Sangamo Therapeutics Inc (SGMO) 2004 Q3 法說會逐字稿

Good day ladies and gentlemen. Welcome to the Sangamo BioSciences third quarter teleconference. My name is Stephen and I am your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question and answer session toward the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Dr. Elizabeth Wolffe. Please proceed.

Thank you. Good afternoon. Thank you for joining Sangamo's management team on our conference call to discuss the Company's third quarter results. Also present during this call are several members of Sangamo's senior management including Edward Lanphier, President and Chief Executive Officer; Dr. Dale Ando, Vice-President of Therapeutic and Chief Medical Officer; and Greg Zante, Senior Director of Finance and Administration. Following this introduction, Edward will review third quarter activities highlighting Sangamo's recent events. Greg will then briefly review third quarter financial results. Finally Edward and Dale will update you on our specific ZFP therapeutic programs. Following that we will open the call up for questions.

As we begin, I'd like to remind everyone that the projections and forward-looking statements that will be discussed 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 perceptions of markets and future performance of Sangamo to date, we are not undertaking an obligation to provide updates in the future. Actual results may differ substantially from what we discuss today. 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 on the 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 and forward looking statements.

Now I'd like to turn the call over to Edward.

Thank you Liz. Thanks to all of you for joining us on our 2004 third quarter conference call. This is a particularly exciting time for this update. This call comes the day after the completion of one of my favorite events at Sangamo, our scientific advisory board meeting. I wish all of you could see the passion of our scientists and the enthusiasm of our scientific advisory board for the significant technical advances we are making. It was incredibly energizing for all of us. But I digress. Back to work.

Throughout this past quarter, we have continued to see progress in the development and matriculation of our ZFP therapeutic programs. Our partner, Edwards Lifesciences announced the treatment of patients at the National Institute of Health in the first clinical trial of the ZFP transcription factor. The ZFP therapeutic being tested in the phase I/II trial is designed to upregate (ph) the expression of all of the naturally produced forms VEGF A protein. This is a critical difference from previous trials employing VEGF that used a single VEGF isoform. In this first trial of our VEGF ZFP therapeutic, it's being tested in patients that experience exercised-induced leg pain due to poor blood flow, a condition known an intermittent claudication, the first stage of peripheral artery disease. You may have seen the various articles on the wire services and in the popular press including a nice piece in The New York Times on the treatment of the first patient in this trial.

In the same announcement, Edwards affirmed their interest in other ischemic cardiovascular and vascular indications. We anticipate that they will initiate a second clinical trial in the more severe form of PAD, critical limb ischemia, in the near future and file an additional IND for use of the VEGF ZFP for the treatment of ischemic heart disease in 2005. However, as I have said on previous calls, updates on ongoing trials and details on new clinical studies will come from Edwards.

Speaking of the PAD program, we recently announced the publication in the American Heart Association journal, Circulation, of pre-clinical animal efficacy studies of the VEGF ZFP Therapeutic in the rabbit ischemic hind limb model. These studies were conducted in the laboratory of Dr. Brian Annex, the Director of Vascular Medicine at Duke University Medical Center.

In summary, when ischemic rabbit limbs were treated with our ZFP transcription factor, the investigators observed increased production of all of the major splice variants of the VEGF-A gene leading to statistically significant improvements in endothelial cell proliferation, blood vessel formation, and increases in blood flow. Importantly and uniquely, the data showed that these improvements were observed at the earliest time points as well as later in the study. These pre-clinical studies in large part, form the basis of both the intermittent claudication and the critical limb ischemia trials. Please let Liz or me know if you would like a reprint of this important publication. We also continued to make progress in our own program in diabetic neuropathy. As you will hear later, we are on target to file an IND next month and initiate a phase I/II trial in early 2005.

Also in the area of ZFP gene activation, we announced our first collaboration in the important field of regenerative medicine with LifeScan, a Johnson & Johnson company and a world leader in blood glucose monitoring and diabetes management. As part of the agreement, we will provide LifeScan with ZFP transcription factors to develop novel therapeutic cell lines as a potential treatment for diabetes. The ZFPs are designed-that we are designing will direct the differentiation of cells to create a new cell type capable of secreting insulin in response to the body's natural signals. The ultimate goal of the collaboration is to reconstitute a patient's ability to naturally regulate their own blood sugar levels and reduce their dependence on artificial insulin. This is a very interesting and exciting extension of our gene regulation platform into the burgeoning field of regenerative medicine.

As many of you know, an important event for us this past quarter was our first analyst and investor briefing held in New York in mid September. Our objective for this meeting was to provide investors and analysts with an opportunity to learn more about our science, our pre-clinical programs, and the significant differential technical advantages that arise from our ability to selectively target and subsequently regulate or modify endogenous disease-related genes. This was also an opportunity for us to introduce Dr. Dale Ando, who joined Sangamo in early August as our Chief Medical Officer. You will hear more from Dale later in this call.

During the investor briefing, Dale, Philip Gregory, our Senior Director of Research and one of our academic collaborators, Dr. Frank Giordano with Yale University discussed the scientific and therapeutic development progress and plans for our programs in diabetic neuropathy and HIV. If you are interested in more detailed information, the analyst briefing was webcast and can be accessed from the investor relations page on the Sangamo BioSciences website.

As a final note, over the past quarter, we had an opportunity to meet with many of you as we made presentations at three investor conferences - the UBS Global Life Sciences Conference, the BIO Emerging Company Investor Forum, and the Rodman and Renshaw Healthcare Conference. Additionally I am pleased to report that in addition to outstanding research coverage from William Blair, Leerink Swann, JMP Securities, and Rodman & Renshaw, Ted Tenthoff at Piper Jaffray recently picked up coverage of Sangamo.

With that quick summary of the quarter, I would now like to turn the call over to Greg to summarize the third quarter financial results. Greg.

Thank you Edward. For the third quarter of 2004, our consolidated net loss was $4.6 million or 18 cents per share. In the comparable quarter of 2003 our consolidated net loss was $2.6 million or 10 cents per share. Our research and development expenses were $3.8 million for the three months ended September 30, 2004 as compared to $2.4 million for the third quarter 2003. The increase in R&D spending can be attributed to increased investment in pre-clinical studies and manufactured materials for our phase I study that is due to start early in 2005. General and administrative expenses were $1.1 million for the third quarter of 2004 compared with $1.1 million for the same period last year. Revenues for the third quarter of 2004 were $172,000 as compared to third quarter 2003 revenues of $507,000. For the nine month period ended September 30, 2004 our consolidated net loss was $10.8 million or 43 cents per share compared with a consolidated loss of $8.8 million or 35 cents per share in the comparable period in 2003.

Revenues for the first nine months of 2004 were $1.1 million as compared to $1.6 million in the same period of 2003. Total operating expenses for the nine months ended September 30, 2004 and 2003 were $12.4 million and $11.3 million respectively. We ended the third quarter of 2004 with cash, cash equivalents, investments, and interest receivable of $35.3 million.

I will now turn the call back to Edward.

Thanks Greg. As you can see from our third quarter financial results, we continue to aggressively invest in our science and, as we prosecute our clinical development programs with the resulting increase in expenses, we continue to carefully manage our cash. As such, I am pleased to inform you that we now expect to end 2004 with at least $31 million in cash and cash equivalents versus the $28 million we previously discussed. We believe this represents roughly two years worth of cash for Sangamo.

The momentum of our clinical programs continues to increase. In addition to the clinical trials for peripheral artery disease sponsored by Edwards, we have focused our internal development efforts in several important areas, the most advance of which is the treatment of diabetic neuropathy. Diabetic neuropathy is a significant problem for as many as 50 percent of the 14 million diabetics in the United States. We are focused initially on peripheral neuropathy, the early symptoms of which are pain and tingling in the hands and feet and an eventual numbness in the extremities. This frequently results in injuries, particularly in the feet, that do not heel, eventually ulcerate, and can lead to amputation. Approximately 86,000 amputations are performed on diabetics each year. Unfortunately for these patients, there is only an approved therapy for the pain symptoms associated with diabetic neuropathy. Only very strict glucose control can halt the progression of this condition.

Sangamo has developed an activator of VEGF A to treat diabetic neuropathy. As well as being a very power angiogenic factor VEGF A has well-document neuro regenerative and neuro-protective activities. As we presented in our analyst day, a single treatment with a VEGF-activating ZFP transcription factor has shown a statistically significant increase in limb nerve conduction velocity in a diabetic rat model. With these data in hand, we have now completed a pre-IND meeting with the FDA, the production and characterization of the ZFP therapeutic product, submitted our clinical protocol to the recombinant DNA advisory committee, are wrapping up the toxicology of bio distribution studies, and finalizing our relationships with four potential clinical sites. We are pleased with our progress to date and are looking forward to filing the IND next month and initiating the clinical trial early next year.

In addition to developments in the therapeutic gene regulation, we are very excited about the progress we are making in our gene modification programs, which include programs in gene correction and an area that we have not given much prior visibility to, gene disruption. Both gene correction and gene disruption make use of our proprietary ZFP technology and a cell's natural mechanisms for DNA repair. Using two engineered zinc finger proteins, linked to DNA-cutting enzymes, Sangamo scientists have been able to target a double-stranded break in DNA to a specific site in the genome. This break can be targeted to a site of a mutation that causes a monogenic disease such as a single mutation responsible for sickle-cell anemia. Alternatively the break can be used to disrupt a target gene sequence encoding a functionally normal protein.

Why, you may ask, would one want to disrupt a perfectly good gene? There are in fact situations in nature where loss of a particular gene is very beneficial. Perhaps the best examples are individuals who, although repeatedly exposed to HIV, remain uninfected. The key to their resistance appears to be a deletion in the gene for the CCR-5 protein, a required co-receptor for HIV entry into cells. Sangamo's approach takes advantage of this natural gene mutation and has led us to aggressively pursue development of zinc finger nucleases or ZFNs that will recreate the CCR-5 deletion in immune system cells such as stem cells, T-cells, macrophages, and dendritic cells. The goal is to generate protected immune cells in an AIDS patients that are resistant to HIV infection and that could persist in the body and prevent the common and often fatal opportunistic infections that comprise AIDS.

I've asked Dale Ando, our new Chief Medical Officer, to expand on this strategy and our development plans. By way of background, Dale comes to Sangamo with over 15 years of experience in therapeutic product development in in-vivo and ex-vivo gene therapy applications. He has held senior positions in therapeutic product development in several biotechnology companies including Cetus and Chiron and most recently as Vice President, Clinical Research at Cell Genesys. At Cell Genesys, Dale directed the development of phase I through phase-III GVAX programs, the oncolytic virus programs and the phase I/II trials of activated T-cell chimeric receptor products in HIV and cancer. Dale has served as a member of the Recombinant DNA Advisory Committee and the Adenoviral Safety Committees of the National Institutes of Health and is currently on the ASGT clinical and regulatory Committee and is a members of the NIH SBIR cancer study section. As you can see, Dale is a great fit for Sangamo. His experience has already been invaluable as we move our ZFP therapeutic programs forward. Dale.

Thank you Edward. It's a pleasure to be here. The ability to use zinc finger nucleases to interrupt a gene allows us to take advantage of a naturally occurring mutation of the CCR-5 gene that has been shown to make patients resistant to HIV. This new application of the ZFP platform and the intensive clinical development of T-cell gene therapy over the last 10 years can be combined to allow us to protect the most important cell in an HIV patient, the CD-4T cell. Patients who are resistant to HIV or can live with HIV for decades without developing AIDS, so-called long-term non-progressors, (ph) have been studied intensively in order to understand how this protection occurs. The best example of a protective mechanism against HIV infection is the CCR-5 mutation. This mutation alters a critical receptor, CCR-5, but is used by the virus to enter the cell. This example in nature shows us that if we could interrupt CCR-5 in CD-4T cells of a patient with HIV, then we could protect these cells and ultimately the patient from progressive HIV infection and depletion of the CD-4T cell population. Inhibitors of HIV (indiscernible) to CCR-5 have shown some effectiveness in early studies. But these inhibitors are not able to eliminate CCR-5 completely. This is extremely important as only one HIV virus and one CCR-5 receptor is needed to infect a cell. The major advantage of our zinc finger CCR-5 strategy is that interruption of the CCR-5 gene results in complete functional elimination of the CCR-5 receptor.

The first clinical target will be to interrupt the CCR-5 receptor in the CD-4T cells in HIV patients who are on anti retroviral or heart therapy, but where the virus is beginning to replicate and is measurable in the blood. In this situation, there is a tremendous expansion of HIV in the body - 10 billion viral particles a day, which results in the death of two billion CD-4T positive T-cells per day. This eventually leads to an exhaustion of the CD-4T compartment and the opportunistic infections the characterize AIDS. What we plan to do in this trial in this patient population is to isolate their T-cells and use CCR-5 specific zinc finger nucleases to disrupt the CCR-5 gene in order to create a protected cell population. We would then transfuse these modified cells back into the patient after characterization and safety testing.

This is where we can take advantage of 10 years of clinical and cell processing development of gene modified adoptively transferred T-cells in HIV and in cancer. Our academic collaborator Carl June (ph) at the University of Pennsylvania, has developed clinical manufacturing methods for genetically modified CD-4T cells in HIV and has active clinical trials in progress. These methods allow adoptive (ph) transfer of CD-4T cells that will last for years in the HIV patient. Dr. June is the Director of Translational Research and has established GNP production methods, relief specifications, and requirements for INDs for the FDA and WRAC. (ph) We are working hard with Carl and his colleagues to test the zinc finger nucleases in T-cells and generate proof-of-concept in in-vitro challenge model that will directly test viral replication in ZFN-modified cells. We hope to have these data to present in February at the retro viral meeting. The in-vitro work would be followed by experiments in animal models to further characterize the modified T-cells. We aim to present these data later in the year at the ATAC meeting and if all goes well, to file our first IND in this area by the end of 2005.

This is just one approach. Another cell population that we would like to evaluate with these same CCR-5 ZFNs are bone-marrow derived hemolytic (ph) stem cells whose modification would potentially provide permanently protected populations of all the immune cell types. Ultimately we will also test the feasibility of an in vivo product in-the-vial approach that will use the natural tropism of adenovirus to deliver CCR-5 zinc finger nucleases to macrophages, dendritic cells, and T-cells.

We believe that there are several advantages to this approach. With only a transient treatment with our ZFNs, we believe that we can protect key immune cells and permanently remove the CCR-5 HIV co-receptor from the cell surface. The treatment would be specific and permanent for each cell and could be used in combination with other therapies. Furthermore, extensive follow-up of patients with the naturally occurring CCR-5 mutation suggests that ZFN-mediated gene disruptions would not cause mutation and escape of the virus. We and our collaborators believe that ZFN-mediated gene modification has enormous potential. We are working hard to realize that and to translate our initial success into clinical trials. I look forward to keeping you informed of our progress and as you have heard, we plan to update the scientific community on our achievements in this program in February and October of 2005. Edward.

Thank you Dale. As you can see, this is a very exciting, a very important, and will likely be a very visible extension for our ZFP therapeutic platform. We look forward to keeping you abreast of our progress.

So in summary we are enjoying the most exciting and most important transitional year in our history. Moving programs in PAD and diabetic neuropathy into clinical trials is really only the tip of the iceberg. In 2005 you can expect to see additional data in ZFP gene therapeutic regulation and gene modification programs. In particular we expect considerable visibility around the CCR-5 HIV gene disruption program as well as our gene correction programs in several monogenic diseases. This progress, which I have to say particularly after sitting through our recent scientific advisory board meeting, is only made possible by an enormously hard-working and talented group here at Sangamo underscores our commitment to rapidly move promising novel therapeutic candidates based upon our ZFP technology into human clinical trials. I sincerely look forward to updating you on our progress over the next several quarters.

This completes our prepared comments. I would now like to open the call up for your questions.

(OPERATOR INSTRUCTIONS). Winton Gibbons, William Blair.

I want to clarify the CCR-5 program. Are you just doing it on the CD-4T cells? Is that what I heard for the first IND?

I'll give you a quick answer and then invite Dale to expand upon that, if you like. The first approach that we're taking is focusing on CD-4T cells. That is the work that Dale outlined that we're doing in collaboration with Carl June at the University of Pennsylvania. Those are the data that he outlined that you can expect in February at the retro viral meetings and in September at the ATAC meetings. In addition to that, Dale commented that we would also be looking at two other strategies, one directly in hematopoietic progenitors, CD-34 positive cells, and that we'd also be looking at an adenoviral formulation that could be a direct in vivo product-in-a-vial strategy.

Okay. I think I got those three programs now. I just wanted to check on the first one. And you are expecting an IND by the end of '05?

If all goes well, that's exactly right.

Okay. Just to talk a little bit about cash, can you talk about - you said you've got 31 million in cash at the end of the year, 35.3 million now. When you talk about a two-year of burn left, are you talking about from today or from the end of the year - is the first question. Secondly, can you talk a little bit about what sort of quarterly burn you're going to have over that period, how that may or may not change in relation to clinical programs. So for example, can you support both the diabetic neuropathy program plus this new ZFN program over the next two years with no additional infusion of cash? If this is confusing, I can ask follow-up questions.

That's fine. You and I have had this discussion so I generally know where you're coming from. First off, the new guidance was that we expect to end the year with at least 31 million in cash, which is different than the 28 million that we had been talking about before. Second, I expect to give more comprehensive '05 financial guidance on our fourth quarter conference call, year end conference call early February. Third, the two years worth of cash number absolutely contemplates full prosecution on our own of the diabetic neuropathy phase I/II trial, the HIV program that you've heard outlined, as well as continued prosecution of both the pre-clinical efforts in phosphor lam-bam, (ph) and in the area of neuropathic pain as well as additional monogenic diseases in the gene correction space.

Just one other quick clarification. Are you talking two years from the end of '04 for from----?

From the end of '04 so the guidance - the comment was meant to say, we will end the year with at least 31 in cash. And based upon our projections, which we'll give more specific guidance on in the end-of-the-year call, is approximately two years worth of cash. Cash through '06.

Through the complete end of '06. Just one quick follow-up. I am doing a bunch of back-of-the-envelop calculations. Does this mean that you expect some sort of either milestone payment from Edwards or some other substantial cash infusion over that period of time?

The revenue assumptions associated with that guidance of 31 million and '06 assume only currently committed ramps or corporate partnership revenues that are committed. They are not based upon any additional corporate partnerships or milestones, which are not at the - call it the 99th percentile.

Okay. I apologize for this one last, last question. Then can you talk a little bit about the J&J LifeScan deal and whether or not that actually has the potential or you are planning on getting some reasonable amount of cash net over the next two years? Or is that more milestone-driven later?

It's the latter. If you have questions about the project, I'll defer to some of my colleagues. On the financial side, it's a relatively modest initial collaboration that, if it goes well, could turn into a larger agreement. The initial relationship that we've announced is, from a financial perspective, relatively modest.

Great, Thank you. We look forward to the December IND filings.

Charles Duncan, JMP Securities.

Congratulations on a good quarter of progress. A couple of my questions were already asked. I want to get some sense as to whether you can give us any color on how things are going with the Edwards program. Remind us as to your expectations when any kind of clinical data can come from those programs.

Sure. Unfortunately the vast, vast majority of everything I have to say, or we have to say about the Edwards clinical programs, I said in the script. The only incremental thing I can say is that Frank Giordano, as you well know, presented at the investor analyst forum in New York and discussed his thoughts around an ischemic heart disease trial. There is incremental information that I didn't discuss on this call from Frank's talk, which is up on our website. I know it's frustrating, I will defer to Edwards for communication around the status of the programs that they are running.

Okay. Then in the quarter - or actually recently there was some news to grow out of one of the mind share competitors that suggested their gene therapy approach in PAD did not work. Could you help us understand the differences between the approach that that company has taken - taking relative to some of the pre-clinical data that you have just to help us understand some of the differences and targets that you're pursuing.

Sure. Your are talking about the Volentis trial?

Yes.

Okay. Let me do this. Let me give you a bit of background. Let me ask Dale to comment with regard to what we know, and more likely, don't really know about the clinical data that were presented. Then you would like more color on perhaps the predictability or additional visibility that that might have had relative to pre-clinical data. Casey is here and Ed Rebar (ph) here, so we can go into that. Let me ask Dale if he would like to give you any color on our interpretation of the clinical data.

Yes. I think we eagerly await more data that the clinicians could understand with respect to the trial. A lot of the end points and improvements were given in rough percentages. I think what really would help me is to know the absolutes of data behind that. That being said, it's a little hard for us outside here to correctly interpret what they found in their trial. I think there are some fundamental differences in the field with respect to the role of vascular endothelial growth factor in its isoforms in efficacies both in humans and in animals and the dole-one (ph) mechanism, which was a strategy that wasn't pursued by a lot of different groups. Perhaps Casey can comment in terms of the specific dell-1 (ph) strategy and the huge amount of literature that has been generated both in animals and in humans on using the VEGF protein.

Dell-1 is secreted per angiogenic factor, but it's not a very well characterized one. Most of the work describing its angiogenic effects come out of a single laboratory. It's about the signal through integrants rather than convention growth factor. So it's an unusual angiogenic factor. The papers that have been published look good. It looks like a bona fide angiogenic factor. But there are very few of these publications, less than a dozen. In contrast, the VEGF literature consists of over 10,000 articles describing its angiogenic effects, both in culture and in animals. I don't really think the failure of this particular factor in its clinical trials reflects negatively on VEGF approach at all.

Just to give you the simplistic clinicians understanding of the science is that basically the dell-1is a mechanism that functions during embryological development for blood vessels. Whereas VEGF is clearly active in the adult and in angiogenesis. Angiogenesis in the adult is already complicated enough with other factors. So it's really not clear how dell-1 is being a major factor in embryological development of vessels, what role it plays in the adult. So I think from many people's perspective, they weren't really sure of where it stood in adult tissue growth or angiogenesis.

Dale, when you are talking - or maybe you aren't talking because Edwards is running this trial. If you were talking to other clinicians that might be involved in the trial that Edwards is running, do you believe that they would understand the basic biology and the differences between this target and the one that you are pursuing and therefore may have absolutely no compunction in enrolling the trial for Edwards?

Yes. Because VEGF field is quite large. It's been around in phase III trials for myocardial ischemia. There have been a number of trials with the various CDMAs in peripheral arterial disease. Aventis has done a major trial with VEGF. So there is a huge group of clinicians that are very, very interested in using this approach for peripheral arterial disease. So I think because of that there is quite a bit of interest in many centers around the United States in pursuing this. If it turns out that gene therapy is a local delivery and the use of the isoforms has clearly been shown by groups other than us will make groups very interested accruing patient (inaudible).

And then a question for Ed. You've started to talk about this HIV program. I know that you've been talking about it just for a month or so. It's a new one to me when we were looking out at the programs that you're working on here maybe in the last six months. This one has come from nowhere. Is that a result of some fundamental recent discovery or optimization of a target at your shop or the hiring of Dale and being able to really get a good handle on the clinical need and/or approach to getting to the clinic with some of these programs that is fundamentally different in the Company now versus a couple of months ago?

I think it's a combination of many of those things. Let me start with the scientific and ask Philip Gregory tell you what has driven it from a technical perspective. Then I think Dale can amplify on some of the things he talked about in his part of the script in terms of adoptive therapy techniques.

The short answer is that as the technology has developed over the last year or so with the gene correction platform, we have just been getting numbers of correction frequencies that really support expanding the programs to look at other diseases. I think that's - obviously HIV is a huge infectional disease problem. It's therefore an attractive target. But it is made so by the scientific advances of getting correction frequencies up high enough to start thinking about other targets where selection advantages of the corrected cells, like in the excellent SKIP program that we've talked about before, aren't necessary.

It's a direct leverage of what we've been doing in the gene correction space. Instead of putting in three materials - two zinc finger nucleases and a donor, this just requires two zinc finger nucleases to target a single double-stranded break at the site of an intended target and in this case disrupt versus correct. Dale, maybe you can comment on the target and then some of the synergies with other advances and adoptive therapies.

The CCR-5 mutation and its protective effect on HIV has been well known since 1996 and was a major advancement in our understanding of a potential strategy for blocking HIV entry. As we can see, there have been a lot of attempts to try to take advantage of this. I would say that in the last year with the zinc finger nucleases, the efficiency of that being 10 percent - we've been working with efficiencies of gene disruption in the past that were on the order of 0.001 percent. There was no way we could apply any of that, any of those technologies to the clinic, to stem cells, or to T-cells. But that the zinc finger technology has brought that up to 10 percent, it is now clinically feasible. It could not have been done before. I can tell you that people have been trying to pursue this for a long, long time.

Then the third piece is the fact that we have been trying to do this for 10 years in T-cells and CD-34 cells and HIV for the infrastructure and the machinery to move something like this ahead to protect T-cells and HIV has been cranking along for 10 years and is relatively well developed. So I think it's the convergence of the three pieces and the new emergence of the high frequency of gene disruption that is allowed that has allowed this move ahead.

In addition I guess I believe that the clinical expertise of the Company has ramped significantly in the last six months as well. Don't you think, Ed?

We would all agree with that.

Thanks. Thanks for the call.

David Wood, Rodman & Renshaw.

Good afternoon. Just a couple questions on the diabetic neuropathy program. Can you give us an idea of what your expectations are for capturing a certain percentage of those patients. What kind of dollar amount would you say that the market is? Do you have any estimates on that that you can share with us?

It's very little. I'll give you what we know. It's a very large patient population. Conservatively -I've seen largely numbers - there are 14 million diabetics in the US. Approximately of 50 percent of those come down with moderate to severe diabetic neuropathy. It's a very, very large problem, number one. Number two, the only approved product out there is for pain. It's difficult to get a sense of overall dollar size of the market because there is nothing there that is either neuro regenerative or neural protective. That is the exciting opportunity we have.

In terms of percentage, obviously we'll have to get a sense of what the target population and the claims are going to be as we move into more pivotal trials. From that we'll be able to get a sense of overall value.

When you look at the landscape and what you need to do to get the drug approved, are there reasonable sets of guidelines that you think - that are in place? Are there any guidance documents? Is there anything in the literature that would suggest that the trial design in terms of size and endpoints is reasonably straight-forward. Is there any guidance that you can give us on that aspect?

That sounds like a very good question for Dale.

Especially for the field, but maybe fortunately for us, there have been several phase III trials, without the patients, looking at diabetic neuropathy. These trials have been deferred by big pharma using aldose (ph) reductive inhibitors and more recently using regenerative factors by Genentech and Angia (ph). So yes there are clear precedents for phase III trial design, expected outcomes, statistical analyses, and discussions with the FDA in terms of endpoints using quality-of-life symptoms for validated diaries for pain and validated scoring systems with a combination of neurological endpoints and electrophysiological endpoints. I think the field is quite well established. For people like me who study these kinds of clinical development areas, there is a clear template and a previous history of trials that have been done. The real key now is can we get a product in there that, instead of preventing worsening of the disease, can actually improve some of these endpoints that tend to deteriorate year-by-year in patients with diabetes. I think from that standpoint there is quite a good precedent for us to work off of.

Our plan - we didn't go into a lot of detail on this call. Our plan is to go into quite a bit more detail on the actual study itself in February.

That's great. Thanks for the information.

We have a follow-up from Ted Tenthoff.

Thank you for the kind words. It's nice to be onboard with you as well. One quick question. I apologize if this has been asked. With the proposition passed in California and obviously the recent relationship with J&J, what other opportunities do you see with respect to stem cell research funding or things along those lines that you could take advantage of? Again, I apologize if you have already answered this.

It's a very great question. Before the call we were sitting here having lunch. It was the topic of discussion. Maybe you were listening to us. We're all very excited about the funding that is going to take place. It really does leverage an enormous amount of what we are doing. I am glad you asked because I hinted at it in the script. The J&J deal does exactly what we have already published, which was work in stem cell showing that we could use zinc finger activators and repressors to direct stem cell fate. In other words, take a primordial cell and, based upon known biology about that, activate or repress certain endogenous genes and be able to direct the differentiation of those cells towards differentiated tissues, which is precisely what we're contemplating doing in the Johnson & Johnson relationship - taking an early-stage cell type, directly the differentiation of that towards beta islets (ph) that then could be used when re-implanted and function as normal islets. So it's very exciting. The point is that that can be applied target in primordial cells.

It also directly leverages all of the work that we're interested in doing, particularly in the area of gene correction. Being able to move into more primordial cell types both hematopoietic progenitors, (indiscernible) progenitors, neuronal progenitor gives us an enormous template, enormous population of cells in which we can apply both gene regulation and gene correction strategy. It's an exciting incremental opportunity for us.

Great. Thanks a lot. Keep it up.

John Sullivan, Leerink Swann.

I don't mean to go over all the old ground, but in the wake of the Volentis (ph) trials data becoming available, I feel like I'm answering a lot of questions from investors regarding other trials in therapeutic angiogenesis that have been put up in the past, specifically the VEGF 121 rave trial - the Gen Vec (ph) trial. Could you comment briefly on the VEGF 121 approach to therapeutic angiogenesis versus the approach being employed by yourselves and Edwards in the ZFP VEGF candidate.

It's a great question. I appreciate it. To be perfectly honest, we didn't want to jump all over other things given the things. But it's exactly the right focus. The fundamental difference between what we're doing versus the 121 trial, the 165 protein trial that Genentech has done, or any single isoform approach with VEGF is that by activating the endogenous gene, we're able to generate all of the normal isoforms of that VEGF A in their normal ratios. As both the Giordano Nature of Medicine paper suggested and as the new circulation paper out of the Annex lab has shown, we generate all of the splice variants in their normal ratios. As the circulation paper pointed out, in a highly ischemic environment, which led to a statistically significant improvement in all four of the major categories measured - reduction in apoptosis; increase in endothelial cells; increase in blood vessel density; and most importantly return of blood flow to the lower limb. What was incrementally unique is that for the first time they showed that at the earliest time point measure, which was just 10 days post treatment - and that was when the limb was the most ischemic. So there are fundamentals. I underline the word with a lot of people in the room nodding. There are fundamental biological differences between being able to generate all the isoforms versus putting in a single isoform that may generate new blood vessels but that are histologically abnormal.

Okay. Was there any particular pattern of abnormality in the VEGF 121 that you could contrast to the VEGF A?

Abnormality of the construction of the vessels?

Right.

I don't know that answer. Does anybody have any histological data from the 121 trials?

I could give you a comment on the trends in the area of angiogenesis. Like I discussed earlier, it appears to be a very redundant area with many, many players. It is becoming quite clear that the body doesn't grow blood vessels by itself. It grows in concert with a group of nerves, arteries, veins, and lymphatics. The interplay of all these different factors with respect to regeneration of blood vessels is not just a single factor growing a single blood vessel. Now it is clear that the various isoforms of VEGF are required for more normal vessels that don't leak. That has clearly been shown by the group at Gen Vec with cedenase (ph). That's problematic as a product because the FDA will view that as two or three products. I think the VEGF zinc finger approach allows us to do that. Certainly there are effects of the various isoforms of VEGF on receptors on the lymph and receptors on the nerve cells. These all work together in a physiologic fashion to promote growth of the bundle of critical elements that are needed to regenerate a tissue. That would include nerves, arteries, veins, and lymphatics as a more complete physiological bundle. That is where the field is generally moving. You can say that there have been mistakes made in the clinical development of angiogenesis. The field has moved fairly quickly with recombinant VEGF, then coming with the (indiscernible) vectors of adeno vectors. I think we are on the third wave now with respect to using a more natural - taking advantage of the isoforms of VEGF and trying to get - in the third generation - trying to effect angiogenesis or nerve regeneration.

Okay. Thanks very much. Very helpful. Let me shift gears and ask one last question. Just a clarification regarding the proposed diabetic neuropathy IND, Edward, did I hear you say that you have successfully negotiated a WRAC hearing?

Yes. The material was submitted to WRAC. We did not have any public presentation of that. There is no more WRAC issue in terms of critical path.

Okay. Thank you very much.

It appears there are no further questions at this time, sir.

Great. We'd like to thank you for joining us. We look forward to speaking with you again when we release our fourth quarter and year end financial information. We'll be available later today if there are any follow-up questions. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.