Sangamo Therapeutics Inc (SGMO) 2007 Q2 法說會逐字稿

Good afternoon everyone, and welcome to Sangamo BioSciences Second Quarter teleconference. Today's call is being recorded.

Your host for this call will be Dr. Elizabeth Wolffe, Director of Corporate Communications. Please go ahead.

Thank you, Keith. Good afternoon and thank you for joining Sangamo's management team on our conference call to discuss the Company's second quarter 2007 financial results. Also present during this call are several members of Sangamo's senior management, including Edward Lanphier, President and Chief Executive Officer, Greg Zante, Vice President, Finance and Administration, and Dr. Dale Ando, Vice President of Therapeutic Development and Chief Medical Officer.

Following this introduction, Edward will review second quarter activities, highlighting Sangamo's recent event, Greg will briefly review second quarter financial results. And finally, Edward will provide more detail on our (inaudible) financing agreement with Sigma-Aldrich, and developments in several of our ZFP therapeutic clinical programs and goals for 2007. Following that, we will open the call 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 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 on 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 (technical difficulty) looking statements.

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

Thank you, Liz, and thank you all for joining us for our 2007 second quarter conference call. The last few months have been very busy and productive period for Sangamo from both business and a clinical development perspective. I'm very pleased to report we have accomplished a number of important goals in both of these areas.

Earlier this month, Sangamo and Sigma-Aldrich Corporation jointly announced the establishment of a major alliance to develop and commercialize high-value laboratory research reagents based upon our zinc finger DNA-binding protein technology. As part of the agreement, Sangamo received an upfront payment of $13.5 million, which included license fees and the purchase of 1 million shares of Sangamo stock. We are also eligible to receive development and commercial milestone payments and royalties on product sales.

In addition, last week, we raised just over $30 million in a registered direct offering. This transaction along with the upfront payments made by Sigma has significantly strengthened our balance sheet. We are now on track to end 2007 with approximately $75 million in the bank.

In June, one of our clinical collaborators Dr. Mark Kipnes presented encouraging data from our Phase Ib clinical trial of our ZFP therapeutics SB-509 at the American Diabetes Association meeting. Dr. Kipnes reported statistically significant improvements in several measurements of neurological health in subjects with mild to moderate diabetic neuropathy over a six-month period after they were treated with a single administration of SB-509.

We also announced that our first two zinc finger nuclease therapeutic programs, the modification of the CCR5 gene for the treatment of HIV/AIDS and novel therapy for the treatment of glioblastoma were reviewed and unanimously approved to move forward into human clinical trials by the National Institute of Health recombinant advisor -- Recombinant DNA Advisory Committee or RAC

Finally, in a joint announcement with Dow AgroSciences in June we reported on a continued success and progress of our collaboration in the application of our ZFP to plant agriculture.

So as we enter into the second half of 2007, we are making great progress in achieving our list of goals for the year. Before we elaborate further on each of these developments I would like to ask Greg to summarize the second quarter financial results. Greg?

Thank you, Edward. For the second quarter of 2007, revenues were $2.6 million compared with $1.8 million for the same period of 2006. Our research and development expenses were $6.3 million for the three months ended June 30, 2007, as compared to $4 million for the second quarter of 2006. General and administrative expenses were $2.1 million for the second quarter of 2007 compared with $1.8 million for the same period last year. Research and development expenses in the second quarter of 2007 were higher than in the same period of 2006, due primarily to increased expenses related to our ongoing and planned clinical trials.

Our consolidated net loss was $5.2 million or $0.15 per share. In the comparable quarter of 2006, our consolidated net loss was $3.3 million or $0.11 per share.

Finally, we ended the second quarter of 2007 with $44.6 million, which of course does not include the monies raised in our recently completed financing or the funds raised from Sigma-Aldrich both of which were third quarter events.

Regarding our recent agreement with Sigma-Aldrich note that there were two components to the $5.75 million license fee received, $4.75 million and $1 million. Related to these amounts, we plan to recognize the $1 million over a 12-month period and the remaining $4.75 million over the entire 36 months research funding period of the agreement. With that summary of a very busy quarter I would now like to turn the call back over to Edward who will give you some details about our recent financing and comment further on the financial terms of the Sigma-Aldrich agreement. Edward?

As you heard earlier, we are now in a position to end 2007 with significantly more cash in the bank then we had guided to previously. The two major contributors to that balance are the Sigma-Aldrich agreement and our recent financing. The financing which was priced on July 16th was an offering of 3,278,689 shares of common stock at $9.15 per share resulting in gross proceeds to Sangamo of just over $30 million.

We are very pleased with this strong institutional interest in this financing, and even more pleased with the small number of very high quality investors with which we were able to place the shares.

Regarding our recent agreement with Sigma-Aldrich, I believe this is yet again another example of the successful execution of our business strategy. We continue to thoughtfully monetize the technology and intellectual property value that we have created over the past several years through relationships with partners such as Sigma and Dow AgroSciences. Who have the capability and the commitment to maximize the commercial potential of our technology platform in high-value areas outside of human therapeutics.

The agreement we entered into with Sigma combines the core competencies of both of our companies. For those of you who are not thoroughly familiar with this market, Sigma-Aldrich is a leading life sciences company that produces and sells a broad range of life science research related products and services and has a global marketing and distribution presence with annual revenues of nearly $2 billion.

Under this agreement, we will provide Sigma with exclusive worldwide rights to our ZFP technology to develop and commercialize products for use as research reagents. Financially, beyond the initial $13.5 million we have the opportunity to receive additional license fees and milestone payments totaling $24 million.

Furthermore, Sigma will make minimal annual payments to Sangamo, share a significant percentage of the revenues received by Sigma from any sub-licensees and pay Sangamo royalty on sales of any licensed products or services.

This is an important agreement for Sangamo and we look forward to a very productive and rewarding relationship with Sigma. For a more detailed information regarding the potential applications of our ZFP technology in the research reagent area, I'll refer you to the replay of a call that we hosted on July 10, which is archived in the events and presentation section of the investor page of our website.

The proceeds from the Sigma-Aldrich agreement and our financing have significantly strengthened our balance sheet. The additional capital obviously gives us a longer runway but perhaps even more importantly the funds provide us with additional strength and flexibility as we make decisions about the advancement of our clinical and preclinical programs, and particularly as we continue discussions with major pharmaceutical companies regarding the commercialization of our therapeutic programs. We will, as we have in the past, continue to keep a close eye on expenses in the second half of 2007 as we pursue our ongoing clinical programs and initiate two new clinical trials. However, with these two very important transactions I'm very pleased to say that we now expect to end 2007 with approximately $75 million in cash and cash equivalents.

As I mentioned earlier, our collaboration with Dow AgroSciences or DAS continuous to go very well and in June we jointly announced the achievement of a number of technical milestones. Earlier in June, Dan Kittle, Dow AgroSciences' vice president of research and development gave a presentation at the Merrill Lynch Agricultural Chemicals Conference in New York that highlighted the successful collaboration between our two companies. During the presentation he stated, "Cutting-edge techniques, such as the ability to precisely target and regulate gene function in plants through an agreement with Sangamo BioSciences, are enabling the company to reach key discovery milestones. Dow AgroSciences has been able to target native genes in canola using engineered zinc finger nuclease technology to affect specific gene sites with exceptional precision. In addition, zinc finger nuclease is designed to specifically cleave a native corn gene -- were used to target a pre-selected site and enable site-specific trans-gene integration. This represents the first successfully targeted integration of DNA into a pre-selected native corn sequence."

As you have heard from us and as you are hearing with increased frequency from our colleagues at DAS, this collaboration is going very well. Turning to our clinical programs I would now like to briefly highlight some of the very encouraging data from our Phase Ib clinical trial of SB-509 for diabetic neuropathy that were presented at the American Diabetes Association meeting in Chicago last month.

As many of you on this call know because you attended ADA the podium presentation was given by Dr. Mark Kipnes, the leading investigator on this study. The presentation included the first comprehensive data from this trial and was met with considerable enthusiasm as the data demonstrated not just neural protection but what appears to be a reversal of disease progression.

In brief, six months follow-up data on 12 subjects all with mild-to-moderate diabetic neuropathy were presented. Six of the subjects received one treatment of 60 mg of SB-509, 30 mg administered to each leg and six other subjects received a placebo. The data collected and presented included a substance of changes in neurological status of these subjects using highly quantitative measurements, including quantitative sensory testing or QST which measures perception of vibration, and nerve conduction velocity or NCV, the rate at which a nerve transmits and applies electrical signals.

Improvements in the total neuropathy score or TNS a composite of several measurements including these quantitative endpoints as well as other qualitative neurological symptoms were also presented. Clinicians observed that in QST scores compared to baseline in SB-509 treated patients showed 42% improvement compared to a 13% worsening in the placebo group; a 20% improvement in QST is considered clinically relevant. This represents difference between treated and placebo in QST score of 55% which is statistically significant with a p-value of less than 0.0077.

When nerve conduction velocities were compared between the treated and placebo groups, the mean sum of improvements of all lower extremity motor nerve conduction velocities was 1.9 meter per second in the SB-509 treated group and in sensory nerve conduction velocity measured in the sural nerve in subjects treated with SB-509, the mean sum of improvement was 2.6 meter per second. Dr. Kipnes noted during the presentation that improvements in nerve conduction velocity above 1.2 meter per second are considered to be clinically relevant.

All in all, the magnitude of positive improvements in QST and sensory hand motor nerve conduction velocities over six months with a single treatment of SB-509 is above the level that is generally considered clinically significant, and physicians and scientists that we spoke with at the meeting were very interested in and impressed by the data.

In addition, data were presented at ADA from one of three subjects with a so called blocked nerve. Blocked nerves are nerves that in response to electrical stimulus have no measurable induced nerve conduction velocity but are still functional. Typically, diabetics with blocked nerves have more severe symptoms of neuropathy. However, following a single treatment of SB-509, recovered and improved nerve conduction velocities were observed in all three subjects.

As you heard on our last call, these data were quite surprising as we had been advised that subjects with this level of nerve damage might not be responsive to a treatment designed to be neuroprotective. What these clinical data suggest, which is consistent with data that we have generated in animal models of both diabetic neuropathy and even more severe nerve damage models such as nerve crush and spinal cord injury is that SB-509 may have not only a neuroprotective effect but also a neuroregenerative effect.

To this point, our collaborator, Dr. Michael Fehlings presented very interesting preclinical data from our spinal cord injury program at the annual conference of the American Society for Neural Therapy and Repair in May of this year.

The data demonstrates that treatment of the spinal cord at the time of injury with our VEGF ZFP activator had a statistically significant effect on the recovery of hind limb function as well as a number of other measures of nerve integrity and health. These data can also be viewed on our website in the investor's section under events and presentation in the presentations given by Dr. Dale Ando at the recent scientific symposium that we hosted.

The data from these different preclinical models are important from the perspective of potentially treating both nerve trauma and the nerve damage and the continued confirmation of the unique mechanisms of SB-509 significantly influenced our decision to expand our initial diabetic neuropathy trial into the blocked nerve setting.

As we announced in May, we have initiated a randomized placebo-controlled single blind Phase II study and expect to enroll 45 patients with blocked nerves. We plan to treat approximately 30 subjects with two doses of SB-509 at three months intervals and 15 with placebo under the same regime.

To briefly update you on the status of our first diabetic neuropathy Phase II trial that we initiated late last year, we now have ten clinical sites open and are actively recruiting, screening, and treating subjects. As we have stated before, we expect to complete the accrual of this trial by the end of 2007 and to have data from both of our Phase II diabetic neuropathy studies in the second half of 2008.

These are two very exciting clinical studies; the preclinical data and initial human clinical data suggests that SB-509 could represent an entirely new therapeutic approach for diabetic neuropathy and potentially even more severe neurological injuries, designed to directly protect and possibly restore nerve function. We look forward to keeping you abreast of additional progress of these programs.

Also on the clinical development [front], we presented our first two zinc finger nuclease preclinical programs, the modification of the CCR5 genes in the treatment of HIV/AIDS and a novel therapy for the treatment of glioblastoma to the National Institute of Health Recombinant DNA Advisory Committee or RAC on June 19th.

I am very pleased to report that we received a unanimous decision from the RAC to move both programs forward into clinical testing. The fact, RAC unanimously approved both programs is unusual, and a testimony to the hard work by the research and development groups at Sangamo and our collaborators at the University of Pennsylvania and the City of Hope. This is an outstanding outcome for the first public review of a new technology such as our zinc finger nuclease mediated gene modification technology. It is also an important step towards our goal of filing INDs for both of these programs by the end of this year.

As I hope it's quite apparent this has been a very busy and very productive three or four months for us, but it is really just a good start on the year. We will continue to make progress in our key objectives as we head into the second half of the year, working hard to build substantial and sustainable shareholder value through clinical data and thoughtful strategic partnerships, while continuing to carefully manage our expenses.

Finally, before we open up the call for your questions I want to remind you that we will be providing additional updates on our progress at the Canaccord Adams Global Growth Conference in August and the UBS Global Life Sciences Conference in September.

We will make all of these presentations available on the investor section of our website. This completes our prepared comments. I would now like to open up the call for your questions.

Thank you. (OPERATOR INSTRUCTIONS) We will go first to John Sullivan with Leerink Swann.

Hi, good afternoon. This is [Reg] in for John Sullivan.

Hi, Reg, how are you?

Good. How are you?

Fine, thanks.

Edward, I'm just looking for an update on the Dow AgroSciences partnership. When are you looking to have products on the market from that collaboration? Is there any guidance there?

Yes, Reg, the short answer is there is no specific guidance on that. The longer answer is that the program, the science, the applications continue to go very, very well. Actually, I think the DAS people have actually even used the words, ahead of schedule. But in terms of actual guidance, Reg, on product, product introduction that's really going to fall, if not almost entirely, [probably] entirely in the hands of DAS to articulate.

I'm taking it then, you haven't received any indications from them as to when they might be looking at launching any products?

Actually, I didn't say that. What I said was any guidance in terms of product launches, and specific products will come from DAS.

Come from them, okay, understood. Moving on then to the partnership with Sigma-Aldrich, the product developments, will that happen at Sigma-Aldrich, or will that happen sort of in combination at the Sangamo side as well?

Let me get a shot at it and Philip Gregory, our Head of Research is here and also David Ichikawa, our Head of Business Development. This is really, again you've heard me characterize our relationship with Dow AgroSciences, as sort of a one plus one equals seven that being that with our core competences plus their core competencies we will create a combination that allows us to build products that are much greater than sum of the parts. And that is very, very analogous to the Sigma collaboration.

We have and we'll continue to focus here on the generation and the high throughput generation and characterization of the zinc finger nucleases and Sigma will really be responsible for the generation and marketing of products and services employing the zinc finger nucleases. So that's the broadest level answer I can give you. Is that sufficient Reg? If not, there is other people here that can give you more color.

No, sure that's fine. I just thought of an add-on question to that. I'm presuming then that there is a basic level of, sort of, dexterity that you would have to educate the Sigma-Aldrich scientists with the ZFP technology to get the ball rolling. Will that be -- has that already taken place or is in process?

Well, I will let Philip give you details on that, but it is an ongoing process. Certainly, there was a lot of interaction with Sigma-Aldrich during the discussion, a lot of due diligence, several visits here and there, but it will continue and our goal is and our plan is to eventually transfer to them the ability to generate in the high throughput manner that we have developed zinc finger nucleases in their own shop. Now, let me pause. Philip, do you want to add anything to that?

That is exactly right.

So, Reg, why don't we let somebody else ask questions, and if you wouldn't mind getting back into the queue that will be great.

Definitely, thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS) We'll go next to Pamela Bassett with Cantor Fitzgerald.

Hi, thanks very much, congratulations on a -- in an exceptional quarter. Just a clarification on the Phase II trials and the patient accrual. You mentioned ten clinical sites are open. Is that for both Phase IIs or is that for the blocked nerves?

No, it is ten -- thank you, Pamela. There are ten clinical sites open and accruing and screening patients in the first Phase II trial for the mild-to-moderate group. As of yet, Pamela, we haven't given guidance in terms of the numbers of sites open on the second Phase II, which is the blocked nerve.

Okay, and how many sites -- just remind me how many sites total are planned for each of those trials?

What we have said is -- I think the only guidance we gave is multiple sites on this call. We're actually quantifying the numbers that are currently open in the mild-to-moderate Phase II.

So given how few treatments are even in development for diabetic neuropathy, are you having a pretty easy time or a difficult time with patient accrual on these?

Well, Dale is on the phone, and if he wants to add anything to this, we can certainly go there. But what I will say is that when scientists see the data that were presented at ADA, there has been somewhere between quite a bit and enormous enthusiasm to participate. And so, we have many, many sites that are interested in participating. But at this point, Pamela, as we said earlier, I'm not going to comment on actual accrual numbers.

Okay, thanks very much.

Thank you, Pamela.

Ladies and gentlemen (OPERATOR INSTRUCTIONS). We will go next to Joe Pantginis with Canaccord Adams.

Hi, guys, congratulations on the progress as well. Can you hear me okay?

Just fine, Joe. Thanks.

I was just -- if you look towards the HIV program a little bit with the recent approval of [Maraviroc] how you potentially see the HIV, ZFN fitting into the HIV treatment regimen in the future with these CCR5 inhibitors and potentially other types of novel classes such as the integrase inhibitors from a commercial perspective and the potential for combos.

Sure, delighted, and maybe what we will do is just tag team in this a little bit. I'm going to have to Philip to comment a little bit, and maybe Dale you can add on to that as well. But I will also add that there is some very new data coming out of, I think, it's Australia, maybe Philip, you can comment on that -- on the Schering-Plough CCR5 receptor antagonist as well. But Philip, do you want to take the question in terms of small molecule antagonist in our program?

Sure. I think, as you said, the Pfizer drug Maraviroc is likely to be [appraised], if it hasn't already. And I think that's great validation of CCR5 as the appropriate drug target for HIV treatments. Don't forget what we propose to do is to create a protected population of T-cells that no longer express any CCR5 on their cell surface, and that's quite distinct from a small molecule approach that attempts to block all CCR5 available receptors across the entire T-cell population in the blood. And so, we think that is quite a significant difference, especially as in the Maraviroc trials there were a set of patients that had -- are finding specific viruses that escaped the Maraviroc treatment that continued to use the R5 receptor, and that's -- in other words the found a way of bypassing the particular block to using the R5 receptor that was prevented by Maraviroc drug itself. And so I think that's -- we provide quite a distinct molecular outcome in that regard. Dale, would you just like to comment?

Yes. Can you hear me?

Yes.

So the treatments with our modification of CD4 T-cells at Maraviroc or another entry inhibitor (inaudible) is not mutually exclusive, and in fact together they provide probably improved protection over just say Maraviroc alone. We are actually with a single treatment can permanently modify the CD4 T-cells that have been treated. So, I don't think this is a mutually exclusive overlapping treatment and I guess the best example of that is the (inaudible) which is an entry inhibitor that is an intravenous products that is also used in combination with other antiretrovirals.

I think that is an excellent point about mutual excludes and the fact that you know these other small molecules. I mean your therapy you can peacefully coexist with them.

It turns out that the people who become resistant to Maraviroc, once they are off the Maraviroc then they can actually move back into a previous R5 pattern, and the X4 virus seems to be going away. But that's an issue that the FDA wants more long-term data right now that may delay the actual approvals of Maraviroc until some of the post resistance population genetics are known, and that was only 20 patients but that can be updated once we have a follow up.

Great, thanks a lot for the answers.

Thanks, Joe.

(OPERATOR INSTRUCTIONS)

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

Ladies and gentlemen this concludes today's teleconference. We appreciate your participation, you may disconnect your phone lines at this time.