Sangamo Therapeutics Inc (SGMO) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Sangamo Biosciences third-quarter analyst conference call hosted today by Dr. Elizabeth Wolffe. My name is Phil; I will be your conference coordinator today. (OPERATOR INSTRUCTIONS). A Q&A session will also follow the presentation.

I would now like to turn over the program to your host for today's call, Dr. Elizabeth Wolffe. Please go ahead, ma'am.

Good afternoon and thank you for joining Sangamo's management team on our conference call to discuss the Company's third-quarter results and activities. Present on this call are several members of Sangamo's senior management, including Edward Lanphier, President and Chief Executive 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 the third-quarter financial results. Finally, Edward will update you on our recent business activities and several of our 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 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 perceptions 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 turn the call over to Edward.

Thank you, Liz. Thanks to all of you for joining us on our 2005 third-quarter conference call.

The past few months have been extremely productive, as we continue to make progress towards accomplishing our 2005 objectives and building substantial and sustainable value for our shareholders.

Or lead ZFP therapeutic program, the activation of the VEGFA gene for the treatment of diabetic neuropathy, continues to go well. We plan to complete our initial Phase I clinical trial and present these data in the first half of next year. We also plan to begin our first Phase II clinical trial in the second half of 2006.

The first clinical application of our zinc finger nuclease technology platform, the inactivation of the CCR5 gene for the treatment of HIV/AIDS, also continues to progress towards the clinic. We have presented the initial HIV challenge data at our analyst and investor briefing in New York on October 5, and our collaborator, Carl June from the University of Pennsylvania, will present the complete dataset at the rescheduled ICAC (ph) meeting in Washington D.C. in mid-December.

Also, on October 5, we announced -- in the words of one of our analysts -- "an eye-popping deal" with Dow AgroSciences. This relationship monetizes our ZFP gene regulation and gene modification technology and intellectual property in plant agriculture with an outstanding and highly committed partner. The details of the agreement were described at our analyst briefing, which was webcast and can be accessed on the Investor Relations page of our Web site for another couple of weeks. I will discuss the details of the agreement later on this call.

We also announced additional ZFP therapeutic and protein-production collaborations, including a second expansion of our agreement with LifeScan, a Johnson & Johnson company, and agreements with Novo Nordisk and Novartis.

Finally, we continue to present our ZFP therapeutics preclinical data at major scientific meetings. In late September, we presented animal efficacy data from our program in AIDS-related macular degeneration at a meeting sponsored by ARVO, the Association for Research and Vision and Ophthalmology. Coming up in early November, we will present data from our neuropath pain program at the eighth international conference on the mechanisms and treatment of neuropath pain here in San Francisco.

Also in November, our clinical collaborator, Dr. Frank Giordano of Yale University Medical School, will present animal efficacy data on the repression of the phosphil Lanban (ph) gene at the American Heart Association meeting in Dallas. Finally and as I mentioned, we will present a more comprehensive dataset for our CCR5 gene-disruption program for HIV/AIDS in Washington D.C. in December at the rescheduled ICAC (ph) meeting.

I will discuss some of these recent accomplishments in greater depth later on this call, but first I would like to ask Greg to update you on our third-quarter financial results. Greg?

Thank you, Edward.

For the third quarter of 2005, our consolidated net loss was $3.7 million or $0.14 per share. In the comparable quarter of 2004, our consolidated net loss was $4.6 million or $0.18 per share.

Our research and development expenses were $3.2 million for the three months ended September 30, 2005, as compared to $3.8 million for the third quarter of 2004.

General and administrative expenses were $976,000 for the three-month period ending September 30, 2005 and $1.1 million for three-month period ending September 30, 2004.

Revenues for the third quarter of 2005 were $412,000 as compared to third-quarter 2004 revenues of $172,000.

Finally, I am pleased to report that we ended the quarter with cash, cash equivalents, investments and interest receivable of $23.7 million. On that note, I will now turn the call back over to Edward.

Thanks, Greg.

As you can see from our third-quarter financial results, we continue to manage our expenses to meet our principle financial objective of ending 2005 with approximately $20 million in cash and cash equivalents. However, the agreement we signed with Dow AgroSciences triggered a $7.5 million non-refundable upfront payment to Sangamo. With the DAS payment, we now expect to end 2005 with approximately 27 million in cash, achieving yet another year in which we will use less than $10 million total cash in operations. We plan to provide more extensive financial guidance for 2006 on our Q4 '05 conference call.

As I mentioned earlier, on October 5, we hosted, to an oversubscribed audience, our second annual analyst and investor briefing in New York. At this meeting, we updated the financial community on the progress of our lead ZFP therapeutic programs in diabetic neuropathy and HIV/AIDS and described the DAS agreement in detail. Today, I will briefly summarize what we presented, although I encourage you to listen in on the webcast of this event, which is posted on the Investor section of our Web site.

As you know, diabetic neuropathy represents a significant and growing unmet medical need, as over 50% of patients that live with diabetes for ten years develop the condition, and currently there are as many as 14 million diagnosed diabetics in the U.S. alone. The current standard of care for this condition involves treatment of the primary symptom, pain, not the underlying nerve degeneration that causes the pain. In May, we announced that we treated our first patient in a Phase I clinical trial of SB509, a ZFP transcriptional activator of VEGFA for the treatment of diabetic neuropathy. This therapeutic approach to halt or possibly even reverse the nerve loss in late stage diabetics makes use of the potent neurotropic and neuroprotective properties of VEGF.

Patient screening in the trial got off to a very good start and as Dale Ando reported at the analyst briefing, "enrollment is going well." We therefore remain on track to present data from this trial in the first half of 2006 and will provide you with more information as to the possible venue on our next call.

With the Phase I trial progressing smoothly, we are also well underway with preparations for the Phase II component of this study. We anticipate that this trial, our first Phase II clinical trial, will begin in the second half of 2006. A critical difference with this study is that we will be evaluating the effects of repeat dosing. As diabetes and diabetic neuropathy are chronic conditions, we anticipate that repeat dosing may be required. At the analyst briefing, Dale presented data generated by our collaborator, Dr. David Tomlinson, showing that, in a rat model of diabetic neuropathy, repeat dosing was more efficacious than a single injection and was well-tolerated. We have also initiated additional toxicology studies to support a repeat dosing protocol.

As I mentioned, we anticipate that this Phase II trial will begin in the second half of '06. Our current plan is to treat patients in three groups. One group will receive SB509 in both legs in three treatments spaced two months apart. One group will receive SB509 in both legs in three treatments spaced three months apart. These treatment arms will be controlled with a third, placebo-controlled -- placebo-treated group. As we finalize these plants and the clinical protocol, we will provide you with more information on this Phase II trial in future calls.

Dale Ando and Philip Gregory also gave an update at the analyst briefing on the program that we're developing for the treatment of HIV/AIDS using zinc finger nuclease mediated disruption of the CCR5 gene. CCR5 is a very well-validated target, and several pharmaceutical companies are developing drugs intended to block the virus from binding in an effort to lower HIV infection efficacy. We believe that our approach of disrupting the gene and thus preventing a fully functional protein from being expressed on T-cells in the first place may be a more efficient approach.

Dale also provided details on our current plans for the first clinical trial of our zinc finger nuclease technology, including the trial design and timing, which we plan to initiate in the second half of next year. Again, we will update you on the progress of these and other products in our pipeline on future calls, as well as a more comprehensive dataset on the HIV challenge data at the upcoming and rescheduled ICAC (ph) meeting in Washington D.C., in December.

Now I'd like to turn to the research and commercial license agreement that we signed with Dow AgroSciences, or DAS, a wholly-owned subsidiary of the Dow Chemical Company. The agreement provides DAS with a research license to our zinc finger technology for use in plants and plant cell cultures and an option to acquire a commercial license to develop products on an exclusive basis in plant agriculture and industrial products, (indiscernible) a non-exclusive basis for animal health and biopharmaceutical products produced in plants. DAS will make an initial, non-refundable payment to Sangamo of $7.5 million and will provide us with up to 6 million in research funding over the initial three-year research period. We are also eligible to receive an additional 4 million in research milestone payments, depending on the success of the research program. Finally, Dow has agreed to purchase up to $4 million of Sangamo stock in our next financing.

The agreement provides for an initial three-year research term, during which we will work together to validate and optimize the application of our ZFP technology in plants, plant cells and plant cell cultures. During the research period, DAS will have the option to obtain a commercial license to sell products incorporating or derived from plant cells generated using our technology. DAS may exercise the option to obtain the commercial license at anytime during this three-year period. If this occurs, we will be entitled to a one-time exercise fee of $6 million, as well as minimum annual sublicense payments totaling up to 25.25 million, development and commercialization milestone payments and royalties on sales of each DAS product. Furthermore, DAS has the right to sublicense our ZFP technology to third parties for use in the licensed field. Sangamo will receive 25% of any revenue received by DAS under such sublicenses.

Needless to say, we here at Sangamo and I know our colleagues at DAS are very excited about this collaboration and the opportunity to combine our respective capabilities to develop and apply this technology in plant agriculture and to realize what could being very significant commercial value. This really is an eye-popping agreement and relationship.

So, to conclude and summarize this third-quarter update, our ZFP therapeutic programs are progressing quite well. Our Phase I human clinical trial of SB509 for diabetic neuropathy is going well, and we anticipate that we will present data from this trial in the first half of 2006. Further, preclinical studies and toxicology studies are underway in preparation for the initiation of a Phase II repeat-dosing trial of SB509 in the second half of 2006. We also expect to initiate a clinical trial for our CCR5 gene-disruption program for HIV/AIDS in 2006. As I mentioned, we will present more detailed preclinical HIV challenge data at the rescheduled ICAC (ph) meeting in December.

We announced an expansion of our ZFP therapy collaboration with LifeScan, several new agreements in protein production, and a very important agreement with Dow AgroSciences to develop our ZFP technology for plant agriculture. This latter agreement not only brings near-term funding into the Company, but could also have significant long-term value for Sangamo. With this agreement, we have strengthened or balance sheet. Although we continue to operate the Company and prosecute our programs in a fiscally responsible fashion, once again achieving yet another year in which we will use less than $10 million total cash in operations.

Finally, I look forward to updating you on our progress at future investor conferences. We will be presenting at the Rodman and Renshaw Healthcare Conference in early November in New York and at the JP Morgan Healthcare Conference in January here in San Francisco.

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

Thank you. Ladies and gentlemen, your Q&A session will now begin. (OPERATOR INSTRUCTIONS). David Wood (ph) from (indiscernible) Capital.

Good afternoon, everyone. Edward, I'm going to ask but I'm guessing that too much can't be said on your end, but any idea where Edwards stands on its trials?

Dave, thank you for the question, and I appreciate your sense that it's not an area where we have a lot of visibility. I will say that I believe Edwards had their third-quarter conference call on either Tuesday or Wednesday of this week, and at that time, Mike Mussallem, their CEO -- I believe, Liz, this is correct -- said that their angiogenesis trials were proceeding. So I think that's as much additional visibility as I can give you.

Okay, so that would be both the -- (multiple speakers)?

Yes, he specifically mentioned the trial at NIH and the trial at Duke.

But nothing regarding the trial at Yale for coronary?

There was nothing mentioned on that call.

Okay, great. Then the other question I had is regarding the CCR5 gene-disruption program for HIV, Edward, the second half of '06 for the initiation -- any sense of where those sites are going to be, how many and potentially how many patients in that study?

Why don't I just turn that over to Dale, and he can respond?

Yes, David, at this point, our plans are to have a single site at the University of Pennsylvania, and I think the modifications will be in the typical Phase I type of study, probably on the order of a dozen or so but it really will depend on our discussions with the FDA.

Dale, one other question with that -- so what remains, then, to be done prior to the filing an IND for this program?

We still have a considerable amount of work in terms of developing the methodology for zinc finger modulation of T-cells and expansion of the cells, so since this is a very new technology, there are a lot of challenges in sort of basically getting this into a GNP-type manufacturing scale that would be clinically relevant. So, those are the types of challenges that we're working on right now.

Okay, great. Thanks a lot.

John Sullivan from Leerink Swann & Company.

Just kind of a follow-up question regarding this Dow AgroSciences deal -- congrats again on the deal. To what extent should investors be concerned that this deal distracts you from your own discovery and development programs? I know you said that you saw it to be an area that wasn't a primary area of focus to you. My question is are you devoting some of your lab space to this program or are you devoting some people to this program that would otherwise be focused on what you're doing? Can you just comment on that?

I assure can, John. Thanks for the question. The answer is yes; we will be doing work here. Dow is funding research here at the rate of $2 million a year, so yes, there's ongoing activities here. The thing I want to emphasize and tried to make the point at the analyst briefing is that the tasks we will be performing are essentially exactly the same tasks that we would perform if we were making a transcriptional activator or a transcriptional repressor or a nuclease of amelion (ph) gene. So we're not taking on any incremental skill sets or anything that would be from an opportunity cost perspective. Dow is really doing all of that work in Indianapolis. So, it's really one of those relationships where I think 1 plus 1 equals 7, and there's very, very little overlap between what we will be doing here and what they will be doing at their end. What we will be doing here is purely and completely consistent with the tasks that we already do.

Okay, terrific. Thanks very much. Can I just shift gears and ask one more question?

Sure.

It has been great to see the protein production partnerships with some top tier companies over the last couple of years. It certainly has been the hope of me that those deals have been a way for your technology to get introduced into companies. Can you give us any sense of whether the partners regarding protein-production deals, whether they are using the technology still and whether you remain hopeful that they will be a starting point for broader relationships between your company and those companies?

Yes, it's a good question, John. I can't give you color on any individual company. I will say that, except for perhaps the Novartis agreement that we just announced, all of the companies are either incorporating the technology or currently evaluating the technology. We expect, over time, that these will translate into actual use in protein therapeutic manufacturing environments. When that happens, then the economics really increase, where we start to receive milestones and then eventually royalties on products that incorporate this chosen cell line.

The other thing that's really I think becoming of increasing interest is the use of the nuclease technology in the protein-manufacturing environment, and that's something you should expect to see more and more of, again, over the next 6, 12, 18 months.

Charles Duncan from JMP Securities.

Good afternoon, gentlemen, or ladies and gentlemen. A quick question with regard to some of the technical hurdles that you may face in developmental drugs -- (technical difficulty) -- the other companies that are developing oligonucleotide-based drugs or gene therapy. Do you believe that you're going to see some of the same hurdles that they faced with regards to the delivery, some of the technological hurdles with regard to delivery?

Good question, Charles. Before I dive into it, I encourage folks, if they have the time, to listen to Philip Gregory's talk at our analyst briefing, where I thought he did a very nice job of sort of comparing and contrasting different oligonucleotide therapies, including our approach for zinc finger gene regulation and gene modification, RNAi and then downstream other approaches like anaisin (ph). So -- but the issue, Charles, is that really our therapies that are in clinical trials now, the diabetic neuropathy program that we are prosecuting, the PAD programs that Edwards are prosecuting, as well as the CCR5 gene-disruption technology that we're pursuing, really are oligonucleotide therapies. We're putting in a DNA sequence with a polymer, and that's very similar to some of the delivery approaches that are being used by RNAi.

Edward, I'm not sure if it's available or not, but if you've been having conversations with prospective pharmaceutical partners, could you share with us some of the types of questions that they've asked? Because undoubtedly, some of those same folks or companies are the same ones that are looking at maybe, say, the RNAi technology.

Yes, I'd be happy to give you sort of some high-level comments, Charles. I think David Ichikawa, our head of Business Development, was recently at an industry conference where Peter Kim, the head of Research at Merck, spoke and talked about this whole area of large-molecule drugs and sort of an interest in a transition towards them. I think the type of agreements that you see getting done, the Novartis (indiscernible) deal for instance, really I think signals what we're seeing from several groups, which is an interest in other modalities besides just conventional small molecules or monoclonal antibodies for a variety of reasons, primarily that one can accomplish, with oligonucleotide therapies or large-molecule therapies, certain outcomes that can't be achieved with either small molecules or antibodies. In particular, our approach allows us to activate endogenous genes, repress endogenous genes, and physically modify endogenous genes. I think, at a high level, those are the sorts of characteristics that large pharmaceutical companies and large biotech companies are starting to look for.

My final question is, with regard to R&D spend next year, let's see, you've got a couple of new clinical programs that you intend to kick off -- (technical difficulty) -- R&D is going to go up. Can you give us some early guidance on that, or should we wait until the next quarterly report?

We will give more complete guidance in the fourth-quarter and year-end call.

Thanks, Edward.

(OPERATOR INSTRUCTIONS). Navdeep Jaikaria from Rodman and Renshaw.

Hello, gentlemen. Thank you very much for taking my question. Actually, this is Sean Wu standing in for Navdeep. Great quarter. Thank you (indiscernible) do it so well. (inaudible). I have a question actually regarding -- first let me get out of the way the financial question. You have like the $7.5 million (indiscernible) payment. Can we see -- is this money in the bank, or you will receive it in a schedule?

Yes, you'll see this -- the agreement was signed on October 3 and effective in the fourth quarter. So, you will see those dollars on our balance sheet in the fourth quarter and year-end numbers.

That's great. So how will the accounting treatment be? Is this going to be amortized over three years, or you will consider this is just (indiscernible) in the bank?

Yes, I think that's -- from a guidance point of view, I'm happy to say that that is our current feeling about it, but that's obviously something that we will review with our accountants before we make a final determination.

Thank you very much. Now, let me just switch gears. (indiscernible) it seems to me like you guys have exclusively focused your ZFP technology for VEGF and also like a (indiscernible) nuclease for (indiscernible). I mean, there are so many other (indiscernible) genes out there (indiscernible) can be (indiscernible) other places. I know you are (indiscernible) negotiating with other people in this area. Can you just leak a little bit about how are things going on this front?

Sure. I think the best way to update the investment community will be to look at some of the preclinical animal efficacy data presentations that will be made this fall. I mentioned that we will be presenting our Track A (ph) neuropath pain data in the San Francisco in early November. Our colleague, Frank Giordano, will be presenting our data in the area of phosphil Lanban (ph) for its application in congestive heart failure at the American Heart Association meeting in Dallas in the middle of November. Then you'll see additional HIV challenge data at ICAC (ph) in December. Then on our year-end call, we will give you more updates at that time.

Excellent. Can I ask one final question? I know (indiscernible) we've tried to use VEGF gene therapy in the area of angina. Do you (indiscernible) think about doing that same thing or like I'm just kind of curious to find out (indiscernible) seem to have the VEGF, which can target (indiscernible) in their case, they seem to be limited to certain subtypes?

Yes, thank you. The approach that we're taking of using a zinc finger transcription factor to activate the endogenous VEGF gene allows us to really mimic the way that gene is normally regulated and produce the normal ratio of isoforms that are generated. So, we believe one of the clear differential advantages of this approach is that we can generate those isoforms in a way that's consistent with the way the gene is normally regulated -- versus putting in a single isoform in the protein form or as a cDNA.

We have some more questions?

All right.

William Ho (ph) from Piper Jaffray.

This question is for Dale. Dale, have you seen the recent Nature Medicine article? I think it was published in the October 2 issue concerning CCR5 receptors.

That was related to some toxicity but I can't remember.

Well, I think it talks about the requirement of some induction or activation of CCR5 during (indiscernible) section to ensure macrophage survival. So I was just wondering if you had any comments or -- since with your technology, you would probably remove all CCR5 (indiscernible) on the surface of the T-cell.

Yes. The approach we're doing is to specifically target CD4 positive T-cells, so they would be purified using (indiscernible) system. I think the role of CCR5 in general in the body is still being sort of analyzed, and I think that Nature Medicine article probably needs to be explored a little bit further in sort of larger systems and what would be the immunologic impact of that up or down regulation. There is some data that, in humans, CCR5 inhibitors that are chemical inhibitors can cause liver inflammation and actually a Phase III trial had to be stopped. Whether that's due to a non-CCR5-mediated toxicity in the liver or is part of the mechanism of CCR5 inhibition I think we don't really know yet. That's new data from this week.

Okay.

Thank you. Since we have no more questions, I'd like to turn the program to Dr. Edward Lanphier for closing remarks.

We would like to thank you for joining us, and we look forward to speaking with you again when we release our fourth-quarter and year-end financial information. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. You may now disconnect your lines. Thank you.