Sangamo Therapeutics Inc (SGMO) 2003 Q3 法說會逐字稿

Good afternoon. My name is Richard and I will be your conference facilitator today. At this time I would like to welcome everyone to the Sangamo BioSciences quarterly teleconference. 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 start and then (1) on your telephone keypad. If you would like to withdraw your question press the pound key. Thank you. Dr. Wolfe [ph] you may begin your conference.

Good afternoon, and thank you for joining us on our quarterly teleconference. Joining me are several members of Sangamo's senior management team, including Edward Lanphier, our President and CEO, Dr. Tyler Martin, our Vice President of Development, and Greg Zante, our Senior Director of Finance and Administration. Edward plans to update you on our recent activities and review some of the 3rd quarter's accomplishments. Greg will briefly review the quarter's financial results, and Edward and Tyler will update you on our ZFP Therapeutic program.

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 from today are still valid.

We alert you to be aware of risks that the detailed documents that the company files with the SEC. Specifically our quarterly report 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 turn the call over to Edward.

Thank you Liz. Hello, and welcome to our 3rd quarter 2003 conference call. This is an exciting time for Sangamo, and an important conference call, as we plan to outline, in some detail, our therapeutic development plans for the next 2 years.

In the last several calls, I have given you an outline of that plan. But today we intend to provide m ore granularity on our therapeutic programs ZFP Gene Regulation and ZFP Mediated Gene Correction. Before I update you on our therapeutic programs, I'd like to bring your attention to a paper we published earlier this month in the proceedings of the National Academy of Sciences authored by Drs. Siyuan Tan, Philip Gregory and their colleagues here at Sangamo, and Dr. Judy Campisi an her colleagues at Lawrence Berkeley National Laboratory. The work highlights the efficacy and specificity of our ZFP technology platforms, and in particular, our ability to build ZFP transcription factors capable of regulating a single gene within a complex mammalian genome.

Using a ZFP design to impress the endogenous human [check 2] gene, we showed that we can abolish the protein's function, and that this effect occurs with single gene specificity. As you know, our goal has always been to realize the power and potential of our scientific platform to target and regulate endogenous genes, and to develop ZFPs as a novel therapeutic modality. This work demonstrates both the efficacy and exquisite specificity of our approach, and suggests that ZFP therapeutics can be designed to target and regulate a single disease related gene.

Please let Liz or me know if you would like to receive a copy of this paper. And congratulations to all of the scientists involved in this work. With that, I would like to introduce the newest member of our management team, Greg Zante (ph). Greg joined us in August as our Senior Director of Finance and Administration. I've asked Greg to summarize our Q3 and year-to-date financial data. Greg?

Thank you Edward. For Q3, 2003, our consolidated net loss was $2.6m or $0.10 per share. In the comparable quarter of 2002, we reported a consolidated net loss or $20.9m, or $0.85 per share. Included in the 2002 Q3 net loss were one-time, non-cash charges of $15.3m, and $2.8m for goodwill and patent impairment, respectively. All associated with the acquisition of Gendaq Ltd. Revenues for Q3 2003 were $507,000 as compared to Q3 2002 revenues of $1m. The principal components of Q3 2003 revenues were from Sangamo's partnerships in the areas of human therapeutics, [inaudible] technology agreements and federal government research grants.

Our research and development expenses were $2.3m for the 3 months ended March 31, 2003, as compared to $3.4m for Q3 2002. G&A expenses were $1.1m for both Q3 of 2003 and 2002. We ended the quarter with cash, cash equivalents and investment of $46.3m, and I'm pleased to report that we remain on track to deliver on our principal 2003 financial objective to end this year with at least $40m in cash. You can find additional detail on our Q3 financial data in the press release that we distributed earlier this afternoon, and I'll be happy to answer any questions that you may have in the Q and A portion of this call. Edward?

Thanks, Greg. As you just heard, while we continue to aggressively invest in our core science and therapeutic development programs, we are also keeping a tight rein on our operating expenses. As Greg said, based upon this operating philosophy, we are on track to end this year as promised with at least $40m in the bank. Looking forward to 2004, we will continue to operate the company in the same focused and fiscally responsible manner. However, as we move our therapeutic programs forward, and into human clinical trials, our expenses will increase. With that said, even with these increased expenses, we expect to end 2004 with approximately $25m in cash and cash equivalents.

We will provide more definitive guidance on our 2004 financial expectations on our year-end call in February. 2003 continues to be a year of intense focus for is at Sangamo, as we concentrate our efforts, virtually exclusively, on the development of our ZFP therapeutic programs. I know I speak for our entire company when I say that we have never been more enthusiastic, or more importantly, confident about the potential to develop and use ZFPs as effective and differentiated therapeutic agents, as we are today.

So, let me describe in some detail our therapeutic development plans for the next 12-24 months. During our last call, we reiterated guidance that our first I&D would be for a zinc finger DNA binding protein transcription factor designed to up-regulate VEGF expression for the treatment of peripheral arterial disease. This is a program we are developing with our partner, Edwards LifeSciences, who is funding all pre-clinical and clinical development activities. We believe that our ability to stimulate the expression of all of the natural isoforms of the VEGF protein in their normal rations results in the production of histologically and functionally normal vessels. And that this approach consistent with the underlying biology of angiogenesis will be effective in treating vascular diseases.

I am pleased to report that this program is moving along according to schedule. Our pre-clinical efficacy studies were completed this spring by Brian Annex [ph] and his colleagues at Duke University, and those data, as previously reported, were very encouraging. Those data also helped drive Edwards decision to move into formal pre-clinical development. Master and working cell banks have now been established for the VEGF ZFP plasmid. Production and formulation of material for toxicology and bio distribution studies have been completed, and those studies, which are critical paths for the I&D, have begun and GMP production of the VEGF ZFP therapeutic for Phase I clinical trials is also underway. A pre I&D package was submitted to the FDA last month, and we completed a very productive pre-I&D meeting with the agency just last week. We also have submitted the required documents to the Recombinant DNA Advisory Committee and if requested, we will present at the December [rack] meeting. Finally, Edwards has selected a high profile clinical site, and an outstanding [PAD] investigator to lead the Phase I clinical trial. Assuming continued execution, I am confident that we are on track for filing this I&D the first ZFP I&D in the first half of 2004. I look forward to providing you with more information about this program, 4th quarter and year-end call in February.

The other therapeutic program that we are prosecuting with Edwards LifeSciences is for the treatment of ischemic heart disease. The initial indication that we envision for this program is stable angina. These patients have chest pain on exertion due to limited coronary blood flow. As with PAD, the biological objective is to establish new and functional vessels to revascularize the ischemic heart muscle.

Plans for more extensive pre-clinical studies in the porcine ameroid model are being drafted and these studies should commence early next year. Data from those studies will determine the clinical development path and timeline for this program. Continuing in the cardiovascular area, and specifically congestive heart failure, we are developing a ZFP transcription factor repressor to a very important therapeutic gene target - phospholamban (ph). Congestive heart failure is a condition that affects over 5 million Americans. With over a half a million new cases being diagnosed every year.

In heart failure, the heart is not pumping as well as it should, usually because it has been weakened over time by an underlying problem such as inadequate blood flow, or high blood pressure. There is no cure for congestive heart failure. Currently, patients live with the disease, and existing therapies treat symptoms rather than the root cause. Some patients ultimately require heart transplants.

Phospholamban is a very promising therapeutic gene target that addresses the underlying cause of this disease. In a news and views article published this past May, in Nature Medicine, the authors noted, and I quote, "The development of phospholamban inhibiters represents a valid therapeutic strategy for heart failure." They went on to say, "for over 30 years, our primary therapeutic approach to heart failure has been largely palliative, aimed at relieving symptoms, and not towards interrupting defined molecular pathways that determine disease progression. The recent cycle of discoveries based on observations from patients, hamsters, rats and mice, clearly point to phospholamban (ph) inhibition as a prime target for a drug that goes to the root of the problem." Yet, as they go on to point out, "There are no candidates for drugs that inhibit phospholamban." There is a reason for this. Phospholamban is not an easily accessible or drugable target. And this is where we believe ZFPs have a significant advantage. Specifically, phospholamban is an inter-cellular membrane protein that exerts its effect by interacting with another inter-cellular membrane protein.

This makes it a very difficult protein to target with either small molecule drugs that would have to act in the context of the membrane. Or, with monoclonal antibodies, that would have to have access to the inter-cellular [spike]. In contrast, we can design ZFP transcription factors that specifically inhibit the expression of phospholamban in the target cell, cardiac myositis (ph). We have now built ZFPs that inhibit the expression of both the rat and human phospholamban gene, and we are preparing to initiate testing I a pre-clinical efficacy model, the rat coronary ligation model. We expect that these studies will commence in the next several weeks, and that we will have data from this model in the 2nd half of next year.

We're also making considerable progress with another ZFP gene repression program, in neuropathic (ph) pain. Pain is an underdeveloped therapeutic area and as nothing is particularly effective for helping neuropathic pain, patients are currently prescribed a cocktail of anti-depressants and/or opioids. This is yet another indication for which we believe our technology provides a differential technical advantage. The ion channels and receptors that have been identified, have a key role in neuropathic pain, have proven to be particularly difficult targets to specifically effect with conventional small molecule drugs.

This is because many of the channels and receptors are structurally very similar to other proteins that have functions unrelated to pain. This leads to the unwanted side effects so commonly associated with existing pain medications. The exquisite specificity of ZFP therapeutics most recently demonstrated in the paper I discussed at the beginning of this call, is a clear technical advantage that could make a difference in the clinic.

We have built ZFP transcription factors that specifically repress the expression of several highly validated neuropathic pain receptors, including the capsaicin receptor, or VR1. We plan to evaluate efficacy in several rodent models over the next several months, and expect to have data from these studies in the 2nd half of 2004.

Also in the neurological area, we are very excited about the potential therapeutic role of VEGF activation in neuropathic disorders. I've asked Tyler Martin, our VP of Development to tell you more about our VEGF diabetic neuropathy development plan. Tyler?

Thanks, Edward. Peripheral neuropathy is a general term for peripheral nerve disorders of any cause. Polyneuropathy (ph) is the most common and most important type of peripheral neuropathy and is caused by toxic or metabolic damage to nerves. Patients with diabetes often develop peripheral polyneuropathy as a consequence of altered glucose metabolism and [arteriative] stress. This clinical syndrome is commonly referred to as diabetic neuropathy. There are 14 million diabetic patients in the United States. 50% of these patients have neuropathy. The symptoms of the disease often begin with increased sensation as the nerves are damaged. Then as the damage increases, decreased sensation, and finally numbness. The disease typically begins in the feet, and to a lesser extent the hands, and then progresses centrally.

The painful symptoms are often worse at night in current treatments that typically provide satisfactory relief to patients who suffer from this disease. In patients with diabetes, high glucose levels lead to glucose being abnormally metabolized to sorbitol. Abnormal accumulation of sorbitol (ph) could have been implicated in many complications of diabetes, including retinopathy, cataracts, nephropathy and neuropathy. This mechanism of toxicity has been most clearly demonstrated for diabetic neuropathy.

In 1999 several groups of scientists demonstrated that VEGF, in addition to having angiogenic (ph) affects, mediated through endothelial cells, had specific effect on neurons and schwann cells, that is cells that support nerves, other investigators demonstrated that VEGF cDNA was effective in pre-clinical models of diabetic neuropathy, and one clinical trial of VEGF cDNA gene therapy in patients with critical limb ischemia and diabetic neuropathy, showed improvement in those patients neuropathy.

Given our extensive experience with VEGF [eight] gene activation, and a laboratory animal and clinical evidence, that VEGF has positive effects on neurons, and efficacy in this neurologic disease, we are very excited about the opportunity to develop our VEGF ZFP transcription factor for the benefit of patients with diabetic neuropathy. We anticipate filing an I&D for this indication in the 2nd half of 2004.

Thanks Tyler. As Tyler mentioned, we believe the VEGF diabetic neuropathy indication will be our 2nd ZFP therapeutic. And we anticipate 2nd half 2004 I&D filing.

This beings me to our second therapeutic platform. ZFP mediated gene correction that we are developing as a treatment for, and potential cure of, monogenic diseases. Our technical approach to ZFP gene collection is consistent with everything we already do. Leveraging our ability to engineer ZFP that will specifically bind to a chosen sequence of DNA and target a functional domain to that therapeutically relevant sequence. IN this case, the functional domain is not an activation or a repression domain, but an endonuclease (ph), or a DNA cutting enzyme. By making a very precise cut in DNA, we can facilitate the replacement of the sequence of DNA with a different sequence of DNA. This process actually engages a cell's own machinery for homologous recombination. A process that has been honed by evolution to provide accurate repair of the genome when both strands of the DNA are broken. The therapeutic opportunity is to target a gene that contains a mutation that causes a disease, and replace it with a correct DNA sequence. Thus repairing the disease-causing gene.

We are applying this technology to diseases where it is well established that a mutation in a specific gene causes the disease. So called monogenic diseases. These include diseases such as severe combined immunodeficiency or SCID, sickle cell anemia, chronic granulomatous (ph) disease and hemophilia, to name just a few. As you can see, this powerful new application of our technology, opens up a range of important clinical opportunities and unmet medical needs.

Our scientists have been working hard to translate this very powerful science into a therapeutic reality. We have initially focused on two indications, X-linked SCID and sickle cell anemia. Both diseases have either non-existent or limited treatment options. We have designed link finger nucleases to target DNA mutations and have shown that we can repair the target endogenous gene in cell-based model systems. While this is an important achievement, there is still a lot more to be done before we can move the technologies into patients.

With both of these diseases, the therapy involves correcting the disease gene in hematopoietic (ph) stem cells or specifically CD34-positive stem cells. These are cells that reside in the bone marrow, and divide and differentiate into the cells that form our blood, and cellular immune system. The approach for both indications will be to isolate a patient's CD34-positive stem cells, correct them with our zinc finger nuclease's and then administer the corrected cell back into the patient where they will repopulate the bone marrow, and either, in the case of SCID, establish a functional immune system, or in sickle cell patients, populate the blood with normal erythrocytes. This is a very important clinical opportunity for our ZFP therapeutic platform.

So let me tell you a little more about our lead program in this area-X-linked Severe Combined Immunodeficiency Syndrome. As many of you know, although rare, X-linked SCID is a devastating disease. Otherwise known as the bubble boy disease, children afflicted with this condition rarely live beyond their first year. The genetic defect, a point mutation, occurs in a gene encoding a receptor, the IL-2 gamma receptor. That is essential for the immune system to develop. The mutation renders the receptor non-functional, and the consequence of this is that these children never develop an immune system.

We believe that our ZFP mediated gene correction technology may provide a treatment option for these children. We are collaborating with the leading scientist and clinician in this field, Dr. Don Cohen [ph], of Children’s' Hospital of Los Angeles. With these colleagues, we are working hard to demonstrate gene correction in CD-34 positive cells. While this remains a challenge, fortunately we have one significant aspect of the biology of this disease on our side. It is well known that corrected CD-34 positive cells have a significant proliferative advantage over the defective SCID cells. We hope to have cellular proof of concept in CD-34 positive cells in the first half of next year. If that happens, this program could move swiftly forward, and there are no current therapies for this devastating disease. We hope to bring this new and potentially curative treatment to patients as early as mid-2005. It's a very exciting and very important program.

To summarize then, while we continue to invest in new programs, our focus is increasingly on demonstrating the clinical utility or our ZFP platform. As such, our major objective for the next 12-24 months is to rapidly and cost effectively establish clinical proof of concept for our ZFP therapeutics, and thus validation of our technology as the first new therapeutic platform in the post-genomic era. Not an un-ambitious objective. In order to achieve this goal, we have selected 4 ZFP therapeutic programs in addition to the VEGF peripheral arterial disease and ischemic heart disease programs that we pursuing with Edwards that we plan to move forward into human clinical trials. These include two gene regulation programs, VEGF activation for diabetic neuropathy, and phospholamban repression for congestive heart failure, and 2 gene correction programs, SCID and sickle cell anemia. We will continue the pre-clinical development of our other therapeutic programs through pre-clinical proof of concepts, but will seek external corporate funding or research grants for further clinical development.

If you're keeping score at home, that totals up to 2 I&Ds in 2004 and 3 I&Ds in 2005. In conclusion, during this quarter we focused on our two major objectives, preparing to file at least two I&Ds by the end of 2004, which will be peripheral arterial disease and diabetic neuropathy, and ending this year with at least $40m in cash. I am pleased to be able to tell you, to end this call by telling you that we remain on track to achieve these goals.

This concludes our prepared remarks. And now we'd like to open it up for your questions.

At this time I would like to remind everyone, in order to ask a question, please press star then (1) on your telephone keypad. We'll pause for just a moment to compile the q and a roster.

Your first question comes from Winton Gibbons of William, Blair and Company.

Yes, Edward?

Hi Winton.

Hi, how are you doing.

Good.

A couple of quick questions going back to your 2004 I&D expectations. Can you comment a little bit, not so much on the recombination work, but more on the coronary artery disease, some of the stuff you're doing with Medarex on receptors, and the Onyx stuff that may still happen. Are there other programs that you may move forward in '04 or can you talk about how they may play out through '05, given maybe you've decided that the focus has to be very concrete on PAD and the diabetic application. Can you just give some feeling there?

Sure. I think the guidance that I would reiterate is that in 2004, yes, you should expect to see an I&D in the 1st half and PAD in the 2nd half in diabetic neuropathy. And then moving forward into '05, the additional programs that we're prosecuting are the 2 gene regulation programs in phospholamban and in the two additional ones in gene regulation and SCID and sickle cell. In addition to the phospholamban gene-regulating program, we're working on the in-vivo cancer vaccine program with non-politic [ph] vector and GM CSF [ph]. We're also working on a couple of other programs in pain, the VO1 program that is also moving forward. And those are opportunities for '05. But ones that we wouldn't take forward ourselves from a clinical development perspective.

In terms of the Medarex program, that's a program that had been quite successful, and relates to augmentation of protein production. And the ultimate therapeutic there would be the [specific] antibody that Medarex is producing.

But you are no longer working with Medarex on any other targets which had been contemplated a while back.

The contemplated programs in the early work [inaudible] which identify receptors that we could up-regulate from a freedom to operate point of view, and that they can generate antibodies for. And that really, those funding, like even in up to probably 12 months ago, really all focused on the protein production work. And that has been quite successful.

Okay, so Medarex is no longer interested in that other avenue, or that's just down the road.

Right. It's really been focused in the protein production area.

Okay. Can you, and not to stick you with guidance, but would it be your expectation that your net cash burn next year would be comparable to this year?

Again, I think we'll give more formal guidance on the financial expectations in February. What I prefer to stick to now, is that we are in good shape to ending this year with at least $40m in cash, and despite the pretty ambitious objectives we have next year, we're pretty comfortable that we can end next year, '04 with at least $25m in cash.

And then lastly, and then I'll be done. Can you comment on how you see the organization developing around what you're going to need, at least in the early days of moving forward with these programs? What else you might need to build out. And how much you're going to try to keep in -house, maybe, with some of these programs, how far you're going to push them, like, kind of '05 and out programs, and what that means for in-house talent versus what you're going to leave up to a partner.

Sure. I'll ask Tyler to comment on the specific people that he's currently recruited. But, it's going to be a progression internally. We have, I'm going to say, Tyler, about 6 openings right now for people in the development group. And I'll leave it to Tyler to talk through those. But hose are principally regulatory, quality, manufacturing, clinical monitoring, and he can go through that. We are going to begin to build those kinds of internal competencies. But, in the near-term, and by near-term I mean the next 2-3 years, in terms of what we would actually be doing, we will outsource many of these competencies. Particularly in terms of clinical grade manufacturing. Which is what we're doing now in both the PAD program and in the diabetic neuropathy program. Tyler, do you want to talk a little bit more about the kinds of positions we're going to be bringing in?

Yes, Edward. Thank you. The groups that we're going to be bringing in are basically the heads of the functions, so that as we manage these through external contracted resources, we've got the expertise that can manage the specific technical function that is being outsourced. So, specifically, we're looking for a head of manufacturing, head of regulatory and quality assistance, or quality assurance, quality control, project management, clinical research manager, and a technical writer.

Okay, thank you.

Thanks, Winton.

Your next question comes from Matt Orens [ph] with Copp Investment [ph].

Hi, Edward. A question for you. First of all I appreciate all the detail that you've gone into on the programs that you're working on, that's very helpful. My question is in terms of the efforts towards SCID, could you go through, if you are successful, with this initial work that you're working on, what, you kind of gave a rough outline of, or rough possible timeframe that we might see some things. But could you get a little more specific in what work would need to be done and what the regulatory steps might look like?

Sure, I'll go through what I've said, and then Tyler if you want to add anything more, or, if there's more specifics, Matt, if I could get, I'm happy to go into it. So, where we are now is, we have shown in a model cell system that we can go in, target the specific mutation in SCID and correct that mutation. So, essentially the process. We're right now working with actually two different clinical/academic groups to extend/repeat this work in CD34-positive stem cells, which is the therapeutic vehicle for SCID. Once we've established that, we would then go through, show that those cells can differentiate in a normal manner. With that done, we think, given that there is no current therapeutic options for these patients, that we could hopefully be in the clinic in 2005. And then with that, with such a small patient population that we think that that trial could essentially be a trial that we would look for both, obviously, Phase III and efficacy in terms of outcomes. Tyler, do you want to add anything to that?

I think you've covered it well.

Matt, does that address your question, or is there anything specific beyond that?

No, that addresses it, thank you.

Thanks.

Your next question comes from Ted Tintoff [ph] with US Bancorp/Piper Jaffrey.

Hi, how are you Edward?

Hi Ted.

Congratulations on all the progress, and as Matt said, thanks for taking the time to walk us through how the therapeutic efforts are starting to shape up. One quick question. In terms of the opportunities here, there's clearly enough that you're working on for you guys to do, and the partner, a significant portion. Are you taking part in partnership discussions today? What's the sense or feel of those. Are there repeated obstacles or push backs, or issues that you have to overcome. And also, conversely, what are you really looking for in partners as you're out there making introductions?

Good question. We are interested in considering [to] partner. Unlike maybe a company that has a single target and a single product, we have the ability to target any therapeutically relevant gene. And so our goal, as I like to say, from a partnering point of view, at least in the next two to three years, is to hit singles. To do deals that are specifically focused on a specific gene for a specific disease indication in a specific geographically area, with a partner with significant enthusiasm and experience in that disease indication. With that said, I think the rate limiting step for us, quite frankly, is that we have not taken our programs into human clinical trials. And so next year I think is really going to be an important year for us from a partnering perspective. Both from establishing this platform as a human therapeutic drug development platform, but also being able to expand the pre-clinical proof of concept into multiple disease indications. I think it's going to give us the kind of data sets that we'll need in order to go out and really be able to do additional corporate collaborations. So, while we would have like to have done more deals in the last 6-12-18 months, the principal rate-limiting step there has been, sort of lack of validation of this as a therapeutic platform.

Moving into a patient's in ‘04 I think is going to get that box checked, and then having additional proof of concept data in congestive heart failure, in pain models, in diabetic neuropathy, I think will give us the kind of breadth and validation we need to do additional deals.

[inaudible]. If I could even just ask a follow-up there. Especially since you're fresh from a meeting with the FDA. What's their experience/education/interest level in ZFPs as a new therapeutic modality?

Well, you're absolutely right. It's a very timely question. And so, since I was not at the meeting, I'll ask Tyler who was at the meeting to respond.

Hi there Tyler.

Hi. Thanks for the question. I would say that the agency is very excited about this technology platform. I think they realize the potential differentiating advantages of this platform, and they're excited as they are when innovative things come along to see the proof. And we had a very productive conversation. I think that we're headed down that path.

Excellent, thanks. Keep it up!

Thanks Ted.

At this time there are no further questions. Do we have any closing remarks?

Yes. We'd like to thank you for joining us, and we look forward to speaking with you again when we release our 4th quarter and year-end results. We'll be available later today if there are any follow-up questions. Thank you very much.

This concludes today's Sangamo Biosciences conference call. You may now disconnect.