilized peripheral blood graft from a matched unrelated donor for the treatment of underlying hematologic malignancies, including AML, ALL, and MDS.

The subjects are being randomized in a one-to-one ratio to receive either ProTmune or a conventional matched unrelated donor mobilized peripheral blood cell graft. Currently, 14 US sites are open for enrollment, and four additional sites are conducting study startup activities.

The Phase II efficacy stage was initiated in mid-September following a review by the PROTECT study's four-member independent data monitoring committee of all available data from all seven subjects administered ProTmune in the Phase I stage of PROTECT. Based on its review, the DMC was in unanimous agreement that ProTmune met the safety requirements to proceed to Phase II efficacy testing.

All subjects met the day-28 safety objectives of neutrophil engraftment and survival, and reached day 28 without any events of graft failure or serious adverse events related to ProTmune. The median time to neutrophil engraftment was 18 days. ProTmune was successfully manufactured for all seven subjects in the Phase I stage of PROTECT. All ProTmune grafts maintained high cell viability and CD34 cell recovery.

Importantly, we confirmed successful and robust pharmacologic modulation of every graft with a notable and significant increase in the expression of CXCR4, our potency marker. Pre-manufacture, approximately 5% of CD34 cells stained positive for CXCR4 expression at a preset cutoff level. However, post-manufacture, the number of CD34 cells expressing CXCR4 increased to nearly 70%. This is clear and compelling evidence that the biological properties and therapeutic potential of ProTmune have been pharmacologically enhanced.

An ASH abstract released today highlighted additional early clinical data on the first five of the seven Phase I subjects as of a July 31, 2017, data cutoff date, which was compiled to support the ASH abstract. For these first five subjects, as of the data cutoff, the median time on study was 53 days.

ProTmune was well tolerated. ProTmune-related adverse events were limited to two cases of grade 1 vomiting on the day of administration, and there were no reported ProTmune-related serious adverse events. There was one reported event of acute GvHD by day 100, which was fully responsive to steroid treatments. There were no reported events of cancer relapse by day 100, and there were no reported events of mortality by day 100.

Note that as of the July 31, 2017, data cutoff, three of these five [day 1] subjects had not reached the day-100 time point. Additionally, an additional two Phase I subjects have subsequently enrolled and being treated following this data cutoff.

Now, at the time of the ASH presentation in December, all seven Phase I subjects are expected to have reached the day-100 time point. Key clinical outcomes of all seven Phase I subjects, including the incidence of acute GvHD, immune reconstitution, cancer relapse and survival at day 100, post-transplant, will be released.

I'd like to take a few minutes to expand on the therapeutic potential and opportunity for ProTmune. As Scott mentioned, acute GvHD is the leading cause of early morbidity and mortality in matched unrelated donor transplants. And novel therapy that can reduce the incidence and severity of GvHD are clearly needed.

However, it is important to recognize that the transplant community has previously identified methods that effectively reduce the incidence and severity of acute GvHD. These include administering T cell depleted grafts or the use of potent immunosuppressants such as ATG. Now, in these cases, significant attenuation of GvHD was, in fact, observed. However, severe infections, cancer relapse, and mortality were all demonstrated to be unacceptably increased. This underscores the key protective role that donor T cells play in a hematopoietic cell transplantation.

To advance the curative potential of HCT, we believe therapeutic solutions must reduce the potential of donor T cells to cause GvHD, yet maintain the capacity of T cells to fight infections and cancer. We believe that ProTmune achieves this critical balance. Let me explain how. Acute GvHD occurs when individual alloreactive donor T cells present in the hematopoietic cell graft administered to the patients become activated, logarithmically expand, and then attack the patient's tissues and organs. This activation and expansion of donor T cells often occurs shortly following transplantation, when the inflammatory cytokine levels in the patient are extremely high due to the tissue and organ damage from the myelo-ablative regimen used to condition the patients.

Our preclinical data indicate that through ex vivo small molecule modulation, the T cells in a ProTmune graft are less responsive to these inflammatory cytokines during the critical first weeks following transplantation, when patients are at highest risk of GvHD.

Importantly, since the T cells in a ProTmune graft are only transiently modulated -- they are not engineered or depleted -- we expect these T cells to retain their inherent capacity to protect against infections and fight cancer. Thus, we believe that the mechanism of action of ProTmune can provide that critical immunological balance necessary to reduce graft-versus-host disease and maintain graft-versus-leukemia effects that has eluded other therapeutic approaches.

To assess this potential, we will also track a key composite endpoint known as GRFS, or GVHD-free, relapse-free survival. GRFS is an endpoint that is well recognized by the transplant community. The endpoint captures the two leading events that contribute to mortality, namely grade 3/4 GvHD and cancer relapse, in addition to all cause mortality.

Now, in many ways, the GRFS endpoint measures cure without ongoing morbidity of hematopoietic cell transplantation. Unfortunately, currently only about 40 to 45 patients at six months, and only 25 to 30 patients at one year following transplantation, are able to achieve GRFS. This highlights the significant unmet medical need.

I'll turn now to FATE-NK100. Our multi-pronged development strategy targets specific tumor types in cancer settings where we believe NK cell therapy is biologically advantaged; where we can potentially drive a multifaceted, potent, and durable immunologic response where we have the potential to demonstrate proof-of-concept and therapeutic differentiation in a small number of subjects, and where we believe that early clinical success can translate into rapid registration studies.

As Scott mentioned, FATE-NK100 has now safely advanced to the first two dose cohorts in the VOYAGE study for relapsed/refractory AML. No dose-limiting toxicities have been observed in the first dose cohorts of 1 times 10 to the 7 cells per kilogram, and 2 times 10 to the 7 cells per kilogram. Enrollment is currently ongoing in the third dose cohort, which can dose up to 1 times 10 to the 8 cells per kilogram.

In addition, enrollment is now open in the APOLLO study of FATE-NK100 for the treatment of women with ovarian cancer resistant to, or recurrent on, a platinum-based treatment. APOLLO is designed to evaluate the safety and determine the maximum dose of a single infusion of FATE-NK100 when administered using a lymphoconditioning regimen that allows for outpatient treatment.

What is also noteworthy about the APOLLO study is that FATE-NK100 is being administered directly into the peritoneum. This is expected to provide an enhanced opportunity for NK cell persistence and direct NK cell contact with tumor cells.

We are also preparing for the launch of the DIMENSION study for the treatment of advanced solid tumor malignancies. In the DIMENSION study, we will investigate FATE-NK100 in combination with the monoclonal antibodies Herceptin or Erbitux in the outpatient setting. It is well recognized that NK cells are the key effector cells mediating antibody-dependent cellular cytotoxicity, or ADCC, which occurs when NK cells synergize with the monoclonal antibodies to lyse tumor cells.

DIMENSION will enroll subjects with advanced solid tumors with a focus on those who -- that have progressed on or failed Herceptin or Erbitux, including subjects with HER2 positive breast cancer and gastric cancers, and subjects with colorectal and head and neck cancers, respectively. To our knowledge, this is the first study in the US testing the clinical activity of allogeneic NK cells used in combination with Herceptin or with Erbitux.

We are readying the launch of the DIMENSION study at the Masonic Cancer Center, University of Minnesota. We are also actively working with an additional six clinical sites for expansion of each of these three FATE-NK100 studies. We look forward to reporting our first clinical data on the first two subjects treated with FATE-NK100 in the VOYAGE study next week at SITC. And we will continue to look to provide clinical updates on our FATE-NK100 program at relevant scientific conferences as these three studies progress.

I'll now turn the call over to Dan to provide an update on our proprietary iPSC product platform.

Thanks, Chris. I'll now provide in update on several of the exciting off-the-shelf cancer immunotherapy product candidates that are emerging from our proprietary iPSC product platform. I will start with FT500, which is our off-the-shelf NK cell product derived from a clonal iPSC master cell line. As Scott mentioned, we remain on track to file a landmark IND with the FDA in the first quarter of 2018. And we've made significant progress over the past quarter towards achieving this important goal.

First, we have now successfully generated and characterized a fully qualified clonal iPSC master cell line. This clonal iPSC master cell line serves as the starting material for generating FT500 for our planned first-in-human studies.

Second, we have successfully completed the transfer of our GMP-compatible, small molecule-driven differentiation protocol for the generation of iPSC-derived NK cells to Molecular and Cellular Therapeutics, a state-of-the-art, GMP-compliant manufacturing facility. I am pleased to report that MCT has completed the first end-to-end pilot scale manufacturing run for FT500, where the final drug product passed a rigorous panel of release tests, including product purity and potency.

These tests also included confirming that the final drug product did not contain any iPSC contaminants, using a highly sensitive molecular assay, which can detect a single iPSC cell in a background of over 1.25 million NK cells. MCT is now in the process of performing a full-scale manufacturing run for FT500 in preparation for our first-in-human clinical studies.

Preclinical characterization studies on FT500 have continued to demonstrate enhanced cytotoxicity and cytokine production against cancer cell lines relative to conventional NK cells. We also observed robust resiliency to cryopreservation. We've routinely achieved greater than 85% viability and 80% recovery at 24 hours post-thaw, using a specially designed cryopreservation media formulation that can be directly induced into patients. This is important, as it enables a simple thaw-and-infuse drug administration protocol for off-the-shelf delivery to patients. Dr. Jeff Miller from the University of Minnesota will give an oral presentation at ASH describing the path to the clinic for FT500.

We've also continued to make significant progress towards filing an IND for FT516, our second iPSC-derived NK cell product candidate. FT516 is derived from a clonal iPSC master cell line engineered to express a high affinity, non-cleavable CD16 receptor. Preclinical studies have demonstrated that NK cells containing this genetically modified CD16 receptor have enhanced ADCC activity when used in combination with monoclonal antibody therapy such as Herceptin and Erbitux. We are in the final stages of creating a clonal iPSC master cell line for GMP manufacture of FT516.

Importantly, the same NK cell differentiation protocol that is currently used by MCT to generate FT500 will also be used by MCT to manufacture FT516, the only difference being the starting iPSC clone. This highlights the power of our iPSC platform, which allows us to rapidly build and expand our pipeline of off-the-shelf NK cell cancer immunotherapies.

Finally, I'll give an update on our off-the-shelf, iPSC-derived, CAR T-cell product pipeline that we are developing in collaboration with Memorial Sloan Kettering under the leadership of Dr. Michel Sadelain. It is a transformative time for the field of cancer immunotherapy with the recent FDA approvals for the first autologous CAR T-cell therapies by Kite and Novartis, along with the acquisition of Kite by Gilead for approximately $13 billion. That said, we are at the beginning stage of this revolution, and innovation is rapidly emerging.

Current CAR T-cell therapies are manufactured in batch-to-batch processes for each individual patient. This presents significant manufacturing challenges, including high cost, large infrastructure requirements, multi-week production processes, significant variance from batch to batch, and heterogeneity of the final drug product.

In addition, T cell engineering with CAR constructs that occurs at a batch level, where each batch commonly consists of billions of T cells. Essentially, today's engineering of T cells is not comprised of a single clonal engineering event (technical difficulty) represents, in effect, billions of individual engineering events per batch. The result is that T cell engineering and CAR insertion is random and variable, which could cause oncogenic transformation and variable transgene expression.

In fact, a Nature manuscript published in February by Dr. Sadelain's group at Memorial Sloan Kettering highlighted the safety and efficacy challenges resulting from the use of randomly integrating vectors for T cell engineering and CAR insertion. The researchers demonstrated that an alternative approach which precisely engineered a CAR construct into the TCR receptor alpha constant, or TRAC, locus, resulted in uniform CAR expression and enhanced the T cell potency. We are building on these observations, and developing our first iPSC-derived CAR T-cell product candidate, FT819.

FT819 originates from a single (technical difficulty) that has been, number one, precisely engineered to express a CAR targeting CD19 and to remove T cell receptor expression; and number two, expanded to generate a clonal iPSC master cell bank. We believe that the derivation of a clonal iPSC master cell line where the CAR has been inserted into the TCR locus will minimize the risk of insertional oncogenesis and variable CAR expression and will eliminate the potential for TCR-induced alloreactivity.

In addition, using the endogenous TCR promoter to drive uniform expression of the CAR has the potential to improve the safety, potency, and persistence of CAR T immunotherapy. We believe this represents a transformative approach to enable off-the-shelf delivery of CAR T-cell immunotherapies that are uniformly engineered, and identical in composition from dose to dose across patients.

In an oral presentation at ASH, we will present exciting preclinical data from our collaboration with Memorial Sloan Kettering, led by Dr. Michel Sadelain, demonstrating a recent breakthrough in the ex vivo production of T cells from a clonal iPSC master cell line. This development enables, for the first time, the generation of a large clonal population of CD8 alpha beta T cells from a clonal master iPSC cell line engineered with a chimeric antigen receptor for off-the-shelf T-cell cancer immunotherapy.

I will now turn the call back over to Scott for a review of our third-quarter 2017 financial results.

Thanks, Dan. Turning to our financial results, for the third quarter ended September 30, 2017, Fate Therapeutics reported a net loss of $10.7 million or $0.26 per common share, as compared to a net loss of $8.7 million or $0.27 per common share for the same period last year. Revenue was $1 million for the third quarter of 2017 as well as for the third quarter of 2016. Revenue in both periods was generated from our strategic research collaboration with Juno Therapeutics.

Research and development expenses for the third quarter of 2017 were $8.6 million compared to $6.8 million for the same period last year. The increase was primarily related to an increase in third-party service provider fees to support the clinical development of ProTmune and NK100, and the preclinical advancement of the Company's off-the-shelf iPS-derived cellular immunotherapy programs, as well as facility costs associated with the expansion of the Company's laboratory space.

General and administrative expenses for the third quarter of 2017 were $2.8 million compared to $2.6 million for the same period last year. This increase was primarily related to an increase in employee compensation and benefit expense, including employee stock-based compensation expense; and in facility costs associated with the expansion of our office space.

After adjusting for research funding proceeds from Juno of $500,000 and for stock-based compensation expense of approximately $900,000, total operating expenses for the third quarter of 2017 were approximately $10 million. At the end of the third quarter of 2017, cash, cash equivalents, and short-term investments were $69.2 million.

Common stock outstanding was approximately 41.5 million shares. And preferred convertible stock outstanding was approximately 2.8 million shares, each of which is convertible into five shares of common stock under certain conditions.

In closing, I would like to express my sincere thanks to the 75 employees of Fate Therapeutics and our numerous collaborators. While our journey is ongoing and we will continue to face uncertain challenges that come with blazing a new path, I am energized by the hard work, commitment, perseverance, creativity, and agility that the group displays each and every day as we forge ahead in our development of first-of-kind products.

As I turn the call over to the operator for any questions, I would like to remind folks that data and results scheduled to be presented at upcoming scientific conferences are under embargo. So please understand if we refrain from answering certain questions.

Thank you.

(Operator Instructions). Michael Schmidt, Leerink Partners.

This is Rich Goss dialing in for Michael. Thanks for taking my question. For FATE-NK100 in both AML and ovarian cancer, can you give us a bit more detail around the benchmarks and the respective settings you're looking at? What kind of data would you want to see for these studies to be considered a success? Thanks.

Great. Thanks for the question. Chris Storgard here. So Rich, what we'd be looking at in the AML study is we'd looking at a 30% CR rate is something I think we'd get excited about. And this is something which we think is achievable. There has been precedent with using adoptive transferred NK cells, so looking at about 25% CR rates. Again, we would expect to see something north of that. And that, I think, is certainly enough to move that program forward, given the unmet need in that population.

Regarding ovarian cancer, again this is a relapsed/refractory population. So it really almost in this Phase I setting, any type of an objective response would give us excitement in this area. What is typically seen here is maybe about 5%, 10%, objective response rates to move things forward. I think again, given the fact that we're administering the NK cells directly into the peritoneal cavity offers us some increased opportunities here to see some activity. But in a Phase I advanced solid tumor population, any type of objective response rate is actually something to be excited about.

Okay, great. Thank you.

David Nierengarten, Wedbush Securities.

Thanks for taking the questions. I have a couple. So first off, maybe if you could -- is there any difference in estimated persistence between the ovarian cancer and AML opportunity -- or persistence of cells in those settings? I know it's hard without maybe revealing some data. But is there any clues on persistence from animal models, or anything you can point to on any differences between the settings? In persistence?

Thanks for the question. Chris here again. So, intrinsically, we shouldn't expect any difference in the persistence between these two tumor settings. However, I'd like to point out that the administration of the NK cells is different. In the AML setting, it is being administered intravenously; in the ovarian setting, it is being administered intraperitoneally. So when we actually measure the circulating NK cells, we may see a difference in these two populations, which may be a result of the different routes of administration.

And maybe if you could remind us what is -- and recall -- we recall that they were -- NK cells were tested or looked at up at in AML previously. Were they looked at in the ovarian cancer with the intraperitoneal route? Or was like the delivery in solid tumors in the past with other constructs?

Sure. With respect to AML, obviously there's been a fairly rich and recent history with respect to NK cell experience. And as Chris mentioned, there's been 25% complete response were each reported. Typically, response rates have been correlated and associated with persistence in the peripheral blood of at least seven days.

With respect to ovarian, there's actually very little experience in ovarian cancer with NK cell therapy. So, much like the DIMENSION study, this will be a first true test of NK cell therapy in the ovarian setting. There's been anecdotal information with respect to patient treatment, but this will be a really great test of FATE-NK100 in this setting.

And then maybe one final question on the modified -- I'm sorry, I'm just blanked on the name -- but the uncleavable CD16 construct. I'm sorry.

Sure.

I just had a brain (multiple speakers)

FT516.

Yes. Yes, 516 is -- dosing that with antibodies, have you seen evidence in the animal models for kind of a quiescent cell, and then it comes back when you dose the antibody? I'm just trying to think about dosing in combination studies with antibodies. Will you think about re-dosing with the cells? Or do you think they will be persistent, and then kind of reactivate when you add the antibody in? Thanks.

Absolutely. So, in that study, what we're looking at -- and again, it's -- we are in the process of having discussions with the FDA in planning that first-in-human study for FT516. But the concept is, yes, that that will be a study, given that it is an iPS-derived therapy, given we can create thousands of doses, given we can deliver it off the shelf -- is that we will, in fact, give multiple doses in combination with monoclonal antibody.

Well, I guess you're in discussion with the FDA. But you haven't -- you finalized any kind of dose combinations; or how you would dose escalate, if necessary, or things like that yet. I take it we'll have to wait for that.

We've had a pre-IND meeting with the FDA where we've discussed that. But obviously we've not filed the IND yet with respect to FT516. Based on conversations to date, the FDA has seemed very comfortable with us dosing in combination and administering multiple doses.

Okay. All right, thanks.

Jim Birchenough, Wells Fargo Securities.

This is Yanan in for Jim. Congratulations on all the progresses. I have a few questions. First, could you remind me of the rationale why ProTmune could, on the one hand, retain the antitumor -- all the antitumor activities; but on the other hand, will have attenuated ability to attack the host? Because when I think about it, the tumor and the host cell have a lot of similarities, obviously.

Yes, this is Dan Shoemaker. Thank you for the question. So we believe the mechanism is primarily based on making the donor T cells resistant to the cytokine storm that is present in the patients that are receiving the donor grafts during that first week. And we have extensive preclinical data showing that we sort of dampen the cytokine signaling for things like IL-6, for example. And we believe that getting the cells through this first week, through this cytokine storm, and preventing the activation and expansion of the alloreactive T cells in the graft, is a key strategy to the prevention of GvHD.

Importantly, though, we've also spent a lot of time demonstrating that the majority of the donor T cells in the graft are healthy, and they're only transiently affected by the small molecule modulation. And this is critical, because these donor T cells provide an important role during the first six months, post-transplant, while the new stem cell derived T cells come online, the ability to fight leukemia and infection. So we also have extensive animal studies demonstrating that the ProTmune T cells retain robust antitumor activity.

And now, again, as we start having more and more patient data from the Phase I portion of the study, we've been able to do longitudinal analysis of immune reconstitution, and were able to show a healthy reconstitution of the donor T cell grafts in the ProTmune patients. So this, again, is the mechanism by which we think we are preventing GvHD while preserving the critical GvL activity.

Got it. That's very helpful. So along the similar line, because you mentioned the importance of the first week, and how ProTmune could affect -- alter the T cell's activity. So, the endpoint for the study is day 100 GvHD. And in your abstract, we know three out of the five patients haven't reached the 100 day point yet. So they haven't had any grade 2 or above GvHD; but on the other hand, they haven't reached 100 day yet.

Is it reasonable to think that acute GvHD is mainly concentrated on the beginning of the day 100? Over do we have any historical data to try and give a -- triangulate this and have some inference regarding to when GvHD occurs?

Sure. The reason we picked day 100 is because if you look at historical studies with respect to transplantation and incidence of GvHD, there is a rather steep incidence curve that occurs during the first 60 days, post-transplant, and begins to flatten out between days 60 and, call it, day 90, day 100; although there still are incidence of GvHD that are reported post- day 60 and before day 100.

But really, if you look at the historical curves, there's a steep incidence ramp during the first 60 days. It begins to tail off during the next 30 days. And by and large, all acute GvHD occurs by day 100. So we believe day 100 is truly the appropriate horizon over which to measure potential efficacy.

Got it. And another question regarding the ProTmune program. You mentioned the importance of antitumor activity. Did you have to amend the study protocol to add those endpoints? Yes.

Those endpoints were included in the original protocol to look at relapse, as well as look at survival.

Got it. And so also a question on the statistical assumptions when you sized the study to 70 patients. What are the assumptions used in the two arms, placebo versus ProTmune, in terms of GvHD or anticancer activity?

So the initial assumptions were that the control rate of GvHD would be approximately 55%. As Scott mentioned, there are studies that have that rate of acute GvHD in this similar population ranging from 40% to 80%. So we chose approximately 55%. The estimated effect of ProTmune was about a 50% reduction. When we take a look at our power to observe a 50% reduction over across essentially a range of control rates of GvHD, we are well powered for Phase II study to observe those kind of differences.

(multiple speakers) So, in summary, we're expecting a 50% reduction.

Got it. Very helpful. And then on the FT819, congratulations for the achievement. It's rather significant to engineer a T cell. My question is: what are the next hurdles before you can see a path to IND? For example, how do you engineer out the allogenicity that these cells might have, so that the patient could accept these cells instead of rejecting them due to MHC mismatch? Things like (multiple speakers) yes.

It's a terrific question. And I think you're going to have to wait for ASH to learn more about that.

Great. If I may ask, is there any strategic thinking in terms of how to develop these iPSC-derived modalities like FT819? Is partnering a path, or are you planning on developing it internally?

We're planning on developing it internally. We are very open to forming partnerships. Although we believe at Fate Therapeutics, given our 10 years of history in developing the iPS cell platform, that we today are absolutely best positioned to move this forward on our own, in collaboration with top medical centers and investigators. And that was the thinking behind striking the partnership with the University of Minnesota on the NK cell side; and Jeff Miller and Memorial Sloan Kettering and Michel Sadelain on the T cell side.

Great. Thank you very much for taking all the questions.

Do Kim, BMO Capital Markets.

A couple on ProTmune. Could you talk about the range of GvHD rates that you mentioned to the prior question that you believe achieves a balance of reducing the incidence of GvHD, but also doesn't compromise GvL activity?

Sure, I can take a crack at that first. I think your question is getting to the heart of what we discussed with respect to the GRFS endpoint, where you are essentially looking at the potential to reduce GvHD, yet deal with the potential for cancer relapse and also the overall mortality that occurs in that transplant setting.

So I think as Chris mentioned during his prepared remarks, the GRFS rates that are seen in historical studies in this setting appear to be in the 40% to 45% success range. So more than half of patients do not meet the criteria of being GvHD free, relapse free, and surviving at day 180. And that continues to trend down to only about 30% of patients at one year.

And so really when we look at the totality of that transplant, taking into consideration severe GvHD, relapse, and mortality, what we see historically is depending on the time frame, only about 30% to 40% of patients achieve that objective.

Okay, I see. And in historical rates, what is the expected time to relapse or the percentage of patients that will relapse in these kind of transplants? And would it be surprising to see one of the Phase I patients relapse by ASH data cutoff?

So relapse has a slower sloping curve with respect to incidence than GvHD; meaning relapse can occur, and does occur, more evenly during the first three, six, nine, and 12 months following transplant. So GvHD is a phenomenon that occurs very early, occurs suddenly, and does began to flatten out with respect to incidence by day 100. Relapse does occur more evenly throughout the 180-day period and begins to trail off, call it, from six months to one year. So the relapse window to really keep an eye on -- and that we keep an eye on -- certainly does extend from six to nine months, still.

Okay, thank you. When we think about the number of CD34 positive and CD3 positive cells that you are administering to the patient, what should we consider? And how does that affect patient outcome?

So we basically administer the entire graft. So we've aligned this as closely to standard of care as possible, where we'll just take the entire mobilized graft; modulate it for four hours, with the two small molecules; wash it; and then the entire graft is administered to the patient, just like normal. And then we adhere to all the minimum CD34 requirements. And again, we've just aligned as closely to standard of care as possible.

We are not -- I mean, if you're question is are we reducing the numbers of T cells, we are not doing that. We are accepting a standard of care mobilized peripheral blood graft. We are modulating that graft, and then we are administering that graft. So there is no cell separation or cell reduction that is going on with respect to 34s or the T cells.

Okay, great. Thank you. One final question is, are you still looking at CMV infection and activation? Or is that no longer a priority?

It's not one of the main objectives of the study; although we will continue to track CMV as well as infection rates, because infections are important and they do lead to mortality.

Okay, great. Thank you for taking my questions.

Ed White, H.C. Wainwright.

So just on FT500, you had said the -- and repeated that the IND is expected to be filed in the first quarter of 2018. Can you give us any guidance on FT516 and FT819? Should we expect the INDs for those to be filed in 2018 as well?

So for FT516, we've previously said in conversation that we expect an IND filing in the middle of 2018, and we're still very comfortable with that timeline. With respect to FT819, the first iPS-derived CAR T-cell product, it's a little too early for us to give guidance on the IND filing; although we are comfortable that we will certainly begin tech transfer in the first half of 2018 to Memorial Sloan Kettering for manufacturing.

Okay, great. Thank you. And then the next questions I have, you might not be able to answer due to the embargo. But on the ProTmune, that one patient with the GvHD, did that occurrence happen been between day 28 and before the day 53, at the end of -- as of the cutoff time?

I think we're going to have to refrain from answering that question. If you're question is: did the DMC review all Phase I data, including Phase I data beyond day 28? The answer to the question is yes. They reviewed all available Phase I data (multiple speakers) at the time at which they -- at the time -- what was available at the time they reviewed the data, obviously.

Okay. And then just is there a correlation, or maybe it's just a coincidence, that the patient with the latest neutrophil engraftment had the GvHD?

I would not read anything into that.

Okay. Okay, thanks. That's all the questions I had.

I'm showing no further questions. I would now like to turn the call back to Scott Wolchko for any further remarks.

Thank you very much, everyone, for participating in today's call. We look forward to seeing everyone in about a week and a half at SITC, and couple weeks after that at ASH. Thank you.

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