Scott Wolchko - President & CEO Chris Storgard - CMO Dan Shoemaker - CSO.

Nicole Germino - Citigroup Ted Tenthoff - Piper Jaffray Nick Abbott - Wells Fargo.

Welcome to the Fate Therapeutics Third Quarter 2018 Financial Results Conference Call. At this time, all participants are in listen-only mode. This call is being webcast live on the Investors & Media section of Fate's website at fatetherapeutics.com. As a reminder, today's call is being recorded.

I would now like to introduce Scott Wolchko, President and CEO of Fate Therapeutics..

Thank you. Good afternoon and thanks everyone for joining us for the Fate Therapeutics third quarter 2018 financial results call. Shortly after 4:00 p.m. Eastern Time today, we issued a press release with these results, which can be found on the Investors & Media section of our website under Press Releases.

In addition, our Form 10-Q for the quarter ended September 30, 2018 was filed shortly thereafter, and can be found on the Investors & Media section of our website under Financial Information.

Before we begin, I would like to remind everyone that except for statements of historical facts, the statements made by management and responses to questions on this conference call are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements.

Please see the forward-looking statement disclaimer on the company's earnings press release issued after the close of market today as well as the Risk Factors in the company's SEC filings included in our form 10-Q for the quarter ended September 30, 2018, that was filed with the SEC today.

Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made, as the facts and circumstances underlying these forward-looking statements may change.

Except as required by law, Fate Therapeutics disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. Joining me on the call today are Dr. Chris Storgard, our Chief Medical Officer; and Dr. Dan Shoemaker, our Chief Scientific Officer.

Today, I will review key strategic and operational milestones that we achieved over the past three months and provide guidance as we advance toward important clinical and preclinical data updates that we plan to share at the Society for Immunotherapy of Cancer on November 10, and at the American Society of Hematology during the first week of December.

I will conclude the call with a brief review of our financial results for the third quarter, after which we will open the call up for questions and further discussion. During the third quarter of 2018, we continued to observe strong momentum in subject enrollment in our ongoing Phase 2 PROTECT study of ProTmune.

PROTECT is a randomized, controlled and double-blinded Phase 2 clinical trial, which is intended to treat up to 60 adult subjects with hematologic malignancies undergoing allogeneic hematopoietic cell transplantation.

Subjects are being randomized in a 1 to 1 ratio, to receive either ProTmune or next-generation hematopoietic cell graft or a conventional matched unrelated donor cell graft. I am pleased to announce that we have now treated over 30 subject in PROTECT, exceeding 50% of target enrollment.

Since allogeneic HCT is performed with curative intent, the ideal long-term clinical outcome for patients with life-threatening hematologic malignancies is survival with freedom from significant morbidity.

Two key endpoints that capture this long-term clinical outcome are; one, disease free survival; and two, survival without cancer relapse and without moderate or severe graft-versus-host disease.

Our contemporary date assessment by the Center for International Blood and Marrow Transplant Research from over 5,000 patients and 100 transplant -- 120 transplant centers suggest that at one year, following conventional matched unrelated donor HCT, disease-free survival is only about 50% and only about one in four patients are alive disease-free and without significant GvHD.

At the upcoming ASH Annual Meeting, we intend to present new clinical data on key one-year endpoints that reflect the curative intent of allogeneic HCT from the seven subjects receiving ProTmune in the Phase 1 stage of PROTECT.

Earlier today, an ASH abstract was published that included new preclinical data from the Phase 1 stage of PROTECT as of a July 23, 2018 data cut off.

With a median time on study of 355 days, there has been no cancer relapse in the seven subjects receiving ProTmune in the Phase 1 study, five of seven subjects receiving ProTmune in the Phase 1 study remain alive and cancer-free, with the two incidents of non-relapse mortality deemed not attributable to ProTmune and with two subjects pending completion of the one-year assessment, there have been no events of moderate or severe chronic GvHD at 1-year following HCT.

We continue to be encouraged by the potential clinical benefit of ProTmune observed in these Phase 1 subjects. Turning to FATE-NK100, our allogeneic donor-derived NK cell product candidate. We are currently enrolling subjects in 3 first-in-human Phase 1 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.

We are generating an encouraging set of initial clinical data, and I am pleased to announce that across the dose escalation Phases of these 3 studies, the 20th subject has now been treated with Fate-NK100. At this initial stage of development, we are seeking to accomplish three primary objectives.

First, Fate-NK100 is a first-in-class product candidate enriched for adaptive memory NK cells, a specific type of NK cell that we believe is differentiated with respect to its potency, persistence, and resistance to immune checkpoints.

We are seeking to gain further insight into the unique biological and functional properties of adaptive memory NK cells and to assess the significance of these properties in the clinical setting. To that end, we are diligently comparing Fate-NK100 against endogenous NK cells from healthy donors as well as from study subjects.

We are doing these comparisons both in vitro, before Fate-NK100 is administered to a patient, and in vivo, in the days and weeks following product administration.

We are also seeking to establish a safety profile with NK cells that is differentiated from engineered T cell therapy, where significant toxicities such as cytokine release syndrome and neurotoxicity have been observed.

We believe this is critical, given that our clinical intent is to administer NK cells earlier in the course of cancer treatment, including in combination with other agents like checkpoint inhibitor and monoclonal antibody therapies.

In this treatment context, we are looking for a safety profile where adverse events are manageable and serious adverse events are minimal.

We believe that a differentiated safety profile combined with evidence of clinical activity in these dose escalation Phases such as; initial leukemia clearance, tumor shrinkage and achieving stable disease will validate the unique therapeutic potential of NK cell therapy.

Recall that in all three clinical studies, enrolled subjects have progressive disease, which has failed to be effectively managed by and its resistant to all approved therapies. Finally, in addition to intervening earlier in the course of cancer treatment with NK cells, we're also interested in advancing a multi-dose multi-cycle therapeutic paradigm.

Therefore, we are keenly interested in discerning the immunological response to multiple doses of allogeneic NK cells. Most cell-based cancer immunotherapy is undergoing clinical investigation today are autologous, are available for single dose administration only and are given with lymphodepleting chemotherapy.

In fact, very few clinical studies of cell-based cancer immunotherapies had even explored a second dose of the patient's own cells, let alone a second dose of donor cells. In both the APOLLO and DIMENSION studies of Fate-NK100, the clinical protocol allows for a follow-on dose of Fate-NK100 in certain instances.

And in both studies, we have in fact delivered a second dose of Fate-NK100. So with Fate-NK100 we're getting a first look at the potential for a highly differentiated and disruptive approach to cell-based cancer immunotherapy, using allogeneic cells in multiple doses in the background of limited preconditioning.

Demonstration at this paradigm is safe and well-tolerated with evidence of clinical activity, which serve as a compelling proof of concept for an off-the-shelf multi-dose allogeneic cell therapy strategy.

We look forward to sharing our early observations with Fate-NK100 at our upcoming Investor event on November 10, at the Society for Immunotherapy of Cancer Annual Meeting.

While several allogeneic cell-based cancer immunotherapies, like Fate-NK100, are now beginning first-in-human clinical trials, we are rapidly advancing a new groundbreaking paradigm with the potential to leap ahead of these approaches.

We are preparing to initiate groundbreaking, first- in-human clinical trials of cell products that are made using master induced pluripotent stem cell lines. The use of master iPSC lines uniquely enables the manufacture of cell products that are uniformly engineered, extensively characterized and homogeneous in composition.

And these cell products can be cost effectively mass produced and delivered to patients in an off-the-shelf manner.

We believe our iPSC product platform overcomes many of the fundamental challenges that already limit autologous cell therapy and that are rapidly confounding allogeneic cell therapy, including most notably, the ongoing reliance on donor cells and batch-to-batch variability.

During the third quarter, we submitted a landmark Investigational New Drug application to the FDA for FT500, a universal, off-the-shelf NK cell product derived from a master iPSC line.

We believe FDA allowance of our FT500 IND application will be a transformative milestone for the company as well as the entire field of cell therapy and we are excited to usher in a new standard for cell therapy products.

In response to our FT500 IND submission, the FDA requested that we conduct additional testing of the master iPSC bank used to produce FT500. Those tests are underway and we expect to submit our response to the FDA in the coming weeks.

Upon FDA allowance of the IND, we are poised to initiate a multi-dose multi-cycle clinical trial of FT500 in combination with FDA approved checkpoint inhibitors as a rescue therapy in subjects with advanced solid tumors.

The knowledge gained through our engagement with the FDA and the review of our FT500 IND application has provided us a detailed roadmap for clinical development of additional product candidates are emerging from our iPSC product platform.

We are aggressively advancing a deep pipeline of universal off-the-shelf NK cell and CAR T-cell cancer immunotherapies derived from clonal master iPSC lines toward clinical development. At this time, we have set the stage to translate our second iPS-derived NK cell product candidate from preclinical development into the clinic.

We expect to submit our IND application by the end of 2018 for FT516, our universal off-the-shelf NK cell product candidate derived from a clonal master iPSC line engineered to uniformly express a high affinity non-cleavable CD16 Fc receptor.

Since CD16 binds to the Fc region of tumor-targeted antibodies, FT516 can be combined with FDA-approved monoclonal antibody therapies to target a broad spectrum of tumor-associated antigens. We plan to initially investigate FT516 in combination with CD20 antibody rituximab and with SLAMF7 antibody elotuzumab.

We have now successfully completed the derivation and selection of the single iPSC clone and made the master iPSC bank for FT516. We have also completed GLP toxicity and tumorigenicity studies for FT516.

These activities triggered a $1.1 million milestone payment from the California Institute for Regenerative Medicine under our award in the third quarter and we expect to receive an additional $1.4 million milestone payment from CIRM during the fourth quarter of 2018 in connection with our progress towards IND submission.

At the upcoming ASH Annual Meeting, we plan to present new preclinical data on additional product candidates emerging from our iPSC product platform. These candidates include FT819, our first off-the-shelf iPSC-derived CAR T-cell product candidate, which we're developing under our exclusive collaboration with Dr.

Michel Sadelain at Memorial Sloan Kettering, as well as FT519, our first off-the-shelf CAR NK cell product candidate, which we're developing under our exclusive collaboration with Dr. Dan Kaufman at UCSD.

We plan to hold an Investor event at ASH to share new preclinical data across our entire pipeline of off-the-shelf NK cell and CAR T-cell product candidates and to highlight the unique value in using clonal engineered master iPSC lines as a renewable source for manufacture and delivery of off-the-shelf cell-based cancer immunotherapies.

In addition to advancing our product candidates through our own internal initiatives, we remain committed to leveraging our iPSC product platform in collaboration with other players in the immunotherapy field to develop innovative cell products and extend into new territories.

During the third quarter, we were delighted to enter into a collaboration with ONO Pharmaceutical, a global leader in immuno-oncology with a long history of developing breakthrough cancer drugs against solid tumors.

As ONO is an originator of PD1 checkpoint inhibitor nivolumab, we are honored to collaborate alongside ONO and are pleased to tap into ONO's expertise in solid tumor biology and oncology drug development to accelerate the global development of off-the-shelf iPSC-derived CAR T-cell product candidates.

We believe our collaboration with ONO enables us to smartly extend the reach of our iPSC product platform beyond the U.S. and expand our iPSC-derived CAR T-cell product pipeline in a capital-efficient manner. In addition, we believe we will gain valuable insights and expertise from ONO in targeting and infiltrating solid tumors.

Under the collaboration, we are jointly conducting research and preclinical development for 2 new iPSC-derived CAR T-cell products candidates, one of which is intended to incorporate a proprietary antigen binding domain against a solid tumor target contributed by ONO.

The two CAR T-cell collaboration candidates will each be derived from a clonal master iPSC line engineered to completely eliminate endogenous TCR expression, insert a CAR into the TRAC locus and incorporate other anti-tumor functionality.

During the option stage of the collaboration, we are entitled to receive up to $70 million in aggregate, including an upfront payment of $10 million, research funding of $20 million and milestone and option exercise fees totaling up to $40 million to support both candidates advancement to a predefined preclinical milestone.

For the first iPS-derived CAR T-cell candidate, which is intended to target an antigen expressed on certain lymphoblastic leukemias, we retain global responsibility for development and commercialization with ONO having an option to assume responsibility in Asia.

And for the second candidate, which is intended to include ONO's proprietary binding domain, ONO has the option to assume global responsibility for development and commercialization, while we retain a step in right to co-develop and co-commercialize the candidate in the United States and Europe, under a 50:50 profit share arrangement.

In connection with the development and commercialization of the product candidates, we are eligible to receive up to $1.2 billion in aggregate milestone payments, plus tiered royalties or net sales by ONO.

Importantly, under the collaboration, we retained important strategic rights, including global rights of manufacture for all products and ownership of all intellectual property relating to our iPSC product platform.

Turning to our financial results for the third quarter ended September 30, 2018, Fate Therapeutics reported a net loss of $16.8 million or $0.31 per common share as compared to a net loss of $10.7 million or $0.26 per common share for the same period last year.

The third quarter net loss included a one-time expense of $1.4 million associated with the in-license of additional intellectual property from the J. David Gladstone Institutes covering CRISPR-based cellular reprogramming. Excluding this one-time expense, net loss for the third quarter ended September 30 was $15.4 million or $0.28 per common share.

Revenue was $1 million for the third quarter of 2018, as well as for the third quarter of 2017. Revenue in both periods was generated from our strategic research collaboration with Juno Therapeutics. Research and development expenses for the third quarter of 2018 were $13.6 million compared to $8.6 million for the same period last year.

The increase in our R&D expenses was attributable primarily to a one-time expense of $1.4 million associated with the in-license of additional intellectual property from Gladstone and increase in expenses associated with the clinical development of FATE-NK100 and with the preclinical development of the company's iPS-derived product candidates and an increase in employee compensation associated with growth in headcount.

General and administrative expenses for the third quarter of 2018 were $4.1 million compared to $2.8 million for the same period last year. The increase in our G&A expenses was attributable primarily to an increase in advisory fees, including audit and legal fees, and in employee compensation.

Total operating expenses for the third quarter of 2018 were $14.2 million after adjusting for the one-time expense of $1.4 million associated with the in-license of intellectual property from Gladstone, as well as for stock-based compensation expense of approximately $1.6 million and for research funding proceeds from Juno of $500,000.

Total operating expenses as adjusted for the third quarter of 2018 of $14.2 million represent an increase of approximately $0.9 million as compared to the second quarter of 2018.

At the end of the third quarter of 2018, cash, cash equivalents and short-term investments were $211 million, common stock outstanding was 64.5 million shares and preferred convertible stock outstanding was 2.8 million shares, each of which is convertible into 5 shares of common stock under certain conditions.

These figures include the $144 million common stock offering we closed in September, which resulted in net proceeds to the company of $135 million. And with that, I'd like to open the call up to any questions..

[Operator Instructions]. Our first question comes from Robyn Karnauskas..

This is Nicole on the line for Robyn.

For FT500 as we received FDA warrants for the IND, 1 global study initially and how many patients are you planning to enroll?.

Sure. Hi, Nicole. How are you? Happy to turn that call over to Chris Storgard, our CMO, who can speak to the FT500 studies..

Thanks. Chris Storgard here. So we are working very closely with our sites and we anticipate to be ready for dosing by the end of the year from a site perspective..

And to start on FT500, it sounds like likely it's going to initiate around year-end during 2019, are there other studies that we should expect to be initiated in 2019?.

So the other studies that we expect to initiate in 2019 include FT516, which is the second product emerging from our iPSC platform, that is the product that expresses the high affinity non-cleavable CD16 receptor. We expect to file the IND for that product candidate by the end of this year.

So certainly expect that those clinical trials will be running in 2019. In 2019, we fully expect to file at least one, if not two INDs, additional INDs, certainly one of them will be with respect to our first iPSC-derived CAR product candidate..

And for NK100, can you remind us how many patients are in each of these programs and the range of the duration of patients on treatment?.

Sure, I can start that and I'll let Chris follow-up. So we've treated in total approximately 20 patients, we provide -- we plan to give an update at SITC next week at an investor event, where we will discuss progress across all three studies..

Thank you. Our next question comes from Ted Tenthoff of Piper Jaffray. Your line is now open..

Wanted to follow-up, in term -- maybe a little bit higher level question. And I'm willing to understand sort of how NK100 will fit into the treatment landscape use of the iPSC result; because it always seems to me like NK100 second gene and we're getting into third gene with iPSC.

So, it's just something where you go after different indication, what ultimately do you see as the primary product for Fate?.

Sure. And I'm happy to discuss this more at our SITC event. I think it's a little bit early for us to comment on this with specificity and certainty.

I will say generally, and I have said this in the past, I'd fundamentally believe in iPSC-derived approach where you're creating master cell lines, resulting in the production of homogeneous products that can be given in multi-doses to patients is completely disruptive of autologous approaches as well as donor-derived approaches.

So Fate Therapeutics is absolutely committed to advancing NK100. We are learning a tremendous amount for our NK 100 studies. That said if our iPSC-derived platform is successful, I fully expect that an iPS-derived approach can absolutely replace any autologous and any donor-derived cell therapy and do that with significantly more safety and efficacy..

And then just going back to that and I apologize if this was answered in earlier, but what remains to be done with this cell line characterization for FT516? Is this pretty standard -- or I'm sorry, for FT500, is this pretty standard stuff? Were there any surprises in its request for increased characterization and so on?.

This is -- so, thanks. So FT500, the additional characterization of the master cell line. So yes, we believe this is very standard, we believe this is significantly de-risked. The testing for instance, AVANT tissues agents is a common tests that's done on cells in order to characterize them.

In fact, we characterize indeed, AVANT tissues agent testing on the original cell used to make and reprogram to create our master cell bank. So, as you know Ted, we source and for instance, we source neonatal foreskin fibroblasts in order to make our iPS cells and create our master cell bank.

We did full testing and characterization of the initial neonatal foreskin fibroblasts that was used to derive the iPS master cell line. And so we did testing most proximal to where materials were used to create our cell line. We were very pleased with all outcomes of our testing.

In discussions with the FDA, the FDA recognizes though, we have created a quote unquote master cell line. There is specific guidance around qualifying a quote unquote master cell line.

And so, we are testing the master cell line at their request the FDA, I believe, understands, our objective is to never recreate the master cell line and continue to use it throughout the lifecycle of the product.

And so, they asked us to test it for AVANT tissues agents and we're complying with that and we feel very comfortable in the outcomes of those tests..

Very cool update. Very cool progress. Good. Thank you..

Thank you. Our next question comes from Do Kim of BMO Capital Markets. Your line is now open..

This is Neil, I'm filling in for Do. I had two questions. The first one regarding ProTmune Phase 2 enrollment.

It sounds like you had 14 patients enrolled in the second quarter and now you're saying you're over 30, I was wondering if you could give a little bit more granularity as to the numbers and what do you see enrollment sort of plateauing? And then the second question is just a little bit more of a higher level question about NK100 and the multi-dosing regimen.

And sort of what you're thinking about and what you're learning about in terms of how you're assessing success in the multi-dosing regimen, if it's just primarily safety or what kind of efficacy measures are you kind of focusing on in the interim?.

Sure. I'll let Chris talk to ProTmune and enrollment with respect to that and Dan can talk a little bit about NK100 and the multi-dosing elements associated with that..

So with respect to enrollment with ProTmune, we are definitely not seeing a plateauing enrollment, but we do see continued excitement by our investigators and everyone is very excited to see these patients. As Scott mentioned, the data from the Phase 1 will be reached at ASH, but it's very encouraging to date.

So with that enrollment is progressing and going along very nicely, and we are on-track with our internal targets and it's not been a low in that enrollment..

Hi, Neil, this is Dan. So on your multi-dosing question for NK100. So we've been very interested in the biology behind how the patient will respond to multiple doses and a couple of the observations that we've actually done multi-dosing in two of our studies, the APOLLO and DIMENSION.

And one of the observations is the persistence on the first dose and second dose, the persistence on the second dose has actually been better than the first dose.

So one idea would be that the immune system would be keyed into the product now and that would immediately eliminate the second dose, so that has not happened, and so that was one of the learnings.

The second thing is even as we assess blood samples from the patients, not only during the first dose and second dose, but we've recover the NK cells and do phenotypic testing, as well as functional assessments.

And interestingly, on the second dose, we're very encouraged to see the phenotype of the NK100 persisting, so that the CD57 phenotype as well as some of the enhanced CD16 activity as well as persistence market.

So we're seeing very favorable activity on both the first and second dose and we're pretty encouraged as this relates to multi-dosing in allogeneic settings..

We will -- this is Scott, I mean, we will spend more time talking about this at SITC in terms of the potential and the excitement around being able to safely administer multiple doses of NK cells and obviously do that with the intent of driving efficacy..

Thank you. Our next question comes from Jim Birchenough of Wells Fargo. Your line is now open..

It's Nick in for Jim this afternoon. First question is on ProTmune.

Can you just remind us of the latest regulatory discussions regarding the primary endpoint and its suitability for registration? And am I right in assuming that you might get to say, 12-month follow-up endpoint by the middle of 2020?.

Yes. So we originally received Fast Track designation with respect to the development of ProTmune around the Day 100 endpoint, which was incidence and severity of Grades 2-4 acute GvHD. That continues to remain our primary endpoint. As we've discussed though, the ultimate objective of hematopoietic cell transplantation is to drive curative outcomes.

And so, the 1-year end point is fundamentally important as we think about developing a next-generation better graft for patients. And looking at for instance, the two key endpoints that we discussed disease-free survival as well as a live disease-free and free of severe GvHD.

Those are two endpoints that we think are very important as we look at the durability of the efficacy effect associated with ProTmune. And your question with respect to the 1-year endpoint being looked at with respect to 2020.

Yes, I mean absolutely, I think we're on track and feel very comfortable with the enrollment clips that we're seeing and would expect the one-year endpoints to be looked at in 2020..

But to be clear, then you could file on the Day 100 endpoint?.

So we are going to have discussions with the FDA on how we appropriately unblind the study, given it is a blinded study with respect to the Day 100 endpoint versus the 1-year secondary endpoints..

And then just coming onto potential differences between FT819 and the iPSC products, CAR T products being development [indiscernible]. From what I can understand from the abstract FT819 starts with a CAR T that's engineered with the non-cleavable CD16 into differentiated to an iPSC and then it differentiated into a T-cell.

Your comments on the ONO, it sounded like you start with an iPSC and then -- and so a CAR.

Do I have that correct?.

No. We're engineering iPS cells. We engineered an IPS cell level..

So for 819 as well?.

Yes..

And then as you -- I think [indiscernible] very clear that you could get a CD8 T cell, you haven't quite figured out how to get a CD4 T cell yet.

So where are you in terms of deriving CD4 T cell?.

So, we will give an update on this at our investor event at ASH. We are absolutely differentiating and seeing 4s and 8s..

And then maybe just last one from me, you have iNK CARs and IT CARs.

So, with these two different products, do you see them being used in combination or do you see them being developed in different indications?.

I wish I knew the answer to that. I don't know the answer to that question yet. I'm not -- it will be interesting to see quite frankly, when you start introducing multiple pieces of functionality into NK cells and T cells, how those cells behave differently if at all.

And I think if I think of the world of allogeneic transplant, which is the only curative therapy today, as you know, both T cells and NK cells are given..

Ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the call back over to Scott Wolchko for any closing remarks..

Thank you. Thank you all for participating in today's call. We look forward to speaking with you all very soon in the next several weeks, both at SITC and as well as ASH. Take care..

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may all disconnect. Have a great day..