Sangamo Therapeutics Inc (SGMO) 2002 Q4 法說會逐字稿

Good afternoon. My name is Sandra and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Sangamo BioSciences fourth quarter and year-end conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number 1, on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you.

Dr. , you may begin your conference.

Good afternoon and thank you for joining us for our quarterly teleconference. Joining me are several members of Sangamo's senior management team, including Edward Lanphier, our president and chief executive officer, Jan Nibel, our vice president of finance and administration, and Dr. Tyler Martin, our newly appointed vice president of development. Edward and Jan will update you on recent activities and financial results and review some of the past year's accomplishments. Finally, Edward will provide guidance on our current projections for 2003. 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 at a later date that our comments from today are still valid. We alert you to be aware of risks that are detailed in documents that the Company files with the Securities and Exchange Commission, specifically our quarterly reports on Form 10-Q and our annual report on Form 10-K. These documents include 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.

Thank you, Liz. Good afternoon, welcome, and thank you for joining us on our fourth quarter and year-end conference call.

2002 was an important year for Sangamo, a year in which we focused our attention on advancing our science and managing our resources to enhance the value of your Company. The year was highlighted by several key accomplishments and I will briefly review them for you. We advanced our lead therapeutic program in cardiovascular disease towards our goal of filing our first IND in the latter half of this year. A significant marker of that progress was the publication in the journal, "Nature Medicine", of the first animal data showing that our zinc finger DNA-binding protein transcription factors can generate a therapeutically relevant physiological response. Dr. Frank Giordano, assistant professor of internal medicine at Yale University School of Medicine, employed our zinc finger transcription factor designed to up-regulate the expression of the andogynous VEGF gene and thus led to the formation of new blood vessels - a process known as angiogenesis. and colleagues here at Sangamo reported that in contrast to the leaky blood vessels formed as a result of the treatment with a in coding the predominant isoform of VEGF A, ZFP transcription factor treatment resulted in non-leaky, healthy vessel formation due to the expression of all of the normal isoforms of VEGF A. This is an important technical differential advantage achieved by regulating the endogenous gene form of a therapeutically relevant gene.

This publication was very well received. "Nature Medicine" chose to make it available before it appeared in the print journal as an advanced online publication and also asked a group of independent scientists to write a commentary, or article about the work. The paper also referred to on the cover of the journal under the heading "The Perfect Vessel." In press surrounding the paper, there were some thoughtful observations. The authors of the piece stated, "This study demonstrates for the first time in animals that a design transcription factor can modulate the expression of its intended target and thus induce a potentially useful clinical effect." "BioWorld Today" noted that, "The overall message is that it's feasible to design protein-based transcription factors de novo that can regulate genes in vivo. This allows modulation of a complex biological process such as wound healing or blood vessel growth. Based on the technology, there is no restriction as to what gene you can target up and down."

Following on the heels of that technical success, we received commercial validation of this program when our partner, Edwards Life Sciences, extended and expanded our agreement to develop and evaluate novel ZFP-Therapeutics for cardiovascular and peripheral vascular disease. The extended agreement includes up to 3.5 million in R&D funding and potential milestone payments including 1.95 million for R&D activities performed in 2002 and $1 million in 2003. We also agreed to jointly evaluate ZFP transcription factors for the regulation of a new therapeutic gene target, , a key component of calcium flux regulation in heart muscle and known to be involved in congestive heart failure. We granted Edwards an exclusive option to negotiate an exclusive license to our ZFP transcription factors for the regulation of this validated gene target through June 2004. I look forward to keeping you appraised of our progress.

Last fall, we entered into our third ZFP-Therapeutics collaboration - an agreement with to evaluate novel therapies for intractable neuropathic pain based on our ZFP transcription factors and virus, or gene delivery systems. As you're aware, current therapies for pain, mostly small molecule drugs, come with a host of side effects. This is largely because the receptors they act upon are difficult to differentiate from receptors encoded by completely different genes that have functions unrelated to pain. Using our ZFP transcription factor technology, we can specifically downregulate the relevant individual genes that encode the pain receptors. We believe we can create novel therapies for chronic pain with significantly fewer side effects than observed with current treatments by combining our ZFP gene repression technology with delivery platform.

During 2002 we reported several enabling technology agreements in the drug discovery space. These agreements are a function of our ability to leverage our ZFP&G regulation technology in the product areas where we have significant competitive advantages. The first agreement we announced with Metorex is focused on engineering mammalian cell lines to increase the expectation of monoclonal antibodies. We have designed ZFP transcription factors that will recognize and bind the sequences near the promotor that Metorex is currently using to produce heavy and light change of the antibody. Working with the Metorex production cell line, we have been able to double the amount of monoclonal antibody protein produced.

Any increase in the maximum output of a production cell line can have profound economic benefits, and these initial data are highly incouraging. More generally, production capacity is a significant problem for many therapeutic protein manufacturers. This topic was recently highlighted in an article in the January 20th edition of "Fortune Magazine", an article in which Sangamo featured prominently. A significant advantage of our approach is that we can - it can be applied to any gene in any cell type, and has the potential to be applied to a wide range of bio-therapeutics. We expect to announce additional collaborations factors and ZFP transcription factor expressing cell lines for use in drug discovery and small molecule screening programs for Wyeth, Icogen, and most recently, Perdu Pharma. These deals include upfront payments, and in the case of the screening cell lines, product development milestones, and royalties on product sales. As with the Metorex protein production agreement, these are all non-exclusive deals. As we extend and monetize our technology in these enabling technology agreements, we are careful to retain our intellectual property and to leave open the possibility of using these ZFPN engineered cell lines in additional collaborations, or for our own account.

We also applied for and obtained government grants to fund some of our research programs. The first, awarded by the National Heart, Lung and Blood Institute at NIH, with a grant for $1 million to conduct research on the application of our ZFP transcription factor technology for the development of the treatment for cycle cell disease. We are working collaboratively with researchers at the University of Alabama, Birmingham, to target the fetal hemoglobin gene with engineered ZFP transcription factors and to test these ZFPs in mouse model of human cycle cell disease. The second grant, a $540,000 phase two SBIR grant will fund research on the application of our ZFP transcription factor technology to permanently turn off or silence the expression of a gene, and thus the production of the protein that is in codes. This approach could be used to turn off genes that are inappropriately expressed with only a very short exposure to the ZFP.

We also published our science in major journals throughout the year. Starting in January, in "Genes and Development" with the publications of a collaborative study with sciences at Pfizer on repression of genes and the elucidation of the role in fat cell differentiation. And in December with the publication, as I have already mentioned, of our first animal data in "Nature Medicine". Several other publications authored by Sangamo scientists appeared in other high impact publications including "Current Biology" and the "Journal of Biological Chemistry" in the intervening months.

Sangamo scientists also had a significant presence at two major scientific meetings last year. The first was the fifth American Society of Gene Therapy Meeting held in Boston in June. Frank presented a portion of the work that he later published in the Nature Medicine Paper. In addition, we gave the first presentation of data from the ongoing studies between Sangamo and Onyx Pharmaceuticals. This program combines the therapeutic anti-cancer virus developed by Onyx with Sangamo's ZFP Transcription Factor gene activation technology to up-regulate the expression of the cancer's own GMCSF gene. This product is designed to stimulate a potent anti-tumor antibody response to treat metastatic cancer.

Sangamo scientists also presented the first data demonstrating a widening applicability of small molecule regulatory switches, enabling their use in combination with ZFPs for the direct regulation of an endogenous gene. The ability to control both the magnitude and duration of a gene's expression with an exogenously administered small molecule is, for obvious reasons, considered by many in the therapeutic gene transfer field to be the Holy Grail.

In September, we presented at the 8th Annual Society of Bio-Molecular Screening Conference that was held in The Hague. At this meeting, which is the primary forum for scientists from the pharmaceutical industry to discuss developments in small molecule screening, we presented data to illustrate how Sangamo's gene activation technology can be used to create cell lines for high throughput screening, thus avoiding the use of clones that may have patent restrictions.

Also on the patent front, we had patents granted in several countries, further consolidating our preeminent intellectual property position.

Finally, in terms of internal organizational development and consolidation of our resources, we made several key decisions. In December, we completed the closure of our U.K. facility, consolidating all research activities here in our Richmond facility. In October, we hired Jan Nibel as Vice President of Finance and Administration. And most recently, as you may have seen in our press release earlier this week, Dr. Tyler Martin joined us as Vice President of Development. I will give you some background and introduce Tyler later on this call.

As you can tell from this list of accomplishments, we had a very busy and productive 2002. We stayed focused on attaining the goals that we set for ourselves, doing our best to deliver on our promises, and doing so in a fiscally responsible manner. At the beginning of the year we said that we would attempt to achieve all of this and still end the year with at least $50 million in the bank. I am very pleased to report that we met and actually exceeded this objective.

All that brings me back to Jan. So, without further ado, I will turn things over to her to briefly discuss our fourth quarter and yearend financials. Jan?

Thank you, Edward.

From a quantitative perspective, we had a solid fourth quarter in the year. Our consolidated core net loss in the 2002 fourth quarter was $543,000, or two cents per share, compared with a core net loss of $1.9 million, or eight cents per share in the fourth quarter of 2001.

Revenues in the 2002 fourth quarter were 2.5 million, and consisted primarily of revenues from Edward's Life Sciences and revenues from our partnerships in Human Therapeutics. Revenues in the year ago fourth quarter were 2.2 million. Revenues for the year were 4.3 million, a modest decline from over the 4.9 million in revenues we reported in 2001. Our core net loss for the year was 9.5 million, compared with 8.3 million in 2001. Finally, as Edward has said, we ended the year with cash and cash equivalents of 52.6 million. You can find greater detail on our fourth quarter and year-end financials in the press release that we distributed earlier this afternoon and I will be happy to answer any questions that you may have in the Q&A portion of this call.

Thank you, Jan. Needless to say, in the current financing environment, I am very pleased that we achieved our principle 2002 financial milestone, ending the year with 52.6 million in cash. Further, I'm very pleased that, based on the considerable leverage we were able to achieve with our ZFP transcription factor technology, we were able to advance our ZFP therapeutic products and expand our enabling technology collaborations with a relatively modest infrastructure. Our total expenses in the fourth quarter were only $3.5 million. I think that we are getting a lot of bang for your buck.

Now, looking forward to 2003, I've already stated that our principle goal for this year is to file our first ZFP therapeutic IND. As I have said before, this is truly a stretch objective, but one we believe is worth stretching for. We have invested a significant amount of time, effort and even our own money in this program and we believe that we are on track. Working with our partner, Edwards LifeSciences, we anticipate that the initial indication for our ZFP-specific--from our VEGF-specific ZFP therapeutic, will be peripheral arterial disease, or PAD. We have successfully completed initial efficacy studies in the rabbit eschemic model and are now repeating and extending these observations in pivotal efficacy studies in this same model. We have also moved forward to establish master cell banks of the vector and coding the VEGF-specific ZFP transcription factor. Both of these tasks are critical events. Our next steps will be to finalize the delivery formulation and carry out biodistribution and toxicology studies.

Another critical step that we have taken to expeditiously move our ZFP therapeutics forward is to hire Dr. Tyler Martin. Tyler has joined the Sangamo management team as vice president, development to direct our therapeutic product development efforts and to help us achieve our goal of filing our first IND later this year. Tyler is very-well positioned to lead this effort. He has worked in the industry for over ten years and has held senior management positions in clinical research in several biotechnology companies engaged in human clinical trials of therapeutics for cardiovascular disease, cancer and infectious diseases. During the course of his career he has filed 11 INDs and overseen 47 clinical trials. Prior to joining Sangamo, Tyler was at Valentis. He started there in 2000 as Vice President, Clinical Development and Regulatory Affairs, and was promoted to Senior Vice President, Development and, most recently, Senior Vice President, Research and Development.

At Valentis he oversaw the development of their plasma-based gene delivery technology and regulated gene expression systems and was responsible for the filing of several INDs for therapeutic products, including the product that is currently in clinical trials. Prior to working at Valentis, Tyler was Executive Director, Clinical Research and Development at SyStemix/GTI, which is now Novartis and led their hematopoietic stem cell gene therapy clinical programs. Before joining SyStemix, he was Director, Clinical Research at Chiron Vaccines. Tyler earned his undergraduate degree in Chemistry from the University of Nebraska and went on to do his M.D. at the University of Nebraska College of Medicine. As you can see, Tyler's extensive background in therapeutic product development will be enormously important to Sangamo as we move our ZFP-Therapeutics program out of the laboratory and into human clinical trials. We are very excited to welcome - to be welcoming him to our team as we take the next steps forward with our technology.

In addition to the filing of the ZFP - or the VEGF ZFP-Therapeutics IND, we have several other key objectives for 2003. In summary, we plan to prepare to file two more ZFP-Therapeutics INDs in 2004; to enter into a least one new partnership in ZFP-Therapeutics; to continue to leverage our technology in our enabling technology agreements in protein production, small molecule screening, and target validation; to continue to evaluate larger strategic collaborations and/or joint ventures in the areas of ZFP-Therapeutics; in 2003, we will continue to apply for government grants in specific therapeutic areas to help advance our therapeutic programs; we will also aggressively invest in our core science of gene regulation, continuing to develop both constitutive and inducible systems for highly specific gene activation and repression, the transient use of ZFP transcription factors in complete gene silencing and to explore other applications of our technology such as ZFP-mediated gene targeting and applications of ZFPs in modulating the fate of cells for regenerative medicine.

Consistent with this investment in our scientific platform, we will continue to look for broad access to gene delivery platforms to insure us - to insure - to enable us to apply our technology to it's fullest. And as in 2002, we will continue to publish our data in high-impact journals and to present at major scientific meetings.

Finally, we will continue to preserve the strength and integrity of our balance sheet. Specifically, you can expect us to end 2003 with at least $40 million in cash. With what we plan to achieve, this will not be an easy task and will require careful focus, but we feel that it is an important objective, particularly in the current financing environment.

In conclusion, throughout 2002 and as we begin 2003, we have focused on two major goals - moving our ZFP-Therapeutics programs forward towards human clinical trials and managing our expenses to maintain a strong cash position. We believe that this is the path that will lead us towards our mission of building a substantial and sustainable business as the world leader in therapeutic gene regulation. We have demonstrated the technical advantages of our technology in multiple model systems and in small molecule drug discovery, and we continue to make important progress in establishing the role of ZFP transcription factors as a new therapeutics platform. Our ultimate objective is to build the first new therapeutic product platform in the post-genomic era, and 2003 will be a pivotal year in this quest.

One final note, we will be discussing Sangamo's progress at two upcoming investor conferences. We will presenting at the Bio CEO and Investor Conference in New York on Thursday, February 27th, and at the Lehman Brother's Healthcare Conference in Miami on March 5th. This concludes our prepared remarks, and now we would like to open it up for your questions.

At this time, I would like to remind everyone, if you would like to ask a question, please press '*' and the number '1' on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

Your first question will come from Richard Watson of William Blair and Company.

Hi guys.

Hi, Rich, how are you?

Good, thanks. A nice quarter. Just wanted to get a little bit of feel for what we can expect on the top line in 2003. I realize the - I realize it is difficult to model, given the timing issues, but with the goal of exiting 2003 with $40 million plus on the balance sheet, should we think about it more in terms of higher expenses and maybe revenues kind of staying at the same sort of level? How should we be thinking about it?

Sure. Good question, Rich. I just want - I want to say I appreciate the question, because I win the pool here. I figured the first question was going to be on top line guidance. So the guidance that we're going to give on this call is really intended to really, pardon the pun, put our money where our mouth is. We really want to focus you all on our ability to build value in the business. Put points on the board. Hit the kind of really value creating milestones that we've talked about. But at the same time, manage the business in a way that retains the integrity of the balance sheet. And so, as you've noted, the principle financial guidance that we've given is really balance sheet guidance, and that is that we expect the - end the year with at least $40 million in cash. We deliberately did not give top line guidance. We are following the lead of other small emerging companies like Coca Cola in that regard. But in general, I think what you could assume is that we are going to work real hard to hit that $40 million balance sheet number, and in terms of growth, I think you can anticipate expenses generally in the same general range as what you saw in 2002.

Great, that helps, thanks. And then just kind of following up, I realize some of the potential collaborators that you might be talking to are still in a hunker down mode, and we are seeing, obviously wide cuts across the industry, but are you getting any sense whether potential and/or turn partners are sort of taking a wait-and-see approach until you get something in the clinic and show some proof of concept, or at a minimum, some safety in before maybe moving forward committing significant additional capital?

There is a couple of the answers, Rich. On the ZFP therapeutic side of our business, I think your characterization is correct. I think it will be episodic at best, in terms of doing large collaborations. Until we do have more data in . And we've given guidance that we hope to do at least one ZFP therapeutics this year. In all likelihood, that will be a similar sort of deal as the one that we've done with Onyx. So we got it - I like to say, walk before you run, run before you race. And so, we do need to move those programs, I think, into human clinical trials before we can give much visibility or much consistency in terms of visibility on corporate partners.

On the enabling technology side, I think that's really an area where we see quite a bit of need. And I emphasized on this call the progress we've made in the area of protein production, and the deals that we've recently done in the area of high throughput small molecule screening. We expect to continue to leverage the platform in that area with the non-exclusive type structure that we've discussed.

Great. Thanks a lot.

Thank you.

Your next question comes from John Sullivan of Stevens Incorporated.

Hi, guys. How are you? Both Dave and I are here with questions.

Hi, John. Hi, Dave. How are you?

Good.

Dynamite.

You know, can I go first? Can you just give us some sense -- when I chat with investors about your company, they appreciate very much your conservative cash spending policy. They wonder about if the calendar turns to '04 and you do get a molecule into the clinical, what, incrementally, that might mean to your financial flexibility. I suspect you don't want to give hard numbers, but can you just give me some sense of it?

Yeah, John, I can. As it relates to the Program, which is obviously the point of the sword at this point, those are all expensed that will be incurred by our partner, Edward's Life Sciences. And so, there's a huge tradeoff, right? They fund that work and then we receive downstream milestones and royalties.

Now, as we begin to mature some of our own programs and take those forward, you're absolutely right; we will begin to incur greater expenses in moving those programs forward.

And so our plan is to continue to try and partner programs, as well as really focus, and continue to focus the company's expenses on those kinds of efforts that do drive programs into the clinic and, we think, put some points on the board.

So, the near-term answer is, those expenses for '03 and '04, as it relates to the I&D in clinical trials, will be absorbed by Edward's Life Sciences.

OK. Terrific. And that's all the way? Theoretically, that's all the way through commercialization, right?

That's correct.

OK. Dave, did you have anything?

Yeah, I came into the call late ...

Go ahead, Dave.

Oh, sorry. I was just wondering, you were talking about the I&D for the ZFP. Could you just go over a little bit what you have to get ready for that I&D, what sort of steps you're taking now?

Sure. We talked a little bit about this on the call, Dave. We have now completed the initial efficacy work in the model. That was done with collaborators at Duke, and those results were very, very encouraging. And we're now in the process of moving forward to repeat and expand that trial, powered in a way that it could be potentially the pivotal efficacy requirements that we would need for the I&D filing.

We also talked about moving forward with the master cell banking of the vector that encodes the ZFP that is a critical -- both of those are critical path items, and both of those are underway.

And then, the next obvious steps are the beginning of bio-distribution studies and the toxicology studies.

OK. Good. Good.

At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone keypad.

Your next question comes from Skip Klein of Taurus Capital.

Yes, hi, Edward. I was just curious whether there's anything new on the IP front?

You know, Skip, we planned for questions, we rehearsed this, only to make sure that none of the questions we rehearsed actually are asked. But we rehearsed this one.

Good.

Pete, go for it.

Skip, hi, this is Pete Bluford, VP of corporate development at Sangamo. And last year, Skip, we had the issuance of a few patents, both in the U.S. and abroad, and primarily those patent issuances have to do with the general area of different methods of engineering, different methods of design and engineering of ZFP proteins. For instance, how do you go about scanning a gene to select a site where you can target the protein? Those kinds of things. There was also an issuance in Australia of a patent application covering methods of regulating andogynous chromosomal genes and that was issued as well.

Is there any going on in terms of someone having a patent on a , let's say, and someone else using a ZFP to find a unique way to work with that same gene without, you know, hitting the ?

Are you talking about the andogynous gene regulation patent prosecution?

Yes, I'm just sort of thinking about, you know, the whole thing and how that speaks to, I guess, big pharma or others' view of using ZFPs to do something similar.

Yes, I mean, the patents that have now issued in England and is continuing in prosecution throughout the world gives us exactly those sort of claims, Skip, the ability to regulate any gene in any cell type in any organism. And those are, as you know, issued claims in U.K. and continue to be prosecuted throughout the world.

So if I had a gene on the , could you still do that?

Of course, absolutely. I appreciate the question. That's the basis of our high throughput small molecule screening program, was actually the basis of the paper that Casey gave at the Society of Bimolecular Screening conference where we can build ZFP engineered cell lines that can over-express a validated gene without using the patent and, therefore, provide partners with the ability to do high throughput screening to those kind of targets.

so then if you could deliver a ZFP with a gene therapy or other kind of construct and turn on a gene of interest, you wouldn't be blocked by someone else having the on that gene either?

That's right.

OK.

Thanks.

At this time, you have a follow-up question from John Sullivan of Stevens Incorporated.

Hey, guys, on another note, and maybe this is one you rehearsed, there's been a lot in the news lately about , another method for controlling gene expression. Can you chat about what you think the differences are? And I know you can go on forever, but, you know, at first blush, the differences from a functionality standpoint between and ZFPs, because I think a lot of investors are thinking that kind of supercedes all previous methods of controlling expression levels and I'd just like your opinion on that.

Hey, John, it's Casey. How you doing?

Dynamite, how are you?

Super. is a sweeping new method for down-regulating gene expression. There are a lot of labs that are working on it right now, trying to understand mechanistically how it works. There's still considerable amount of mystery about the basic steps that are involved. It doesn't activate gene expression; that's one thing that clearly distinguishes what we do from what RNAI approaches can do.

And one big unresolved question in the RNAI world is how truly specific is RNAI inhibition. We're doing experiments now to address that. We'll hope to publish that fairly soon. We know, for example, that our zinc finger repressors can regulate with singular specificity where an - only one gene is regulated at a time. We don't think that's going to be achievable with RNAI approaches.

And finally, there are reports that we're hearing that RNAI works great in some tissue types but not in others. So, that may - that may also be a limitation.

We're looking at a lot of different things right now, , but those are just sort of the highlights.

The only thing I'd add, John, is that RNAI is primarily being used in the context of at least as our business unfolds in the area of target validation. And as I've said on previous calls, that's an area in a market that two-and-a-half - three years ago was pretty robust - a lot of companies trying to sort through putative targets to validate targets. At least perspective, that market has really shifted to companies with a lot of validated markets and needing to move forward in higher value kinds of relationships for small molecule discovery protein production and then ultimately obviously as we just discussed, we can apply our ZFP-Therapeutics to any validated target. So, that's a long answer.

I appreciate that. So, what you're saying is that so far it's kind of emerged as a - as a target validation technique, but you don't know if people that are seeking to use it as a basis for a therapeutic class.

Right.

. Thank you.

Dr. , at this time there are no further questions.

Thank you. We'd like to thank you for joining us, and we look forward to speaking with you again when we release our first quarter results. We'll be available later today if there are any follow-up questions. Thanks very much.

This concludes Sangamo BioSciences fourth quarter and year-end conference call. You may now disconnect.