Sangamo Therapeutics Inc (SGMO) 2002 Q3 法說會逐字稿

Welcome to Sangamo BioSciences third quarter teleconference. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer period. If you would like to ask a question during this time, please press star, then the number one, on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you.

Ms. Wolffe, you may begin your conference.

Good afternoon and thank you for joining us for Sangamo’s quarterly teleconference. Today we will be discussing our progress during the third quarter and our financial results which we released today at approximately 1 p.m. Pacific standard time.

Joining me are several members of Sangamo’s scientific management team, including Edward Lanphier, our President and Chief Executive Officer; and Jan [Nivel], our newly appointed Vice President of Finance Administration. Edward and Jan will update you on our recent activities and financial results, and Edward will discuss some of the exciting scientific and commercial opportunities, which are enabled by our ZFP transcription factor technology platform. After our prepared remarks, we will have time for questions.

As we begin, I’d like to remind everyone that the projections and forward-looking statements we discuss during this conference call are based upon the information that we currently have available. This information will likely change over time. By discussing our current perception of the market and the future performance of Sangamo with you today, we are not undertaking an obligation to provide updates in the future. Actual results may differ substantially from what we discuss today and no one should assume that at a later date that our comments today are still valid. We alert you to be aware of the risks that are contained in documents of the company’s filings with the Securities and Exchange Commission. Specifically our quarterly reports on Form 10-Q and our annual report on Form 10-K. These documents detail important factors that could cause the actual results of the company’s operations to differ materially from those contained in our projections or forward-looking statements.

Now, I’d like to introduce Edward.

Good afternoon and welcome to our third quarter conference call. This has been a busy and productive quarter for us. We have continued to make significant scientific progress, as well as advance our preclinical therapeutic program and our business development initiatives. Throughout this quarter, we have continued to focus our resources on using our ZFP transcription factor technology to develop an important new class of human therapeutics, while at the same time building the business to enable us to sustain these efforts. While this has always been our strategy, the continued and probable sustained downturn in the capital market only reinforce our commitment to aggressively invest in our technology but at the same time carefully control our overall expenses.

The third quarter highlights include the recent presentation of data, our small molecule drug discovery platform at the major international meeting for biomolecular screening. Announcement of an agreement with Icagen in the area of small molecular screening, a collaborative research agreement with Avigen applying our ZFP transcription factors in the area of intractable neuropathic pain. We were awarded two new government research grants, had our third U.S. patent granted, and three scientific papers accepted for publication in peer-reviewed journals. In addition, earlier this month, we announced the appointment of Jan [Nivel] as Vice President of Finance and Administration. I will introduce Jan and tell you a little bit about her background later.

First, I would like to provide you with a bit of color on the quarter and update you on our ongoing program. In late December, Sangamo scientists made two important presentations at the 8th Annual Meeting of the Society of Biomolecular Screening, or SBS, held this year in The Hague. This meeting is the major forum for scientists in the pharmaceutical industry to come together to discuss developments in biomolecular screening and small molecule discovery. This meeting provided the perfect opportunity to present publicly for the first time our small molecule drug discovery platform. The first presentation summarize our work in developing ZFP engineered cell line, which can be used to avoid using patented cDNA gene sequences for small molecule drug discovery. This situation applies in instances where the intellectual property covering cDNA patent has prevented pharmaceutical companies from pursuing drug discovery on these targets. As more and more genes are shown to be clinical relevant, and as patent issue on the sequences of these genes, this creates a commercial barrier of increasing importance. Our endogenous gene regulation technology is ideally suited to provide a viable work-around solution to gene patents. This is based on both the science of ZFP gene activation as well as in the fundamental patent laws. A basic tenet of biotechnology patent laws is that genes and proteins cannot be patented as they occur in nature, or more specifically, within the context of the original cell organism. A patent can only be granted if a gene or protein has been isolated or purified. Endogenous genes cannot be patented.

Sangamo’s ZFP transcription factor technology provides the means for over expressing any therapeutically relevant gene in any cell line by operating the cell’s native or endogenous gene, rather than having to introduce the clone and patented version of the gene into the cell. Using two examples of patented genes that are well validated or proven therapeutics targets, Sangamo scientists demonstrated that by using our engineered ZFP transcription factors, we can obtain levels of gene expression equivalent to or greater than those obtained from the corresponding cDNA. In addition, using a small library of compounds, we demonstrated that ZFP engineered cell lines function perfectly under the actual small molecule screening conditions.

The second presentation at SBS outlined a new approach which permits researchers to screen for small molecule drugs that affect very small complex signal pathways. Signaling pathways are the intricate and interconnective networks of biochemical interaction that cells use in order to react to changing conditions in their environment. As you might imagine, many diseases are caused by abnormalities in a given signaling pathway. For example, one form of breast cancer is caused by an increased response to the hormone estrogen. In this case, estrogen provides a signal to stimulate the cells to grow in an uncontrolled fashion. Drugs that interrupt or restore these damaged pathways have the potential to cure life-threatening diseases. The pharmaceutical industry makes a significant investment every year in the screening program aimed at identifying molecules that can be used to modify cell-signaling pathways. However, these pathways are often so complex and interconnective that it is virtually impossible to dissect out the exact site of action or part of the pathway that small molecule was intended to target.

Our scientists in collaboration with scientists at Johnson & Johnson had developed a novel approach for measuring the effect of a drug, actually any drug, on a specific part of any signaling pathway. For example, what we use for proof of concept and the data that we presented in Holland were in the use of nuclear hormone receptors such as the estrogen receptor. This extremely powerful and general approach is now well characterized and is applicable to a variety of other signaling pathways. In addition to the nuclear hormone receptor program, we are currently developing this approach for use in screening of compounds so it affects the signaling pathway used by bone morphogenic proteins, an important target for degenerative bone diseases, such as osteoporosis. As you might imagine, these two presentations were very enthusiastically received at the SBS meeting and we are actively following up on the interest that they generated.

We see these technology-based programs as a growing part of our business, and our objective is to establish more agreements along the lines of the collaboration that we recently announced with Icagen, an emerging drug discovery company focused on [ion] channels. We’re using ZFP transcription factors to develop cell line that overexpress specific [ion] channels of therapeutic importance. Icagen will use our ZFP engineered cells in their internal drug discovery screening programs. The agreement provides for an upfront payment, research funding, product development milestones, and royalties on product sales. As it’s typical in our approach to small molecule screening collaboration, and in fact the vast majority of our technology-based collaboration, this agreement is nonexclusive. As I will discuss later, this structure permits us to work with several partners on the same gene target; thus, potentially optimizing the value of any single target, as well as providing Sangamo with the option of forward integration at a later date. We believe that this model will provide an important path to value for our company as we continue to pursue our principal goal of developing novels ZFP-based therapeutics.

So let’s turn to that area. As you know, our ability to engineer zinc finger DNA binding proteins to specifically recognize and bind to any gene, permits us to build novel transcription factors that can turn on or turn off any disease related gene. Over the past two years, we have proven that our ZFP transcription factor technology platform can be applied to the direct therapeutics regulation of virtually any gene, by mimicking the way in which virtually every organism has evolved to control the expression of DNA, we are in a unique position to develop new class of human therapeutics.

Further, because ZFPs act directly on the DNA, they have several clinically important differential technical advantages for the conventional small molecule drugs, recombinant proteins, or monoclonal antibody. In choosing targets for our initial therapeutic efforts, we have selected genes in which the specific differential advantages of our technology provides a clear edge over other approaches. This was yet again illustrated by our recently announced collaborative research agreement with Avigen, a company specializing in adeno-associated viral vectors for gene delivery. We intend to combine our powerful, complementary technologies to evaluate and develop new therapies for chronic intractable pain. As most of you are aware, intractable neuropathic pain is a significant unmet medical need. The American Pain Society estimates that approximately 50 million Americans are partially or totally disabled by pain. Current remedies have significant drawbacks, mostly due to their nonspecific nature, and when introduced systemically have unwanted side effects. This is not due to a poor understanding of the physiology or even the molecular nature of the causes of pain. In fact, there are well-validated targets in this area. Several gene encoding proteins in nerve cell membranes have been identified as playing a key role in chronic pain.

However, one of the problems in identifying drugs that have a specific affect on these proteins, is that these pain receptors are structurally similar to receptors found in other tissue. By regulating the target at the DNA level, we can engineer ZFP transcription factors to recognize specific sequences within the target gene that are overexpressed in nerve tissues, and thereby eliminate the expression of that specific receptor. We intend to deliver these ZFP repressors directly to the affected nerve cells using Avigen’s AAV vector system, which has been shown to be safe and well tolerated in human clinical trials, and is extremely effective in entering neuronal cells. We are very excited about this program, as we believe the specificity of our zinc finger transcription factors combine with Avigen’s ability to target AAV gene delivery, specifically to neuronal tissues, has the potential to allow us to develop a novel and highly specific approach to pain control with potentially far fewer side effects than traditional methods.

We were also granted two government grants this month, expanding our ZFP therapeutics program. The first in collaboration with scientists from the University of Alabama was for $1 million and is to fund research into the use of ZFP transcription factors to up regulate the fetal hemoglobin gene to relieve symptoms of sickle cell disease. It is well known that individuals have the sickle cell mutation in their adult hemoglobin gene but continue to express moderate levels of the fetal hemoglobin gene do not have the symptoms of sickle cell disease. This is an ideal target for ZFP therapeutics.

The second grant is a $530,000 Phase II FBIR to evaluate the targeted delivery of an enzyme capable of permanently blocking or silencing the expression of a gene, even with very short exposure to the ZFP therapeutic.

So work on fetal hemoglobin activation is underway and advancing well and we will provide updates on both of these programs as the science progresses. As far as our established therapeutic programs are concerned, experiments are progressing according to plan. In our [VegF] activation program with Edwards Lifesciences, the initial animal studies that were presented at the American Society of Gene Therapy by our collaborator Frank [Guradano] from the Yale University School of Medicine and demonstrated the therapeutic advantage of up regulating all isoforms of [VegF] resulting in healthier, less leaky vasculature production, will be published very shortly in the Journal of Nature Medicine. We expect this to be a widely read and reviewed publication, underscoring the importance of this therapeutic approach for coronary artery disease and peripheral arterial disease, as well as laying out the basic scientific argument for the application of the ZFP transcription factors as direct in vivo therapeutic. This will be an important day for Sangamo and for our shareholders.

We continue to work toward our goal of filing an [IND] in this program in the latter part of next year, and we are currently in the midst of preclinical studies in larger animal models. The ischemic rabbit [fine] limb model for peripheral arterial disease and the pig amaroid model for coronary artery disease. These studies are being conducted in collaboration with leading researchers at the University of Indiana and Duke University, while other studies on small animal models continue in collaboration with Edwards Lifesciences.

I can also report that our collaboration with Onyx Pharmaceuticals to engineer and evaluate an armed therapeutic oncolytic virus continues to progress. We have previously reported that we have engineered ZFP transcription factors that up regulate the expression of [GMCSF] and these constructs are currently being cloned into the Onyx vector system so that small scale batches of virus can be produced for further testing.

A program that we recently initiated in the area of macular degeneration is also moving along well. Macular degeneration is a common age-related problem and a major cause of blindness in the developed world. We have successful engineered ZFPs to up regulate the expression of the PADF gene over five-fold. PADF is a very potent angiostatin that is secreted by cells in the retina and we are currently testing our ZFPs in a mouse model of age-related macular degeneration with a leading group of scientists at University College in London.

Our partnerships with Medarex also continue to move forward. We have generated very encouraging preliminary data from the protein production part of this project far surpassing our initial goal of a 25% increase in production from the Medarex high-producing production cell line. In transient assays, we have already been able to show a 200% increase in antibody production. As you might imagine, we are pretty excited about these data as well.

On the IP front, we were granted another U.S. patent, this one based fully on work done within the company. The granting of this patent further expands our comprehensive intellectual property portfolio in the field of ZFP regulation for a variety of applications, including therapeutics product development.

Finally, fulfilling our promise to continue to publish our science in high-impact, peer-reviewed journals. We had three papers accepted for publication in Major Medicine, Gene Therapy, and Current Biology.

So having reviewed our recent progress, I would like to introduce Janet Nivel, our new Vice President of Finance and Administration, who joined the company earlier this month. Jan brings to Sangamo over 15 years of operational and finance experience, including 10 years in Biotech. She has been a member of the senior financial team in biotechnology companies engaged in human clinical trials for molecule drug development and genomic information. As a member of the inside senior financial staff, she saw the company grow from a start-up to a profitable corporation with international presence. As you can appreciate, Jan brings a valuable range of skills to Sangamo, and we are very happy to have her onboard.

Jan?

Thank you, Edward.

It’s a great pleasure to be here. In the third quarter of this year, revenues were $1 million compared to $730 thousand for Q3 a year ago. This represents a 37% increase in our revenue from the comparable quarter in 2001. R&D and G&A expenses combined for the quarter ended September 30 were 4.2 million, compared to $4.9 million in the quarter of 2001. This 15% reduction of core operating expenses is largely attributable to the closure of the Gendaq operations in the U.K.

The resulting core operating loss for the third quarter of 2002 is $2.5 million or $0.10 cents per share. Our core operating loss for the same period of last year was $3.4 million or $0.14 per share.

I would like to draw your attention to the noncash and restructuring charges presenting in the financial information released earlier this afternoon. As most of you are aware, Sangamo acquired Gendaq Limited in July of 2001. Gendaq was a privately held biotechnology company co-founded by [indiscernible] and headquartered in London, England. The consideration paid in the transaction totalled approximately $2.2 million shares of Sangamo common stocks which was trading at approximately $16 per share at that time. In accounting for the acquisition, Sangamo reported goodwill of 15.3 million and patents of $3.4 million. The amount of the goodwill we reported was a function of the price of the stock at the time of the acquisition. Since that time, our stocks, like that of many other companies, has declined. Based upon our analysis, we have concluded that at this time it is in the best interest of the company to write down the goodwill associated with the Gendaq acquisition. We believe that these adjustments eliminate any further future analysis or potential concerns relating to the value of goodwill on our balance sheet. Therefore, after these adjustments, our consolidated net loss, which includes noncash and restructuring charges, with $20.9 million, or $0.85 cents per share, compared with a consolidated net loss of $17.4 million, or $0.72 cents per share in the third quarter of 2001.

Finally, and very importantly, we ended the third quarter of 2002, with cash and cash equivalence of $52.5 million.

Edward?

Thanks, Jan.

It will surprise no one on this call when I say that in this current market cash is king. As we have previously stated, our goal is to end 2002 with at least $50 million in cash. Given our operating strategy, this cash puts us in a strong financial position for at least the next several years. Specifically, we intend to maintain a burn rate of approximately $10 million a year so that we will end 2003 with at least $40 million in the bank. We believe that this approach will see us through what our undeniably difficult market conditions for entire industry, it will allow us to aggressively pursue the advancement of our therapeutic initiatives in cardiovascular disease and cancer, as well as our new ZFP therapeutic program in neurobiology and ophthalmic applications.

How do we plan to effect this? How do we plan to carefully manage our cash while making important scientific product development progress? We believe that our core technology is one of the most powerful technologies in therapeutics and drug discovery in the postgenomics era. We find ourselves in the unique position possessing a technology platform capable of regulating the expression of any gene in essentially any organism. That is our science. We also find ourselves in the unique intellectual property position of being able to apply this science commercially to any gene. That is a function of patent laws. The breadth and robustness of our technology, combine with the intellectual property advantages, afforded by regulating endogenous genes, creates a very powerful commercial platform for the development of new therapeutic products in this postgenomic era. This is our vision and our mission.

So how is this manifested operationally? As many of you have followed Sangamo over the past couple of years of seeing, there has been an evolution in our business model. We have largely moved away from the simple fee-for-service Universal GeneTools types of agreement, although we still do these types of deals, towards higher value, technology-based partnerships, such as those we have announced with Medarex, Pharmacia, and Icagen. These agreements are structured to provide upfront payment, payment research funding, clinical development milestones, and royalties, and most importantly our nonexclusives. This means that we retain the ownership of our intellectual property and the flexibility to leverage the science in future commercial transactions. For instance, we expect to establish small molecule screening collaborations with several pharmaceutical companies around important therapeutic targets.

Additionally, we may choose to collaborate with emerging companies that have small molecular compound libraries and screening capabilities to further leverage our investment as well as forward integrate in small molecule discovery. This model of applying our technology where we provide unique technical and commercial advantages on a nonexclusive basis, permits us to generate near-term cash flows, reduce our net burn rate, while retaining long-term value of intellectual property ownership and the flexibility of forward integration. The mid and longer term, while we will continue to leverage our core tech competencies in technology-based collaborations, we will increasingly realize far greater value through the development of the ZFP therapeutics.

So I know this is a busy time for all of you and I’d like to thank you for taking the time to listen to our comments. As I have said, I believe we continue to make important progress during the third quarter on all fronts – scientific, product development, intellectual property, and business development, and I look forward to keeping you apprised of our progress, and now invite your questions.

At this time, I would like to remind everyone in order to ask a question, please press star, then the number one, on your telephone keypad. I will pause for just a moment to compile the q-and-a roster.

Your first question comes from Winton Gibbons from William Blair.

Hi, Edward, it’s Winton.

Hi, Winton. How are you?

Pretty well. Congratulations on all of the scientific progress.

Thanks.

I’m going to ask a few questions and then get off. I have a number of questions [indiscernible] but I don’t want to monopolize time if there are other people out there. First on the [VegF] program and Edwards Lifesciences, did I understand correctly that you are actually both sponsoring both the pig and the rabbit studies?

No, Winton. Let me clarify that. We are providing the material for that, but Edwards is funding all of those preclinical studies.

Okay, now, for the rabbit hind limb, does Edwards, and I apologize for not knowing this, they don’t have the right peripheral vascular disease, do they, at this point?

They do. They have rights to our technology, zinc finger activation of [VegF] and [VegF] receptor for that matter, for cardiovascular and peripheral vascular.

And peripheral vascular? Okay. And how are you going to make the decision or can you give us any insight into the decision on which will be your first program into [indiscernible] whether it’d be peripheral vascular or coronary artery disease?

Sure. Two answers. One, structurally that will be made by a steering committee that meets regularly but the driver there are really the large animal studies that are ongoing right now, and that’s with the critical path. So based upon those studies, we will be in a better position in the first quarter to make a decision about which will be the first indication that we’ll go after.

Okay. And then I just want to hit on two more and then I’ll get off here. On Onyx, do you have any update on your go, no-go timing with them?

Actually, I would have given it to you, Winton. I knew you’d want it, but I’ve given you all I have right now. We’re in the process of cloning that into their oncolytic vector and we expect to have petition virus to evaluate the expression of the zinc finger and the production of GMCFS in tumor cell lines in relative near future. Beyond that, we don’t have much visibility in terms of go, no-go.

Okay. So would it be fair to say that maybe even by year-end you’ll have petition virus?

Casey?

Hi, Whit. It’s Casey.

Hi, Casey.

I think that’s a little aggressive. It takes a little while to grow up these viruses, so it’s going to be some time after the first of the year, I believe.

Maybe first quarter?

Certainly by then.

Okay. And then, lastly, and this is another obvious question, and I’ll get back in the queue and then hopefully get you something that you may not be prepared for. On Medarex, is sounds great, I mean, because actually the protein production there can be phenomenal, and as I understand it while they’re sponsoring it and get some kind of lead, you’ll be able to sell that to other people. First question there. That’s correct, right?

That’s correct. It’s a nonexclusive agreement.

But then also with Medarex you’ve been working with them on G protein coupled receptor candidates, and I’m just curious, because they have their T12 program, and if you’re going to get an IND by the end of next year with them, you’d have to have some candidate before the end of this year, and I was wondering where that is headed and if you have any more specificity on that?

I’ll give you what we know. We’ve made a lot of progress in terms of technology part of things at our end. Up regulating some specific GPCRs, and we’ve done very well there. I’m looking at Casey, but I think we’ve actually up regulated a cell line where we have – where there’s 200,000 receptors on the surface of one of these cells, so it’s going very, very well. We have a steering committee meeting with them in November, and it’s at that meeting that we’ll make some decisions about whether we go forward with that particular target or we begin to look at other even higher value targets. So we’ll know more post the steering meeting in November.

Two quick followups on that. Number one, what would be the native number of receptors for that particular target, and number two, was this more of a proof of concept, which is why you might pick other targets at that steering committee meeting?

Should I answer that?

The first one, sure.

It’s a target [indiscernible] that’s expressed almost not at all on the surface of the cell that we treat but it goes up to 200,000 per cell which is a very high number. That’s the sort of number you’d get or even better in some cases, the number you would get if you cloned the gene and put it next to a strong viral promotor and expressed it that way.

Okay. And then as far as which target you picked to begin with versus the—

Yes, I got that question. The answer is we think that, and this is what we’re going to try and determine, that the targets we’re working on are interesting therapeutics targets. However, that’s really going to be a collective decision that we’re going to have to make with Medarex, and so it may be that this serves as a very strong concept, and we can go after other targets as well, but that’s the decision that we’re going to make in November.

Okay. Great. And I’ll get back in the queue.

Okay.

Your next question comes from David Wood with Stephens Incorporated.

Just two quick questions: One, what was the cash burn in this quarter, and the second was, do you have any idea of how many of these partnerships are similar to Pharmacia or Medarex that you anticipate signing in 2003?

Second question first, David, hi. We have not given guidance yet on what we’re going to do in ’03 beyond the cash guidance that we gave and where we expect to end up. So that we will probably have more to say about at our fourth quarter conference call. In terms of overall cash flows for the fourth quarter, I’ll get back to you with that in a minute. Jan is calculating.

Thanks.

Your next question comes from John [Lop] with Sit Investment Associates.

Good afternoon.

Hi, John. How are you?

Congratulations on a nice quarter of progress. I just had a couple of questions, and I’d like to jump off. In terms of Medarex and the protein process improvements strategy, it would seem that there are a number of companies that would stand to benefit from this technology, and I was just wondering how disruptive to the overall existing processes ZFP applications would be and if there is any interest outside of Medarex in this area?

I’ll give you an answer, and then I’ll ask Eric Rhodes maybe to comment on the broader interest in this area. You know, there’s a lot going on right now in biologics manufacturing and particularly in the context of modifications or adjustment to production of a marketing product. It’s our current interest in applying this in programs that are early stage so that you can get large amounts of materials to accelerate the process of preclinical and initial clinical development in relatively modest facilities. Ultimately, we hope that we can build a relatively generic cell line that can be very, very efficient in production for already commercialized products such that it’s worth the effort to go back and perhaps redo some clinical trials. But initially we see it being applied in situations where it’s relatively in development.

Do you sense that ZFPs are more effective in certain cell lines than others?

Casey, I’ll let you respond to that.

I would say no. There are certainly some components of the ZFPs that are cell type specificity, but in general it’s not the case that they are more effective in one cell line or another.

Okay.

And, Eric, do you want to talk about maybe the potential market here?

I think you addressed the point that interest is coming mostly in the some of the early term projects for these [indiscernible] and I would say that we have begun to grab the attention of virtually every company that has biologic manufacturing. Whether they adopt it in the near term or are waiting to see whether or not we develop this generic cell line that we believe we will do. It’s sort of up in the air right now, but it is easy to say that virtually every company that has some sort of biologics and manufacturing process is monitoring the progress we’re making and is pretty encouraged by the results they’ve seen so far.

Okay. And my second question was on the IP front, you seem to be increasingly vocal about using the ZFPs as a legal workaround to existing gene patents. Has there been any interest in using this as a tactical measure on the part of larger pharma and biotech companies, and are there risks that might not have been considered for Sangamo?

I think you’re right. We are increasingly vocal about it because from a market perspective we’re getting a lot of enthusiasm for it. The majority of the applications, John, in the near term are going to be in the area of small molecule screening, where there’s a clearly validated target and we can offer a workaround solution to this. It is something that we’ve looked at pretty carefully, both from intellectual property point of view. We had a diligence by many of the companies that have partnered with us, and we expect to partner with, so it’s not something that we see – it’s something that has been through quite a bit of review and we’re pretty comfortable with our position in it. You might have seen, and if you haven’t, I’ll be able to get you a copy of it, the July issue of Scientific American. It was a nice write up on our position in that where the author wrote an article called “Molecular Circumvention,” and what it really focused on was the ability to turn on endogenous genes which provided a workaround solution to cDNA paths. So we feel pretty comfortable with our position there. Obviously, was we move farther forward from a development perspective, we move farther into the into the value area. But from an IP perspective, we feel pretty solid there.

Okay. And my last question is just in terms of strategy and cash levels. It seems that [indiscernible] several years of cash at this current rate, but increasingly if you’re going to be participating in trials, what’s your view in terms of cash generation and your ability to fund trials over the long term?

Good question. Let me use that as a vehicle to go back to David Wood’s question. The overall burn rate for the third quarter, total cash was 2.9 million. We ended the second quarter with 55.4 million in cash and ended the third quarter with 52.5, so total net cash burn of 2.9 million in the third quarter. So, John, your question is we’re going to have a lot of new expenses in front in terms of development and moving things forward. How are we going to retain the discipline of continuing [indiscernible] cash. And it’s twofold. One, we can – and you should expect to see from us our continued ability to monetize our technology in what I call technology-based field – molecule screening, protein production, GeneTools, in those type of barriers. Secondly, the big cost for therapeutic product development where we are going to move things farther forward ourselves such as in [indiscernible] or the neuropathic pain area. The major costs really come once you get into more advanced clinical trials. So by partnering with companies who have the manufacturing and development infrastructure, we think we’re going to be able to leverage that, and also we don’t intend to take things farther forward into late stage clinical trials ourselves, at least not in the near term.

Sure. Okay. Thank you.

You have a followup question from Winton Gibbons with William Blair.

I guess this question is to Casey, although kind of indirectly, maybe to Edward. On the closing of the Gendaq facility, it was my understanding that you were able to practice some phase display technologies in the U.K. because of the patent situation contributed to your high throughput ZFP development process. Can you comment on how the closing of that facility is going to affect your high throughput development process and possibly it’s already completed and you’re [indiscernible], but could you give us some more detail there?

I’m going to let Pete talk about the patent issues. Technically, the Gendaq know how is now here in Richmond – in California, and so we may want to capture all that. Pete, do you want to say something about issues and patents?

Sure. Pete Bluford. The IP issue there is as follows: Gendaq certainly was a publicly known practicing or using phase display and generation of engineered DNA binding proteins and was able to do that in England. The intellectual property in the United States is somewhat different. Sangamo has previously focused on design methods for engineering its own DNA binding protein, and however because of issues related to the information generated in Gendaq’s research effort, we’re able to capitalize on the knowledge that they generated through their use of phase display here in the United States without actually using the technology.

So in other words, by having gone through that process you further defined your design rules? Is that the best way to characterize this?

Yes, I’d just say that there’s a mountain of information generated at Gendaq having to do with the structure of zinc finger protein and engineering principles. We’ve been able to use that information and incorporate it, integrate it into our research efforts here without actually using a method.

Winton, Carl is dying to get a word in here.

Pete actually made many of the points that I was going to make. The basic idea is that they had learned a tremendous amount about zinc finger DNA recognition that supplemented information that we had here and that information about recognition is being used here, although the phase display technology is not at this time.

Okay. And you think, Carl, that your refinement of your algorithm is sufficient or there is still enough data left to me mined that you wouldn’t have to engage in any phase display or you might use another process or refine our rules?

We’ve been extremely impressed with quality of proteins that we’ve been able to make recently, and some of the designs that we use are based on in our understanding have come from the Gendaq acquisition, so we think it was an extremely kindly and useful acquisition for us from the scientific design perspective; and we think it has given us ever greater power in the ability to get absolutely specific recognition and control the gene regulation.

Great. Thank you. And Edward, I don’t – this is my last question – I don’t think you gave a detail here but you said that you have three papers accepted – the Nature of Medicine paper on the data on [VegF isoform] and how important that is for normal vasculature, but I don’t remember hearing you say what the papers were in gene therapy or current biology. Can you tell us what those papers are and that’s my last question.

I didn’t say, but maybe somebody here can tell you.

The current biology paper has to do with understanding how methylation influences [indiscernible] structure. And this is work that [indiscernible] is going to be the principal author on this. It’s a great paper. As soon as we can we’ll send you a preprint.

Gene therapy?

This also has to do with controlling gene expression genetically. It has to do with imprinting.

So it’s natural methylation then?

Yes.

And relative to the methylation, I guess he talked about it being more of a varnished thing across sites where you’ve already made the change to the chromatin structure. Is that essentially what the paper is going to show?

It’s not quite so general as that, Winton, but it does have to do with what you can do to influence gene expression in a more or less permanent way by transiently expressing zinc finger protein. That’s how it is applied to our technology here.

So you might be able to then dedifferentiate or redifferentiate cell lines?

[Indiscernible].

Okay. Thank you very much.

You’re welcome. Thanks, Winton.

At this time, there are no further questions.

Great. Well we’d like to thank you for joining us, and we look forward to speaking with you again when we release our fourth quarter and year-end results. We’ll be available later today if there are any followup questions. Thank you very much.

At this time, this concludes today’s conference. You may now disconnect. 1