Fate Therapeutics Inc (FATE) 2017 Q4 法說會逐字稿

Welcome to Fate Therapeutics' Fourth Quarter 2017 Financial Results Conference Call. (Operator Instructions) This call is being webcast live on the Investors & Media section of Fate webcast at fatetherapeutics.com. As a reminder, today's conference 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 Fourth Quarter 2017 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-K for the year ended December 31, 2017, is being filed shortly today 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 the 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, 2017, that is being 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 today's call by highlighting the key operational objectives for Fate Therapeutics during 2018 and our view on how these objectives will drive shareholder value creation. Chris will then discuss early observations from the clinical investigation of ProTmune and FATE-NK100 as well as our initial clinical development plans for FT500, a first-of-kind, off-the-shelf, iPS-derived NK cell cancer immunotherapy for use in combination with checkpoint inhibitor therapy.

Dan will then provide a brief update on our off-the-shelf iPS-derived cancer immunotherapy pipeline, including some of the unique features that differentiate our universal CAR T cell approach from other autologous and allogeneic CAR T cell therapies. I will conclude with a review of our financial results for the fourth quarter of 2017 before opening the call up to questions and further discussion.

Our early clinical success in 2017 with our 2 first-in-class allogeneic donor-derived cell therapies, ProTmune and FATE-NK100 as well as the rapid translation toward clinical development of our iPSC product platform for off-the-shelf NK cell and T cell therapies have firmly established Fate Therapeutics as a leading innovator in the development of next-generation cellular immunotherapies for patients with cancer.

2018 promises to be a breakthrough year for the company with several distinct value-creating opportunities. At the 59th American Society of Hematology Annual Meeting in December, we presented day 100 clinical data from the PROTECT Phase I study of ProTmune, our next-generation donor cell graft for patients with hematologic malignancies undergoing allogeneic hematopoietic cell transplantation or HCT.

We're developing ProTmune as a preventative therapy to reduce the incidence and severity of acute graft-versus-host disease or GvHD and improve overall patient outcomes. Acute GvHD is the leading cause of early morbidity and mortality following allogeneic HCT, and there are currently no therapies for the prevention of acute GvHD approved by the U.S. Food and Drug Administration.

The initial clinical data presented at ASH showed that all 7 Phase I subjects receiving ProTmune remained alive and relapse-free during the first 100 days following HCT. 3 of the 7 subjects experienced acute GvHD during the first 100 days following HCT, and each of these subjects promptly responded to standard of care steroid treatment. This response is clinically important as half of patients who develop acute GvHD are refractory to steroid treatment, and these refractory patients are at significant increased risk of cancer relapse and mortality.

This initial clinical data suggests that ProTmune can provide the critical immunological balance necessary to reduce the incidence and severity of GvHD and maintain graft-versus-leukemia activity. We are continuing to follow these Phase I subjects. At the 44th annual meeting of the European Society for Blood and Marrow Transplantation, which is being held March 18 through 21 in Lisbon, Portugal, we expect to provide our next clinical update on the Phase I stage of the PROTECT study. Currently, we're enrolling the randomized, controlled and double-blinded Phase II stage of PROTECT at 14 U.S. centers.

Over the past year, we also successfully launched our multipronged clinical development strategy for NK100, our first-in-class allogeneic donor-derived natural killer cell cancer immunotherapy. NK100 is comprised of adaptive memory NK cells, 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 been linked to less severe disease and better outcomes.

We believe NK100 has broad therapeutic potential across the cancer immunotherapy field. NK cells in cancer patients are often dysfunctional and reduced in numbers. And we believe that the administration of activated NK cells from a healthy donor can drive a multifaceted potent and durable immunological response against cancer through both direct and indirect tumor mechanisms.

NK cells can selectively identify stress ligands commonly expressed on tumor cells and secrete cytotoxic granules, which can trigger rapid tumor cell death. NK cells can also release pro-inflammatory cytokines such as tumor necrosis factor alpha and interferon gamma, which can stimulate and recruit a robust, long-lived polyclonal endogenous T cell response.

Additionally, NK cells naturally express CD16, a receptor that combine the Fc region of a tumor-targeting monoclonal antibody and can lyse antibody-coated tumor cells upon engagement. Subjects are now receiving treatment with NK100 in 3 ongoing clinical trials: 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.

We have focused our development of NK100 toward settings where we believe the unique effector functions of NK100 can best be leveraged, proof of concept and therapeutic differentiation can be effectively demonstrated in small numbers of subjects and early clinical success can translate into rapid registration studies.

At the Society for Immunotherapy of Cancer 32nd Annual Meeting in November 2017, we presented promising early clinical data from the VOYAGE study of NK100 for the treatment of relapsed/refractory AML. Anti-leukemia activity was observed with NK100 in each of the first 2 dose cohorts. In fact, at the 2 weeks following a single intravenous infusion of NK100, the subject in the second dose cohort achieved a morphologic leukemia-free state based on bone marrow biopsy. No dose-limiting toxicities were reported, and there were no reported NK100-related serious adverse events, including no reported events of GvHD, cytokine release syndrome or neurotoxicity.

At the third annual Innate Killer Summit, which is being held March 27 through 29 in San Diego, we expect to release initial clinical data from the APOLLO study for the treatment of women with recurrent ovarian cancer, where there remains a critical need for novel therapeutic strategies as current rates of progression-free survival are less than 6 months. NK100 has advanced through the first 2 dose cohorts in the APOLLO study. No dose-limiting toxicities were recorded, and there were no reported NK100-related serious adverse events, including no reported events of GvHD, cytokine release syndrome or neurotoxicity. We expect to continue to share clinical data from the VOYAGE, APOLLO and DIMENSION studies of NK100 at scientific conferences throughout 2018.

Most of today's cell-based cancer immunotherapies rely on the use of patient-source cells. Generally speaking, the vein-to-vein manufacturing process takes weeks, is expensive and generates therapies that are heterogeneous. Additionally, the process most often yield only enough cells to support the delivery of a single dose to the patient from whom the cells were sourced.

In most respects, today's cell therapy is a personalized process. Alternative approaches are emerging that use donor cells. However, in the case of allogeneic T cell therapy, complex editing and engineering is required, which lacks efficiency and homogeneity.

For example, several leading developers of allogeneic T cell therapy have recently published data suggesting that only 70% to 80% of cells are successfully modified upon 4 gene editing. Furthermore, while more than 1 dose may be produced in a single manufacturing run, each additional manufacturing run requires new donors and another round of complex editing and engineering. This variability in manufacturing likely means that no 2 doses of a cell therapy are the same, and no 2 patients receive the same cell therapy.

Fate Therapeutics is striving to transform the quality, consistency, scalability, cost and effectiveness of cell-based cancer immunotherapies through the application of our revolutionary iPSC product platform. Our platform uses master- induced pluripotent stem cell lines as the starting material for the manufacture of NK cell and T cell products. Using master iPS cell lines as the starting material for manufacturing cellular immunotherapies provides profound advantages.

First, a master iPS cell line is clonal, meaning it's made from a single iPSC that is, by definition, uniformly engineered and homogeneous in nature. Additionally, a master iPS cell line has unlimited capacity to self-renew, meaning that once the line is made, it never needs to be made again. Therefore, all cell engineering and characterization is done 1 time at the creation of the master iPS line. This provides unprecedented uniformity and efficiency for manufacture of NK cell and T cell products.

Second, the master iPS cell line could be banked and renewably used as the starting material for manufacture of NK cell and T cell products. In a single manufacturing campaign, hundreds to thousands of doses of NK cells or T cells can be produced in a cost-effective manner. The use of a clonal starting material, combined with the production of a large number of doses of product in a single reproducible manufacturing campaign, enables the generation of NK cell and T cell products that are homogeneous and consistent through a manufacturing process that is cost-effective and scalable.

Third, the doses of NK cells or T cells can be cryopreserved in an infusion media and provided to physicians and patients ahead of treatment, alleviating any delays in cell product administration and expanding the reach of cellular immunotherapies beyond the limited number of specialized cancer centers.

This is a true off-the-shelf product paradigm, where manufacturer is cost-effective and scalable, cell products are uniformly engineered and homogeneous in composition, and patients can be administered these cell products on demand with a potential to use repeat dosing strategies, including in combination with cycles of other cancer treatments, to achieve more effective and durable responses. Fate Therapeutics is unrivaled in developing iPS-derived, off-the-shelf NK and T cell cancer immunotherapies.

In the first half of 2018, we expect to file the first ever IND with the FDA for clinical investigation of an iPS-derived cell therapy, an approach which we believe has the potential to transform the field of cell therapy. Our first iPS-derived cell product is FT500, an off-the-shelf NK cell cancer immunotherapy for the treatment of advanced solid tumors, both as a monotherapy and in combination with FDA-approved checkpoint inhibitors.

While checkpoint inhibitors are used early and often for the treatment of several solid tumors, more than 60% of patients treated with checkpoint inhibitors do not respond or relapse. As a result, there is a significant unmet need for novel therapeutic approaches to overcome resistance to checkpoint inhibitors.

Our objective is to initiate subject enrollment and begin generating clinical data with FT500 in the second half of 2018. We expect to present new in vitro and in vivo preclinical data of FT500, demonstrating multiple potential mechanisms by which FT500 can synergize with checkpoint inhibitor therapy at the American Association of Cancer Research, which is being held April 7 -- April 14 through 18 in Chicago.

In addition, we are currently generating additional master iPS cell lines for manufacture of FT516 and FT538 and are advancing these off-the-shelf NK cell products toward IND filings. Similar to FT500, FT516 and FT538 are intended to be used in combination with FDA-approved agents that are used early and often in the treatment of cancer.

FT516 is an off-the-shelf NK cell cancer immunotherapy created from a master clonal iPS cell line, engineered to express a high-affinity, non-cleavable CD16 Fc receptor. NK cells express CD16, an activating receptor that combine to the Fc portion of IgG antibodies and transmit immune response signals. Once activated through CD16, NK cells effectively lyse antibody-coated tumor cells and secrete cytokines to recruit adaptive immune cells, including T cells.

This targeted antitumor mechanism of antibody-dependent cellular cytotoxicity or ADCC has been proven critical to the treatment of a wide range of human tumor types. Our novel CD16 Fc receptor incorporates 2 unique modifications designed to augment the receptor's binding affinity to IgG antibodies such as Herceptin, Erbitux and Rituxan and enhances antitumor cytotoxicity by blocking the shedding of the receptor's expression upon activation. We plan to develop FT516 for the treatment of liquid and solid tumors both as a monotherapy and in combination with tumor antigen-targeting monoclonal antibody therapy.

FT538 is an off-the-shelf NK cell cancer immunotherapy created from a master clonal iPS line engineered to prevent CD38 expression. Daratumumab is a human anti-CD38 IgG monoclonal antibody with demonstrated clinical activity in relapsed/refractory multiple myeloma. CD38 is expressed at high levels on myeloma cells and on activated immune cells, including NK cells, which have been shown to be critical for the antibody's antitumor activity.

In daratumumab-treated myeloma patients, total NK cell counts are reduced rapidly in peripheral blood after the first dose and remain low over the course of treatment. FT538 is designed to be resistant to depletion by daratumumab and to be used in combination with daratumumab to enhance the antibody's activities.

At the American Association of Cancer Research in April, we will also present new preclinical data for FT819, our best-in-class, off-the-shelf, iPS-derived CAR19 T cell product, which we are developing under our collaboration with Memorial Sloan Kettering led by Dr. Michel Sadelain. The new preclinical results will characterize target specificity and antitumor activity of CAR T cells generated from a clonal iPS master cell line engineered to express an anti-CD19 chimeric antigen receptor and to completely eliminate T cell receptor expression across the population of cells comprising the immunotherapy.

This groundbreaking achievement enabled the renewable production of large quantities of universal CAR T cells that are uniformly engineered and are not patient-restricted. We are currently in the final stages of making the CAR constructs for the creation of the master iPS cell line for FT819 and have now initiated technology transfer of our iPSC product platform to MSK for GMP manufacturer. We are targeting the first half of 2019 for IND filing of FT819.

I will now turn the call over to Dr. Chris Storgard, our Chief Medical Officer, who will provide further details on our ongoing clinical trials of FATE-NK100 and ProTmune and our IND preparation and clinical development plans for FT500.

Thanks, Scott. We have indeed made remarkable progress during this last quarter, and we are looking forward to an exciting year ahead as we continue with groundbreaking advancements on all of our clinical programs.

Let me update you on what we have achieved and where we are headed. First, the day 100 clinical data from the Phase I stage of the PROTECT study of ProTmune was presented at the American Society of Hematology Annual Meeting in December 2017. We are developing ProTmune as a next-generation donor cell graft to reduce the incidence and severity of graft-versus-host disease or GvHD and improve overall outcomes for patients undergoing hematopoietic cell transplantation or HCT.

When successful, HCT is a curative therapy for some of the most devastating cancers, including acute myeloid leukemia and acute lymphoblastic leukemia. Unfortunately, the mortality rate post-transplant is approximately 25% to 30% at 6 months and over 40% at 1 year. The 2 leading causes of morbidity and mortality are cancer relapse, which occurs in 25% to 30% of patients and acute GvHD, which occurs in 40% to 80% of patients. To advance the curative potential of HCT, we believe therapeutic solutions must address both severe GvHD and cancer relapse.

The Phase I day 100 clinical data demonstrated that ProTmune was well tolerated. No ProTmune-related serious adverse events were reported by investigators. All 7 subjects receiving ProTmune achieved neutrophil engraftment within the expected time frame, and there were no reports of graft failure. Additionally, there was no cancer relapse in any subject, and all 7 subjects survived through day 100.

3 subjects experienced acute GvHD during the first 100 days. Importantly, each of these subjects responded rapidly to standard of care steroids. As Scott mentioned, this is significant as approximately half of patients who develop acute GvHD are refractory to steroid treatment, and the economic and clinical consequence of steroid refractory GvHD is high. Over 75% of patients with steroid refractory GvHD are readmitted to the hospital, and approximately 35% of these patients die during the first 100 days post-transplant.

We are very encouraged by the safety and activity profile of ProTmune observed in the Phase I stage of PROTECT. ProTmune was successfully manufactured as a point of care and seamlessly integrated into standard HCT practice. And the early clinical results suggest ProTmune may provide the critical immunological balance necessary to reduce the incidence and severity of graft-versus-host disease and maintain graft-versus-leukemia effects.

The ongoing Phase II stage of PROTECT is a randomized, blinded and controlled clinical study in adult subjects with hematologic malignancies, including AML, ALL and MDS, undergoing hematopoietic cell therapy transplants. 60 subjects are being randomized in a 1:1 ratio to receive either ProTmune or conventional mobilized peripheral blood cell graft from a matched unrelated donor. Efficacy endpoints include incidence of acute GvHD Grade 2 through 4 and Grade 3 to 4 by day 100, cancer relapse and survival.

Turning now to FATE-NK100, our first-in-class adaptive memory natural killer or NK cell product that is undergoing clinical investigation in 3 ongoing Phase I clinical studies. The VOYAGE study is an open-label, accelerated dose escalation, first-in-human Phase I study designed to evaluate the safety and determine the maximum dose of a single intravenous infusion of NK100 as monotherapy in subjects with refractory or relapsed acute myelogenous leukemia.

Initial clinical data from the first 2 of 3 dose cohorts from VOYAGE were presented at the Society for Immunotherapy of Cancer Annual Meeting in November last year. The subject in the first dose cohort of VOYAGE presented in primary induction failure, with 87% leukemic blast in the bone marrow. 2 weeks following a single infusion of NK100, a bone marrow biopsy revealed a nearly 50% reduction in leukemic blasts.

In addition, approximately 76% of NK cells in the peripheral blood were of NK100 origin. The subject in the second dose cohort achieved a morphologic, leukemia-free state following a single intravenous infusion of NK100 as a monotherapy. At day 14 following treatment, a bone marrow biopsy showed clearance of leukemic blast in the marrow with a significant number of NK100 cells in the peripheral blood. We were especially encouraged by this activity because prior to treatment with NK100, this subject was refractory to conventional NK cell therapy, presenting in relapse with 50% leukemic blasts in the bone marrow.

While we are looking to our first subjects in the dose escalation stages of the Phase I studies to demonstrate safety of NK100 and to gain initial clinical insights into the unique properties and enhanced functionality of NK100 that we observed in preclinical studies, the significant reduction in leukemic blasts in the bone marrow observed without any dose-limiting toxicities in both subjects, both of whom who had very high leukemic blast burden, is very promising.

In December 2017, the APOLLO study of NK100 was initiated for the treatment of women with ovarian cancer that is resistant to or recurrent on platinum-based treatment. APOLLO is designed to evaluate the safety and determine the maximum dose of a single infusion of NK100 when administered with a lympho-conditioning regimen that allows for outpatient treatments.

In APOLLO, NK100 is administered directly into the peritoneum, which is expected to provide an enhanced opportunity for NK cell persistence and NK cell contact with tumor cells. A second dose of NK100 is allowed for subjects' evidence of tumor shrinkage. NK100 has advanced through the first 2 dose cohorts with no reports of dose-limiting toxicities. We expect to release initial clinical data from the ongoing APOLLO study at the third Innate Killer Summit, March 27 to 29, in San Diego.

Last month, we announced that the first subject has been treated in the DIMENSION study of NK100 for the treatment of advanced solid tumors. This study is intended to evaluate the safety and determine the maximum dose of NK100 when administered as a monotherapy and in combination with trastuzumab or cetuximab, 2 FDA-approved monoclonal antibody therapies that are widely used today to treat a number of different cancers.

It is well recognized that NK cells are the key effector cells mediating antibody-dependent cellular cytotoxicity or ADCC, which occurs when a patient's endogenous NK cells selectively recognize and kill antibody-coated tumor cells. However, patients with cancer often have deficient or dysfunctional natural killer cells, and the coadministration of NK100 alongside a targeted monoclonal antibody therapy is a novel approach to restore a patient's immune system to fight cancer. We believe this new treatment paradigm holds great promise for cancer patients who have progressed on or failed monoclonal antibody therapy.

DIMENSION will enroll subjects with advanced solid tumors, with a focus on those that have progressed on or failed trastuzumab or cetuximab, including subjects with HER2+ breast and gastric cancers and subjects with colorectal and head and neck cancers. All 3 studies of NK100, VOYAGE, APOLLO and DIMENSION, are open and enrolling subjects, and we are actively working to expand each of the 3 NK100 studies to multiple additional clinical sites. We will continue to provide clinical updates on our NK100 program at relevant scientific conferences throughout 2018 as these 3 studies progress.

Lastly, let me take a moment to begin to introduce some of the clinical aspects of our upcoming study with FT500, our off-the-shelf, iPSC-derived NK cell product for use in combination with checkpoint inhibitors. We expect this groundbreaking study to be the first clinical trial in the U.S. of an iPSC-derived cell product. As such, this study has generated great interest amongst all our investigators and advisers.

As you know, checkpoint inhibitors have transformed the treatment landscape for cancer. Yet despite their impact, up to 2/3 of patients fail to respond with an intrinsic resistance to checkpoint blockade. And of those that do respond, 1/3 later progress, having developed an acquired resistance to checkpoint blockade. The mechanisms underlying this resistance are not fully understood. However, results from emerging mechanistic studies suggest that NK cells may have the potential to overcome a number of intrinsic and acquired checkpoint resistance mechanisms.

For example, intrinsic checkpoint inhibitor resistance has been linked to impaired immune cell infiltrated to the tumor, impaired cytokine response and reduced number of neoantigens. NK cells can directly kill tumor cells through the release of perforins, exposing large amounts of tumor antigens for recognition by the adaptive immune system. Additionally, upon tumor cell engagement, NK cells can secrete a number of cytokines, which can recruit and activate T cells. As such, NK cells can stimulate the activation and recruitment of multiple specific T cell clones, creating a favorable environment for successful checkpoint therapy. In short, NK cells have the intrinsic ability to turn a cold tumor hot and thereby provide the potential to overcome a number of key mechanisms of intrinsic resistance to checkpoint blockade.

In addition, a common mechanism of acquired checkpoint inhibitor resistance is the development of beta-2 microglobulin expression defects in tumor cells. Beta-2 microglobulin or B2M is a component of the HLA Class I complex and defects in B2M result in impaired tumor antigen expression and as a result, impaired T cell response. However, B2M defective cells are preferential targets for NK cells and are highly susceptible to NK cell- mediated killing. As such, we believe that NK cell therapy may have the unique potential to overcome B2M defective resistance to checkpoint inhibitors.

The planned Phase I clinical trial is, to our knowledge, the first combination study of an allogeneic, donor-derived NK cell therapy with checkpoint inhibitor therapy. The study will use the standard 3+3 dose escalation design and will consist of 2 arms: one, evaluating the safety and activity of FT500 as a monotherapy in an all-comer population of subjects with advanced solid tumors; and the second arm, evaluating the safety and activity of FT500 in combination with checkpoint inhibitors, nivolumab, pembrolizumab or atezolizumab, in subjects with advanced metastatic solid tumors that have tolerated but progressed on a checkpoint inhibitor. Importantly, because FT500 is an off-the-shelf cell product, this study will evaluate multiple doses of FT500 starting with 3 weekly doses per month with the opportunity for a repeat treatment in subjects who demonstrate benefit.

I look forward to providing more details on the specifics of the study following the IND clearance.

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 an update on our iPS off-the-shelf, iPSC-derived, cancer immunotherapy product, with a particular focus on the unique features that differentiate our universal CAR T cell approach from other autologous and allogeneic CAR T cell therapy.

This has been a transformative year in the field of cancer immunotherapy with FDA approvals for 2 autologous CAR T cell therapies. This first-generation autologous product has very profound clinical outcomes. However, broad commercial adoption of these autologous CAR T cell therapies is challenged by multiple factors. Production time is several weeks. There are high levels of product variability between manufacturing runs that have manufacturing complexity and significance, creating cost and saleability challenges.

Moreover, the requirement of using a patient's own T cell as the starting material for the manufacture of the CAR T cell therapy is certainly less than ideal as the patient cells are often damaged, dysfunctional or present in insufficient numbers due to prior treatments with chemotherapy and other agents.

To address these limitations, CAR T cell therapies that use cells of healthy donors are now undergoing development. However, allogeneic approaches require sophisticated genetic engineering to ensure that the T cells are universal, safe and effective.

One approach for generating allogeneic CAR T cells involves highly complex, multigene editing of large batches of primary T cells isolated from healthy donors. However, energy -- genetic engineering of large batches of primary T cells is fraught with significant challenges. First, simultaneously performing multiple edits on a batch of billions of primary T cells has the potential to generate a high degree of heterogeneous and unwanted recombination events, which are known to occur when multiple double-stranded breaks are made in a cell.

Second, donor T cells inherently possess alloreactive T cell receptors, which can cause GvHD. Therefore, complete elimination of the T cell receptor through genetic engineering is required to ensure the safety of the product. In fact, incomplete editing of the T cell receptor, even when it occurs less than 1% of the primary T cells, has resulted in cases of graft-versus-host disease.

Finally, each manufacturing campaign generates a finite number of doses of allogeneic CAR T cells from a given donor. Therefore, to meet supply requirements, manufacturing campaigns will continuously need to be conducted. Each additional campaign will source primary T cells from new donors and require a new round of genetic engineering, leading to undesirable levels of batch to batch variability.

We believe we have a best-in-class approach to allogeneic CAR T cell therapy, an approach that delivers a true off-the-shelf paradigm to physicians and patients. Our proprietary iPSC product platform, which -- we have developed an efficient, cost-effective and scalable approach. We're generating large quantities of universal CAR T cells that are homogeneous, cryopreserved and immediately ready for off-the-shelf use.

A key differentiator of our off-the-shelf cancer immunotherapy product platform is that the complex multistep genetic engineering procedure is intended to be performed only a single time during the entire life cycle of the product. We accomplish this by performing all of the genetic engineering steps on induced pluripotent stem cells, which possess the dual properties of unlimited self-renewal and differentiation potential at all cell types of the body.

Our proprietary platform allows us to generate a single iPSC to create a clonal highly characterized master cell bank. This engineered iPSC cell bank then serves as a starting material for all future manufacturing campaigns for that product, where each campaign can generate hundreds of thousands of doses of uniformly engineered, well-characterized CAR T cell products for off-the-shelf applications.

As Scott mentioned, we have launched development of 3 off-the-shelf, iPSC-derived NK cell products: FT500, FT516 and FT538. We have now also launched development of FT819, our iPSC-derived, anti-CD19 CAR T cancer immunotherapy for patients with T cell malignancies.

In collaboration with Dr. Michel Sadelain, Director of the Center for Cell Engineering at the Memorial Sloan Kettering Cancer Center, we have successfully generated CD8-alpha-beta T cells for an iPSC line. This iPSC line was engineered to remove T cell receptor expression and to express the chimeric antigen receptor.

This is a groundbreaking achievement. A best-in-class, off-the-shelf CAR T cell therapy requires complete elimination of TCR expression. Until our recent demonstration in collaboration with Dr. Sadelain, it was not known whether one could eliminate TCR expression in an iPSC and still generate CD8 elevated T cells since TCR signaling plays a critical role in T cell development.

We demonstrated, using a CD19 mediated signaling through the CAR receptor, robust and efficient differentiation of iPSC in the high-quality CD8-alpha-beta T cells.

Moreover, we precisely engineered an anti-CD19 CAR construct in place of a T cell receptor, which allows the endogenous TCR promoter to drive uniform expression of the CAR, which has been shown to enhance the potency and persistence of CAR T cells.

We're currently manufacturing the clinical grade CAR construct at Memorial Sloan Kettering and have initiated technology transfer of our iPSC product platform to a GMP facility at MSK. We plan to initiate first-in-human clinical investigation of FT819 in the first half of 2019.

We believe our iPSC product platform will transform cell therapy that enables best-in-class, off-the-shelf manufacture and delivery of cell products in quantities that support the treatment of many thousands of patients in an off-the-shelf manner.

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

Thanks, Dan. Turning to our financial results. For the fourth quarter ended December 31, 2017, Fate Therapeutics reported a net loss of $12.5 million or $0.29 per common share as compared to a net loss of $7.9 million or $0.21 per common share for the same period last year.

Revenue was $1 million for the fourth quarter as well as for the fourth quarter of 2016. Revenue in both periods was generated from our strategic research collaboration with Juno Therapeutics. Research and development expenses for the fourth quarter of 2017 were $9.9 million compared to $6.2 million for the same period last year. The increase was attributable to increased third-party service provider fees for the manufacture and clinical development of ProTmune and FATE-NK100 and for FT500 IND-enabling activities as well as increased equipment and materials expenditures for the chief advancement of the company's iPS-derived cancer immunotherapy programs, increased headcount and related compensation expense and increased facility costs due to the expansion of the company's laboratory space.

General, administrative expenses for the fourth quarter of 2017 were $3.4 million compared to $2.5 million for the same period last year. This increase was attributable to increased intellectual property expenses and licensing costs. After adjusting for research funding proceeds from the Juno Therapeutics collaboration of $500,000 and for stock-based compensation expense of approximately $900,000, total operating expenses for the fourth quarter of 2017 were approximately $11.9 million.

At the end of the fourth quarter of 2017, cash, cash equivalents and short-term investments were approximately $101 million. Common stock outstanding was approximately 52.6 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.

We have an exciting year ahead of us at Fate Therapeutics. We are very pleased with the clinical progress we've made with FATE-NK100 and ProTmune, and we look forward to sharing clinical updates at scientific conferences throughout the year. Additionally, we are at the doorstep of filing the first-ever IND with the FDA for an iPS-derived cancer immunotherapy, with a deep pipeline of off-the-shelf, iPS-derived cell products to follow toward clinical development.

When we founded Fate Therapeutics about 10 years ago, at the time iPS cell technology was just being invented, there was little understanding the field of how iPS cell technology would develop or even whether cell therapy applications would emerge through its use. Throughout this period and to date, we at Fate Therapeutics have held fast to the vision that iPS cell technology could play a foundational role in revolutionizing medicine. It is truly amazing to see this new era of cell therapy come to realization.

I would like to express my sincere gratitude to those that have stood with Fate Therapeutics through this journey, sharing our faith and contributing over the years to enable the transformation that lies just ahead.

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

(Operator Instructions) Our first question comes from Michael Schmidt of Leerink.

Couple of questions on FT500. I think in the past, you've talked about IND filing in the first quarter, and I was just wondering what the remaining activities that are left that need to be done before you can actually file the IND. And then I had a couple of follow-ups.

Yes, absolutely. Happy to talk about it. So we're just giving ourselves just a little bit of extra room here to file the IND. It is the first ever iPS-derived cell therapy IND to be filed with the FDA. We are actively preparing the IND. We are finishing our second and third pilot manufacturing runs. We will do comparability across our first 3 [non-pilot] manufacturing runs. The comparability assessment based on guidance from the FDA is necessary to file the IND. And so with the completion of those activities and obviously a tremendous amount of rating and compilation of data, we expect to file the IND very shortly.

Great, understood. And then I think you did highlight on several occasions the potential advantages in terms of manufacturing cost and quality and time lines. And so I was just wondering if you could help us understand what your expectations are for FT500 or other stem cell-sourced immunotherapies in terms of cost of goods maybe compared to traditional products or even some of the gene- edited off-the-shelf products.

Yes, I think it's too early to say exactly what the cost will be. I can tell you that, at a research scale, which is essentially still what we're operating at with respect to manufacturing product for our clinical studies, at our research scale, we're able to produce hundreds of doses in a single manufacturing run. And so even at that type of level of expense or that level of yield with respect to manufacturing product, we are substantially below the costs associated with manufacturing autologous CAR T cell therapy.

Okay. And then one question regarding your activities in terms of the CAR T cell application for this technology. You mentioned potentially being able to file an IND in 2019 on the CD19 CAR product. And was just wondering long term, what your philosophy is for developing this technology for the CAR T application. Is it something that you'd be comfortable to doing in-house? Or is it an area that you could use of partnering strategically with a larger company? How do you think about this asset in a more strategic way longer term?

Yes, absolutely. I think today, we're very comfortable moving it forward on our own, given the collaboration that we have with Memorial Sloan Kettering and specifically, Dr. Sadelain. As you are well aware, he's one of the pioneers in developing CAR T cell therapy. So we believe the collaboration will be very productive in translating a first-of-kind, off-the-shelf CAR T cell therapy into clinical development. It -- our partnering strategy generally -- I have spoken about this, we are actively considering territorial partnerships and so we will consider those types of partnerships where we can bring in a partner that will help us develop and expand development outside of the U.S. territory. And so our view on FT819 is we're very excited about it. Dr. Sadelain is very excited about the product. We will aggressively be pushing that product forward at Memorial Sloan Kettering just as we will be aggressively pushing 3 iPS-derived NK cell products in collaboration with the University of Minnesota.

Our next question comes from Edward Tenthoff of Piper Jaffray.

I guess the question was with respect to the data updates that we'll be getting in the first half of this year. Excited to see that coming up so soon. What -- how many patients could we anticipate at AACR? And I apologize if AACR is going to be primarily a preclinical result but also at the conference in San Diego. How robust could that data presentation be?

Thanks, Ed. I think what you should expect is similar types of disclosures that we provided at SITC on the first couple of patient experience. The discussion at the Innate Killer Summit will specifically be around the ovarian trial, the APOLLO study. So that's, I think, what you should expect at the Innate Killer Summit in a couple of weeks. And we're actively looking to -- for similar types of conferences throughout the year to provide a first update on the DIMENSION study when that's available. And as we get into the second half of 2018, we will continue to provide additional data across all 3 studies as the trials mature. These -- as you know, these are open label studies so we are in a position where we can share the data with investigators as well as with interested investors.

Looking forward to the data updates as well as the new IND filings coming.

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

A few questions. I guess, just on PROTECT and the Phase II. What's the right composite to think about? And when do you think we'll get some FDA guidance on that? Number one. The other question is just at a higher level, maybe for Scott, if you've seen any change in the relationship with Juno now under Celgene and if you anticipate that collaboration to go forward in a similar way. And then, I guess, a final thing, maybe a question for Dan, and that is just on the comparability runs that are being done, what -- I guess, what gives you the confidence that you'll get comparability shown between the different runs and that it will support FDA criteria for your IND filing?

Sure, this is Scott, and Dan and Chris can jump in. But I'll take them in reverse order. Number one, with respect to comparability, I mean, we've run this manufacturing process at Fate Therapeutics probably tens, if not upwards of 50 times. We have a great deal of confidence in the manufacturing process on -- being conducted when we conducted in our hands at Fate Therapeutics. I will tell you, we have successfully completed a first pilot run at the University of Minnesota at MCT. Minnesota has also done research scale runs in their laboratories, in the laboratory of Jeff Miller. So we believe that our manufacturing process can readily be tech transfer. We've certainly manufactured the product lots of times at Fate Therapeutics. Jeff Miller has manufactured the product in his research laboratories, and we've now successfully manufactured the product at MCT. So the manufacturing runs 2 and 3 are looking good at this time, and we believe we'll be able to show comparability between the 3 pilot runs, which are required to file the IND. As it relates to our Juno collaboration, I think it's too early to provide any commentary on how I expect the collaboration to evolve if and when the acquisition is completed by Celgene. It's just too early to say. As it relates to the ProTmune and the data, I think our expectation is that we should view that the PROTECT study -- we'll conduct the study throughout 2018. During that period of time -- and we've already started this discussion with investigators at ASH and then again at ASBMT and initiated discussions with the FDA, we are having discussions with respect to the right primary endpoint for ProTmune as a next-generation graft. As we've seen in the Phase I data, we are very excited about the totality of the outcomes that we're seeing in patients receiving ProTmune. We've seen low and modest GvHD that has been promptly treated with steroid, and we've not seen cancer relapse. And so when you talk to investigators on what they're excited about, there's very little cancer -- there's no cancer relapse. All patients survived the day 100, and the GvHD is transient-modest. So we believe we're creating a better graft for patients. How we capture that in the right primary endpoint, we're having those discussions right now with investigators and the FDA.

And Scott, if you could allow me one more question. Just one of the advantages seems to be, of your off-the-shelf products, is the potential for repeat dosing. I guess, the question is do you have a sense of what the optimal dose frequency will be? And when do you think we'll get some insights into how best to optimally sequence repeat dosing?

Yes, I think we're going to learn through -- a lot through these Phase I studies, and I think we're going to hopefully glean some information from our experience with NK100. I can tell you that what we've proposed is to provide 3 doses during the first 2 weeks, while checkpoint inhibitor therapy is on board. If safe at the end of the month, we have the ability to repeat again for month 2. If safe at the end of the second month, at least we have the ability to repeat again for the third month. That is the clinical scheme that we intend to file with the FDA. We've discussed that scheme as part of our pre-IND meeting. And so we believe we will get essentially a multidose combination regimen in combination with checkpoint inhibitor therapy, and that has the ability to extend over several months.

Our next question comes from David Nierengarten of Wedbush Securities.

I just had a quick one on what -- I know it's always tricky to answer this but what kind of data we could expect at the Innate Killer conference, maybe some antitumor effects? Are we going to see some cytokine profiles of the patients? Just kind of thinking about expectations and what you are able to present over the next month or 2.

Sure. I think -- as I mentioned, I think it should be similar to what you saw at -- with respect to the VOYAGE study at SITC. We will certainly share manufacturing data. We will share phenotype data with respect to NK100 and expression levels of 57. We will -- we are actively looking at the persistence of NK100. And certainly, we are looking for and looking at antitumor activity. The other thing I would say that we're excited about is, and we've discussed this, the potential of NK cells upon engaging tumor to recruit T cells. So we will also look at the ability of the NK cells upon engagement of the tumor cytokine release and T cell recruitment.

Our next question comes from Ren Benjamin of Raymond James.

Maybe just talking about the 3 ongoing clinical studies. Can you talk a little bit about maybe internally what the bogey is that you're trying to hit for kind of go, no-go decision going forward? Should we be thinking about it in terms of just response rates? Or is there something else that you're looking for as you try to evaluate which indications and how you decide to proceed going forward?

Sure. With respect to NK100, to be clear?

Correct.

Yes. I mean, I think right now, we're obviously in a dose escalation period, so we're looking at -- we're certainly looking at safety, and we've been very encouraged by the safety profile so far as compared to what you typically see with T cells where you have the potential, at least for a donor-derived product, to have GvHD. Even autologous products have cytokine release and neurotox. So we're certainly not seeing that with NK100, and that's providing us a lot of encouragement. I think of what we're looking at is obviously, you have to start in patients that are very sick, given it's a first of -- first product, and it's a first-in-human experience. Our view generally with respect to NK cells is that NK cells have an explicit potential to synergize with other agents that are given early and often in care of cancer patients. So for instance, while we're in refractory/relapsed AML right now, I wouldn't expect us to, for instance, remain in relapsed/refractory AML as long as we're seeing some degrees of safety and some antitumor activity. There is plenty of opportunity in AML, given a safe profile of NK100 to move upstream and combine earlier and often with other agents. It is our strategy, for instance, both in the monoclonal antibody, the DIMENSION study. Certainly, we've started in patients that have progressed or failed therapy. But obviously, with safety and activity, we have the ability to move upstream in care and synergize with those agents.

Got it, okay. And then just related to, again, sticking with NK100, when we -- when you guys take a look at the patients that might not have responded even at these early doses, are there any learnings that you are -- that you've picked up on that might help you from a biomarker perspective or from a patient selection perspective as you move forward?

Yes, I think -- I mean, obviously, we're collecting all that data. I think it's too early to comment on how we think about patient enrichment with respect to NK100. It really has to do with the underlying disease, for instance, looking at AML, there's a lot of heterogeneity in AML. But obviously, as we think about, for instance, moving in combination with checkpoint inhibitors, B2M defects are -- tumor cells that express B2M or lack B2M expression, there's a perfect strategy, for instance, to think about patient enrichment for either NK100 going forward or, for instance, FT500.

Okay. And then just switching gears to PROTECT. Did -- I think I heard this right, but really 2018, we should be thinking about the second stage to primarily be enrolling. Should we be thinking about a potential data update in 2019? Or is that even too early?

No, I think what you should expect in 2018 is for us to continue to follow the 7 patients in the Phase I stage of the study and obviously provide day 180 and, for instance, day 365 updates on those 7 patients. The Phase II study is being conducted, and our expectation is that it will take us some time to enroll that study. But 2019, I think, is the right time frame for us to provide some type of clinical update on the Phase II study, given it is randomized, blinded and controlled.

Excellent, okay. And just one last one from me. The CAR NK cell, there are quite a few components here in the construct. And I was just hoping that you could just maybe go through each one of the NKG2D transmembrane domain and the 2B4 co-stimulatory domain. Just to provide us some color as to why those were chosen and how that's going to move forward.

Yes, right, I'm happy to send you the poster that we presented at ASH with respect to all the data around CAR -- our CAR NK products and specifically that construct. You should also expect an update in the next several weeks to months with respect to our CAR NK development efforts. So happy to send you the poster. We can take the question off-line, but this is something we will be talking about in the next weeks and months in particular.

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

Just 2 quick ones. So the first question is just MD Anderson has a cord blood-derived NK CAR T product, and they're using IL-15 to really amp up the response, I suppose. Can you maybe compare and contrast your approach to cord blood-derived product? And do you envision using IL-15 as well to get incremental response? And then the second question is more a maintenance question. But what is the difference between a complete response and a morphologic, leukemia-free state?

Sure. With respect to MD Anderson's program, I mean, again, I actually don't view it any differently than editing that takes place, for instance, at the primary, either NK or T cell level. They are engineering at a CD34 cell level and then differentiating into NK cells. So again, a tremendous amount of -- as I understand the product, a tremendous amount of heterogeneity with respect to engineering and then a differentiation process that again probably only yields a handful of doses at best. I would not view, at least what I've seen of the MD Anderson program, as an off-the-shelf strategy. As it relates to -- I'm sorry, your other question was?

There was a...

Oh, morphologic versus complete remission.

Yes, I mean, it sounds like a complete response.

Yes. Yes, sorry, absolutely. So the endpoint of the study as it relates to definition of complete remission and AML is typically a day 42 with full immune reconstitution. Reaching morphologic leukemia-free state is a necessary prerequisite for a complete response, but this particular patient, after only a single dose, did relapse before day 42.

I'm showing no further questions. I'd like to turn the conference back over to Scott Wolchko for any closing remarks.

Thank you all for participating in today's call, and we look forward to seeing you at upcoming conferences in the next couple of weeks and providing more update on both clinical stage programs as well as our iPS-derived cancer immunotherapy pipeline. Thank you.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.