Sangamo Therapeutics Inc (SGMO) 2008 Q4 法說會逐字稿

Good day, everyone. And welcome to today's Sangamo BioSciences call to discuss 4Q and 2008 full year results conference call. Today's call is being recorded. At this time, for opening remarks, I would like to turn the call over to Elizabeth Wolffe, Director of Corporate Communications. Please go ahead.

Thank you, Gwen. Good afternoon and thank you for joining Sangamo's management team on our conference call to discuss the Company's fourth quarter and full year 2008 financial results. Also present during this call are several members of Sangamo's senior management including Edward Lanphier, President and Chief Executive Officer, Ward Wolff, Executive Vice President and Chief Financial Officer, and Dale Ando, Vice President of Therapeutic Development and Chief Medical Officer.

Following this introduction, Edward will highlight recent activities and the significant events from the past year. Ward will then briefly review fourth quarter and full year financial results for 2008. Dale will provide an update on our ZFP therapeutic programs and finally, Edward will update you on our goals for 2009. Following that, we'll open up the call for questions.

As we begin, I'd like to remind everybody 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 perception of the market and the future performance of Sangamo with you today, we're 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 would like to turn the call over to Edward.

Thank you, Liz. Thank you all for joining us for our conference call to discuss our fourth quarter and full year results for 2008.

2008 was a year of significant milestones for Sangamo as we prosecuted our clinical programs through multiple Phase II trials, moved our HIV program into the clinic, and advanced several preclinical programs. We also continued to maximize the value of our ZFP technology platform through high quality strategic partnerships in the non-therapeutic applications of our technology.

From a clinical perspective, in December, in collaboration with the University of Pennsylvania, we filed an investigational new drug application for Sangamo's ZFP therapeutic program in HIV/AIDS. As we announced yesterday, the Phase I clinical trial is now open. I've asked Dale to provide more detail on this program later in the call. Needless to say, we and our collaborators at UPenn are more than a little excited to have this trial open and up and running.

In September, we initiated a fourth Phase 2 clinical trial of SB-509 in subjects with ALS. ALS is a progressive degenerative motor-neuron disease for which there are very limited treatment options and no cure. The rationale for the Phase 2 study SB-509-801 is based on improvements in motor nerve function that we observed in Sangamo's SB-509 trials in diabetic neuropathy as well as preclinical models.

This study is a randomized repeat-dosing open-label multicenter study designed to evaluate safety and tolerability of the drug and the effect of intramuscular administration of SB-509 on the progression of ALS. In addition, we will evaluate stem cell mobilization in these patients.

We also presented data from our clinical trial of SB-509. In June and November, Sangamo presented data from our Phase 1 SB-509-401 and Phase 2 SB-509-601 and SB-509-701 Part A clinical trials in diabetic neuropathy. All of the studies demonstrated that repeat dosing of SB-509 is safe and well-tolerated and collectively, they provided us with valuable information that has allowed us to define the most suitable patient population in which to test this novel therapeutic approach. Again, Dale will update you on our progress in and analysis of these trials later in the call.

In the non-therapeutic areas, in June, Dow AgroSciences announced the early exercise of a commercial license for our ZFP technology in plant agriculture. DAS is using the technology broadly to generate its own products and plans to sublicense technology to other companies under the trademark EXZACT Precision Technology. As part of the license exercise, we received a payment of $6 million and the balance of the outstanding milestone payments of approximately $2.3 million. Going forward, we're eligible to receive development and commercial milestone payments and royalties on product sales from any product that DAS develops as well as 25% of any cash consideration received by DAS under future sublicenses.

One programming note, DAS CEO Jerome Peribere will update the investment community on Dow's progress including on our collaboration at the Goldman Sachs Agricultural Conference on February 10th.

We also announced several collaborations for the use of our ZFP technology to develop engineered cell lines and transgenic animals. In December, we announced an agreement with Pfizer for a worldwide non-exclusive license for the use of ZFN reagents to knock out a single gene in Chinese Hamster Ovary or CHO cells and for the use of such cell lines for clinical and commercial production of therapeutic proteins.

CHO is a cell line that's universally used for production pf therapeutic proteins such as monoclonal antibodies and the gene that we knocked out for Pfizer is one that's widely used in the selection of the most productive cell lines for protein production. We received an up-front payment of $3 million from Pfizer for a fully paid non-exclusive license.

In July, we jointly announced with our partner Sigma-Aldrich a research and license agreement to provide Hoffman-La Roche with non-exclusive worldwide rights for the use of certain ZFN reagents to develop engineered cell lines and create transgenic animals. There is growing interest in the application of our ZFN technology in transgenic animals and we believe that as more academic in industry groups use and validate our technology to knock out genes in cells and animals, there will be a rapid increase in acceptance and demand.

Relating directly to this issue of demand for ZFNs, we also achieved a key high throughput milestone over a year ahead of schedule in our agreement with Sigma-Aldrich. The milestone achievement triggered a payment of $1 million to Sangamo but more importantly, this represents a significant step in the scaling up of our production process which is something that Sigma needs to be able to handle the increasing demand for ZFP reagents.

We also published preclinical data and data from research programs in several high profile journals including two papers in Nature Biotechnology. The first paper demonstrated the use of ZFNs to efficiently generate transgenic animals, in this case, zebra fish, a widely recognized system for human disease modeling and in vivo drug discovery. The second publication described the successful ZFN mediated disruption of the CCR5 gene in human T-cells and the positive effects of HIV resistance and reduction in viral load in an animal model of HIV infection.

Finally, Sangamo's ZFN technology was recognized as one of the top innovations of 2008 by The Scientist magazine and by Wired.com. The Scientist recognized custom designed ZFNs referring -- referencing our agreement with Sigma. Sangamo's ZFN gene editing technology was also cited in Wired as one of the top ten scientific breakthoughs of the year. Specifically as a more feasible therapeutic alternative to bone marrow transplant as an approach to treating HIV.

So, before going into more detail on our recent clinical announcements and our plans for 2009, let me hand the call over to Ward to update on our fourth quarter and full year 2008 financial results as well as our financial guidance for 2009. Ward?

Thank you, Edward. Good afternoon, everyone.

As you know, after the close of the market today, we released our financial results for the fourth quarter and full year ended December 31, 2008 and I am pleased to review the highlights of those results.

Revenues in the fourth quarter of 2008 were approximately $6.8 million compared to $2.8 million for the 2007 quarter. The fourth quarter 2008 revenues were primarily comprised of revenue from Sangamo's enabling technology agreements in cell line engineering for protein production including $3 million related to a fully-paid non-exclusive license agreement with Pfizer and revenue from Sangamo's agreement with Genentech as well as revenue from our collaboration agreements with Dow AgroSciences and Sigma-Aldrich. The revenue recognized for the fourth quarter of 2008 was comprised solely of collaboration agreements with no revenue attributable to research grants.

Total operating expenses for the fourth quarter of 2008 were $9.0 million compared to $10.4 million for the same period in 2007. Included in operating expenses are non-cash stock-based compensation expenses of $1.5 million in the 2008 quarter compared to $800,000 in the 2007 quarter with the increase between the years due primarily to increased grant activity, higher stock grant prices, and a lower estimated forfeiture rate.

Research and development expenses were $6.7 million in the 2008 quarter and $7.9 million for the prior year quarter. The decrease was primarily due to reduced expenses related to clinical trials as studies of our drug SB-509 progressed.

General and administrative expenses were $2.3 million in the fourth quarter of 2008 compared to $2.5 million in the 2007 quarter. For the fourth quarter of 2008, we reported a consolidated net loss of $2.6 million or $0.06 per share compared to a net loss of $6.7 million or $0.17 per share for the fourth quarter of 2007. For the full year 2008, revenues were $16.2 million compared to $9.1 million in 2007. The increase in revenues for 2008 was primarily attributable to the exercise by DAS of their option to a commercial license to our technology for use in plant agriculture, our enabling technology agreements in cell line engineering for protein production and our agreement with Sigma-Aldrich in the research reagents field.

Total operating expenses were $41.6 million in 2008 and $33.9 million in 2007. The increase in Op Ex was primarily associated with our clinical development programs and diabetic neuropathy and ALS and our pre-IND expenses for HIV/ AIDS and glioblastoma as well as increased R&D personnel costs.

The net loss for 2008 was $24.3 million or $0.60 per share compared to a net loss of $21.5 million or $0.58 per share for 2007.

Turning to the balance sheet, I'm pleased to report that we ended 2008 with $65 million in cash, cash equivalents and short-term investments, which exceeded the updated guidance of $59 million to $61 million given back in October on our third quarter call. Key contributors on the revenue side of this increase in cash were the license fee and payment of $3 million from Pfizer referred to previously as well as an important research milestone of $1 million from Sigma also as announced separately.

As planned and previously disclosed in October, we received $8.5 million in scheduled payments from Dow AgroSciences including $6 million for exercising its option for a commercial license in the second quarter as well as $2.3 million in milestones and other payments. As we discussed on our call last quarter, with respect to revenue recognition of the $8.3 million of the Dow payments, we are recognizing this revenue ratably through the end of 2009 which reflects the estimated timing over which the technology transfer is expected to occur as well as the period over which Sangamo will be compensated by Dow for additional research services. That was the good news on the revenue side.

With respect to expense management and control, let me also say that we have taken a hard look at all of our operating expenses while keeping upper most our goals of executing on a full pipeline of research and therapeutic development projects. I'm pleased to say that our managers have really stepped up to make sure that we're living within our budgets and optimizing our resources. In order to conserve cash in this challenging market environment, we also took the step of foregoing cash bonuses throughout the Company in 2008 and only granting merit raises to employees below the VP level with no raises for VPs and above.

The combined efforts of strong revenues in the fourth quarter and tight expense controls have both contributed to our financial results and importantly, have enabled us to complete 2008 with a net consumption of cash of $16.4 million for the year. This is a terrific accomplishment and I would like to personally thank our collaborators and dedicated employees for an outstanding year with respect to our financial metrics.

With respect to our financial guidance for 2009, we expect to have a cash and investment balance of at least $45 million at the end of 2009. While we fully intend to continue to execute on our hybrid business model by establishing new corporate partnerships in our core ZFP therapeutics business as well as in non-core areas, assuming no new partnerships or financings, our current cash position is sufficient to enable us to fund our current therapeutic development programs through 2011.

One housekeeping item I wanted to bring up is that as you probably know, new SEC rules cause existing shelf registration statements to expire three years after going effective. As a result, our two currently effective shelf registration statements will expire with the first one expiring in 2009 and the other expiring the first half of 2010. In light of the new SEC rules, we intend to file a new $100 million shelf registration statement by the end of the first quarter to replace our existing shelf registration statements.

To be clear, we have no current plans or need to raise capital in these difficult financial markets. This is simply good corporate governance.

In summary, this has been an eventful year and we're pleased to have exceeded our financial goals for 2008 with respect to our operating results and net cash used in operating activities. We will continue to be focused on advancing our clinical and preclinical pipelines while maintaining our historic financial discipline. Thank you and I will now turn the call back over to Edward.

Thanks, Ward. As you can see from our fourth quarter and year end financial results, we begin 2009 with a very solid cash position which is a very important consideration in the current financial climate.

As Ward said, looking forward, we expect to end 2009 with at least $45 million in cash and cash equivalents. This cash projection does not include any new agreements or partnerships that we may develop this year and represents cash through 2011.

2008 was an exciting and busy year for Sangamo, both -- from both a clinical and business development perspective and we expect 2009 to continue along this same track. In that vein, we announced yesterday the opening of a very important new clinical program, SB-728-T, for the treatment of HIV/AIDS. I've asked Dale to provide with you more information about the rationale behind our approach and the specifics of the trial itself. In addition, Dale will update you on the progress of our clinical studies of SB-509 which we're developing for the treatment of diabetic neuropathy and ALS.

Analysis of the data that we have obtained from our trial thus far with SB-509 and diabetic neuropathy has led us to some important and informative conclusions that will be very useful in the design of future trials of this ZFP therapeutic. Dale?

Thank you, Edward. As Edward mentioned, in December 2008, along with our collaborators at the University of Pennsylvania, we filed an IND with the FDA to start a Phase 1 clinical trial of our ZFP therapeutic program for the treatment of HIV/AIDS. I'm very pleased to reiterate that yesterday we announced that this clinical trial is now open and accepting patients for screening. This is an exciting development for Sangamo, our collaborators and for the HIV patient community.

I also want to say that the opening of the study, the first zinc finger nuclease therapeutic trial represents an enormous amount of work by many people here at Sangamo. And I would be remiss if I did not acknowledge and thank them for the incredible dedication and ingenuity.

This trial is exciting and important for several other reasons as well. Our approach is based upon numerous successful experiments that have been carried out in the laboratory as well as in nature. In this protocol, we'll take immune cells, specifically T-cells from HIV-infected patients and modify these cells using ZFNs that physically disrupt the CCR5 gene so that the cell produces a non-functional CCR5 protein and after fully characterizing the modified cells, infuse them back into the patient.

We believe based on our preclinical data and work that our collaborator Carl June has carried out previously with other T-cell transfer approaches that these cells will provide the infected individual with a population of immune cells that cannot be infected by HIV. We'll selectively expand and could fight off both the infections normally associated with AIDS and the virus itself.

As I mentioned, there are numerous studies to recommend this approach. CCR5 is a co-receptor that enables HIV to enter and infect cells of the immune system. About ten years ago, it was observed that individuals carrying a natural mutation of their CCR5 gene, CCR5-delta32 were highly resistant to infection by HIV. These individuals who lack a functional CCR5 protein and would represent approximately 1% to 2% of the general population, are immunologically normal but resistant to HIV infection.

This is possible because our immune system is redundant. Many functions are shared by different proteins and cells in our body. We know that individuals lacking CCR5 show no evidence of T-cell dysfunction.

While this observation was made over a decade ago, very recently, a patient in Germany who presented with both an HIV infection and leukemia received a bone marrow transplant from a donor carrying the CCR5-delta32 mutation. After the successful bone marrow transplant, not only was the patient's leukemia cured but doctors could not find any evidence of the HIV virus several months after the procedure.

In contrast, our ZFN technology provides a simpler approach than the German transplant and circumvents the dosing and toxicity issues of systemic therapies. This process generates a population of cells that lack the CCR5 protein on their surface, are resistant to HIV, and can be infused back into the patient to provide a reservoir of HIV-resistant functional immune cells.

With this approach, as there is no altered CCR5 protein on the cell's surface, these modified cells will not be perceived as foreign by the patient's immune system and are expected to survive and more importantly to expand and potentially provide an immune response to the virus itself.

The clinical study now ongoing at Penn is an open label Phase 1 clinical trial of the safety and tolerability of a single infusion of a patient's own CD4 T-cells that have been modified by CCR5-specific ZFNs. This product is called SB-728-T. A total of 12 subjects with HIV will be enrolled in this trial in two treatment cohorts.

The first cohort comprises six patients who have failed two or more HAART or Highly Active Antiretroviral Therapy regimens. The second cohort comprises six subjects who are responsive to their current therapy regimen but are undergoing a structured therapy interruption or therapy break.

These two cohorts represent the two patient populations that, in addition to safety data, will give us the most information about the potential for the ZFN modified cells to survive and expand as well as their effective immunological potential. The HAART group, or first cohort, perhaps most closely mimics the situation modeled in our successful preclinical experiments. These subjects have reasonably healthy immune systems yet have active infections that are not well-controlled by the drugs they're taking. In these subjects, we'll be monitoring if the presence of active HIV infection selectively allows the ZFN modified cells to grow and multiply.

In the second cohort, subjects have healthier immune systems and their infection is well controlled by the drugs they're taking. We'll again be monitoring the fate of the ZFN modified cells both while they're on their drugs and when the drugs are withdrawn for an STI or break from their therapy. During an STI, clinicians would normally expect the HIV levels in the body to begin to increase.

In this group, we will measure both the number of ZFN modified and unmodified immune cells as well as closely monitor HIV viral load and total CD4 T-cell counts. However, our primary end points will be safety and the expansion and persistence of ZFN modified cells. As this is a safety study, the first three subjects in the first cohort will be treated sequentially and monitored for the first 21 days post-treatment before an additional subject is dosed. After this period of evaluation and monitoring has passed successfully, the next three subjects will be treated and following that, we'll treat the second cohort.

As we're just beginning to screen subjects for the first cohort, at this time, I cannot provide with you guidance regarding timing to accrue the trial or data from the study. However, I look forward to updating you on our progress on future calls.

Finally, individuals interested in participating in this trial should visit www.clinicaltrials.gov. There are more details in the press release that we issued yesterday.

I would also like to update you on our ongoing Phase 2 SB-509 clinical programs. We have made good progress in our development of SB-509 for diabetic neuropathy. In June and November of last year, we presented data from our Phase 1 SB-509-401 and Phase 2 SB-509-601 and 701 Part A clinical trials. All of these studies demonstrated that SB-509 is safe and well-tolerated in subjects with DN, even in a repeat dosing situation. We have now treated over 200 subjects most with multiple doses.

In addition, the SB-509-401 Phase 1 study in mild to moderate subjects demonstrated a statistically significant positive correlation of two or more response end points in the SB-509 treated group compared with the placebo treated groups at day 180 post a single treatment. Interim data from the SB-509-701 Phase 2 trial in severe subjects demonstrated continued improvement in nerve conduction velocity or NCV measurements in all nerves. In particular, we observed clinically relevant improvements in the NCV measurements in the sural nerves in SB-509 treated, compared to placebo treated subjects.

As you know, we've expanded this trial to test a more frequent dosing regimen which we have designated Part B. We also released top line data from SB-509-601 study in mild to moderate subjects which did not reveal any significant differences between treated and untreated subjects. Further analysis of data from all three of these trials has given us a much better definition of the target population of subjects with DN for which this drug may be most effective.

But looking at the differences in the subjects entering the Phase 1, 401 and Phase 2, 601 study, it is now apparent that subjects enrolled in the Phase 2 601 study did not have as severe diabetic neuropathy as those in the earlier study. In fact, we would retrospectively classify subjects in the 401 study as having moderate DN compared to the largely mild diabetic neuropathy classification seen in the 601 subjects. Looking carefully at the data, we observe that subjects entering the 601 study with more advanced disease with what would be classified as more moderate diabetic neuropathy demonstrated measurable improvements in neurologic exam, or NIS-LL.

Additionally from a pharmacologic perspective, analysis of the 601 trial data reveals a dose weight relationship with improvement in NCV. These data provide a clear definition of the SB-509 responsive populations for improvement in neurologic exam, or NIS-LL, and NCV.

I look forward to updating you further on our diabetic neuropathy clinical studies when we present a more detailed subgroup analysis from our SB-509-601 study as well as data from the other Phase 2 studies, SB-509-701, in severe DN, and our stem cell mobilization study, SB-509-703 at appropriate medical meetings later this year.

And with that update, I'll hand you back to Edward.

Thank you, Dale.

As you heard, later this year, we'll present data from our completed Phase 2 SB-509 studies. We also expect to conclude the accrual and treatment phases of our expanded Phase 2 trial SB-509-701 Part B in severe diabetic neuropathy and our Phase 2 study SB-509-801 in subjects with ALS.

In terms of advancing the ZFP therapeutic pipeline, we'll push forward aggressively on our newly opened HIV trial and expect to initiate a Phase 1 clinical trial of the ZFP therapeutic for glioblastoma at City of Hope later this year. We'll also continue to prosecute our preclinical programs and present data on spinal cord injury, neuropathic pain, Parkinson's disease and ZFN-mediated gene modification.

As most of you know, we have a very robust technology platform that can be broadly applied across several different business areas. Our business model is to establish strategic collaborations that enable us to monetize our technology in non-therapeutic areas enabling us to own and aggressively prosecute our own therapeutic programs. In 2009, you should expect to see new agreements employing our ZFN technology for cell line engineering structurally analogous to our successful Genentech and Pfizer collaborations as well as increasing visibility of our Dow AgroSciences collaboration as they move to sublicense exact precision trait technology in plant agriculture.

We also expect to see increased visibility for our ZFP technology as a result of our research reagents collaboration with Sigma-Aldrich. We anticipate the expansion of ZFP-based research products such as their composer products as well as increased activity in the transgenic animal field. We expect to receive additional milestone payments and royalties on product sales in 2009.

Finally, you can and should expect to see business development activities not only in the enabling technology areas I discussed but also in our core ZFP therapeutic programs. I look forward to providing with you more information on our progress on future calls.

Our diversified business model has also allowed us to operate our business in a unique manner that is particularly relevant in the current economic environment. From a financial perspective, we have put ourselves in the strong position to start 2009, beginning the year with $65 million in cash and cash equivalents. You can expect us to continue to carefully manage our expenses while working hard to build value through clinical development and additional strategic partnerships. However, assuming no partnerships or financing, and ongoing prosecution of all of our programs, we expect to end 2009 with approximately $45 million which will fund activities at these current levels through 2011.

Starting 2009 with three years of cash in the bank did not happen by accident and we plan to use this important resource to wisely invest in our clinical programs and technology platform and to continue to build substantial and sustainable shareholder value.

In conclusion, 2008 was an important and exciting year for Sangamo and we expect 2009 will build on that progress. We continue to stay focused on and make substantial progress towards our goal of establishing ZFP therapeutics as a new and highly differentiated class of human pharmaceuticals and we look forward to keeping you informed of our progress. Thank you for joining us on this journey.

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

(Operator Instructions) We'll go first to Charles Duncan with JMP Securities.

Hi, guys, thanks for taking my question. And very good job on managing the cash in a very good way.

Thanks.

I actually had a question on the cash. I know you just said that you had sufficient cash for awhile at the current level. Can you help us understand what that means? Does that mean in terms of R&D spend, the current trials or what are you really anticipating being able to do for the next couple years?

Well, I'll repeat what we said in the prepared comments and then if that's not clear enough, maybe Ward can expand upon it.

The $65 million that we start 2009 with is sufficient for us to run our operations at our current levels, executing on all of our current clinical plans including the initiation of the glioblastoma trial through 2011. Assuming the same head count and the same prosecution of research activities. And if that's not clear enough, Charles, I can -- Ward is here and we can give you more detail.

So, are you not planning on stopping any programs or anything and continuing -- I mean, it's pretty astonishing.

The financial guidance that we've given does not anticipate stopping any of our ongoing programs. Now, it does not include moving into Phase 3 clinical trials of SB-509. It does include completing all of our Phase 2 trials that are ongoing.

And just to be clear, you're not anticipating any additional cash in from new partnerships. During that time?

Again, thank you for the question and clarification. The cash guidance assumes that we do not do any future financings and we do not do any additional partnerships -- new partnerships. However, as we said in the prepared comments, our business model is to continue to do partnerships both in the non-therapeutic space as well as in the therapeutic space.

Okay. That's clear to me. Now, if I could ask a question on the HIV program. My immunology is a little rusty.

Can you help me understand how the genetically-modified T-cells can be immunologically active? How can they prove to be antigenic?

Let me rephrase the question to make sure we're on the same page and then ask Dale and Philip to comment. Your question is the modified T-cells, how can they still be active in terms of fighting opportunistic infections and the virus itself. Is that correct?

No. No. Why would they not result in immune response by the patient or maybe they would.

Why would the modified T-cells not be or would be antigenic based upon the modification of the CCR5.

Precisely.

Sure. Why don't I turn that over to Dale (inaudible).

Sure. So, this is Philip. I think the question is -- comes down to the role of the zinc finger nuclease which as you know cleaves within the CCR5 coding sequence to disrupt the expression of that gene. And I think the mistake that's made here is to think that that results in the presentation of a modified CCR5 protein.

We actually don't see a presentation of a CCR5 modified protein on the cell surface and so we don't think that this modification of CCR5 is going to result in its recognition as being a sort of foreign antigen on the surface of a cell.

So, note also that all of the process that creates this modified cell is done ex vivo so the cell that goes back -- the process that created that zinc finger nuclease if you like -- is a transient process that happens ex vivo and the cells are then expanded and put back into the patient and when they're put back, the CCR5 modified cells have no CCR5 on the cell surface.

Okay. Despite I think what makes sense to me --

If you want even more detail on this, that exact observation and the data around it were published in the June Nature Biotechnology Paper.

That's helpful. Can I ask one more follow-up.

If you wouldn't mind getting back in the queue. We have got a long list of people to ask questions.

Okay.

Thanks, Charles.

We'll go next to Joe Pantginis with Merriman Curhan Ford.

Hi, guys, thanks for taking the question. A couple of quick questions on the HIV program if you don't mind. First, I just wanted to get a sense of what your views on the stability of the cells, once you input them, inject them, I'm sorry, reinfuse them back into the patient. I know you had to do a lot of stability studies to give to the FDA prior to the initiation of the Phase 1 and do you anticipate say having to redose? And then the second question is, as you look at the dynamics of HIV infection, what is the potential that after deleting CCR5, you might have the potential to push towards a CXCR4 type of virus?

Good questions, Joe. Let me turn it over to Dale and ask him to comment.

These types of T-cells, CD3, CD28 activated T-cells that have been grown and expanded ex vivo have been used in previous trials for over ten years and we know from previous publications with Carl and from cell genesis that these cells can last essentially a year at the level of about 1% to 5% of the total T-cell population. Carl has some new data coming out that will show that these types of cells when gene marked can last over a decade.

That's our expectations from this type of ex vivo therapy is it is a durable, prolonged stability in the patient and it is most likely because some of the cells that we're affecting are what are called central memory cells that can exist for 50 to 60 years within a patient.

That's obviously what we're going to be looking at in this trial or one of the things we'll be looking at in this trial is the stability, expansion and longevity of the circulating -- modified cells in the circulation. So, why don't we move on to the other question, Dale, in terms of CXCR4.

Yes, so with respect to this early phase of disease, with patients with decent CD4 counts, the number of patients with CXCR4 variance is very, very low. When the disease falls into the AIDS or CD4 counts less than 200 or so, that's when the T-cell trophic variance using the CXCR4 receptor begin to come back. So, in this patient population, our expectation with the CD4 counts we're using -- above 300 that we will not see the natural emergence of these types of resistance.

Thanks a lot, guys.

Thanks, Joe.

We'll go next to Joseph Schwartz with Leerink Swann.

Thanks for taking my question. Your analysis of the 601 or SB-509-601 study suggests that the drug works best in the moderate patients. I was wondering what proportion of the 701A patients do you expect to fit this definition and is there any reason to believe that SB-509 could perform even better in more severely neuropathic diabetics?

Let me give a brief answer and then ask Dale to comment. What I think we said about 601, Joe, is as we got into the subgroup analysis, it was clear that a large percentage of the patients on the 601 trial were properly characterized as more of a mild diabetic neuropathy than a moderate. When we looked at the moderate population, that population performed in terms of improvement better than what we had seen with a mild group. And that's helped us define the activity in that group.

Separately, as we look at the 701 trial in severe patients, these are patients with at least one blocked nerve. So, really moving down the degeneration scale, we have seen and reported activity in those patients and have observed the patients with one to two blocked nerves, seem to respond well and better than patients with three or more blocked nerves. So, just to parse it a little bit -- I want to make sure we're clear on what we said. Dale, do you want to talk about the definition of the populations?

All of the patients in the 701 trial have basically pretty severe DN so they're all worse than the moderate (inaudible).

Oh, okay. That's very helpful. Thanks. As a follow-up, if I could ask on the ALS work that you're doing. Given that the disease impacting motor nerves as compared to the sural nerves in DN, what research do you have suggesting that it should be successful in that setting as well?

Yes, we have noted in the beginning since the diabetic neuropathy preclinical studies that we had improvements in motor nerve conduction velocity as well as sensory nerve conduction velocity. That's -- we've also seen improvements in muscle strength on neurological exam. That was the data to suggest that SB-509 is working not just on the sensory component of the peripheral nervous system but both the motor and peripheral nervous system in addition to improving muscle strength.

Is there any distinction to be made with the efficiency with which it impacts the two types of nerves or is it really equivalent?

Well, it is actually in DN, it is more prominent in the sensory compared to the motor. That's mainly because the sensory component nerves are smaller and are usually are the more distal nerves so it is easier to see a change there than in the myelinated motor peripheral nerves. So, just because of the size and the myelination -- the magnitude of effect in DN is greater in sensory. So, that doesn't help us predict whether in MS -- whether the effect will be greater than less than in DN. It is sort of apples and oranges.

Okay. Thank you.

Thanks, Joe.

We'll go next to Ted Tenthoff with Piper Jaffray.

Thanks for taking the question. Following up on maybe some of those last questions. When do you think we'll see the full subset analysis of 601 and when do you think we'll get the initial 701 data? And just to make sure I understand, it sounds like what you're saying is that the mild patients didn't work so well from 701, those with multiple nerves didn't work as well. So, maybe we're centering in on a moderate population, might be the ideal. Did I get that right?

Let me first speak to the guidance and then Dale can repeat what we said earlier. In terms of guidance, Ted, we will present the subgroup analysis and the 701A data later this year at an appropriate clinical meeting. Beyond that, we've not given any guidance. Dale, you want to talk a little bit more about patient definition?

Yes, so, the moderate severity diabetics have no blocked nerves. The severe diabetics with blocked nerves, basically, there's six nerves in the lower legs that can be blocked. So, it looks like that if you have more than half of those nerves blocked, that it is sort of the very, very severe, penultimate severity DN.

So, the types of blocked nerve patients that seem to do better are sort of in the lower group with three or less nerves affected. And that's at a six month time point.

So, right now, the range looks like moderate severity and then three or less in the severe group with blocked nerves.

And Ted, for everybody, there is additional information on our web site from the talk that I gave at the JPMorgan conference. I can't tell you exactly what slide numbers they are but there are three or four slides in there that speak directly to the information we're referring to here on the subgroup analysis.

Okay, great.

We'll go next to Liana Moussatos with Pacific Growth.

Thank you. Is it still possible to present data ADA from the 701A, 703, 601 subset analysis or is it too late for that one?

Well, again, Liana, we'll definitely let you know before the data are presented. But at this point, it falls under the category of fool me once, shame on you, fool me twice, shame on me.

What I'm really asking is, is it past the abstract deadline submission date for ADA?

We are past that date.

Okay. But you're not saying whether or not you've submitted anything?

We're not.

Okay.

Next question.

We'll go next to Pamela Bassett with Cantor Fitzgerald.

Hi, thanks for taking my call, can you hear me okay?

Hi, Pamela.

Hi. Sorry. I'm having a little trouble. Two questions. One on 509 for ALS. I wonder, can you walk us through how -- just the mechanism for 509 working in ALS and second question, are you still expecting an alliance around 509 during this year and are you currently -- have you started working on the CMC development for 509?

So, Dale, you want to take the ALS question on mechanism and I'll come back and discuss the business development.

Yes. So, we're using the regional expression of the VEGF zinc finger in the muscles involved in ALS and in that situation, all of these muscles will express VEGF protein. We note that from animal studies, there is the potential for that VEGF protein to move back along the nerves into the spinal cord and get into the nerve cell bodies in that level of the spinal cord. So, we're injecting muscles at all of the spinal cord levels that are severely affected in ALS.

The second effect is just the regional effect of preservation of neuromuscular junctions associated with regional expression of VEGF within the muscles. You may not know but there are thousands of contacts of -- if not millions of contacts of the neuromuscular junctions in muscles and it is very, very highly enervated. This is the target of destruction or the area of destruction in the ALS patient which then leads to downstream loss of muscle strength. So, those are the two sort of regional and sort of retrograde neural transport mechanisms that support our treatment. In addition, we have animal studies and the human data from DN showing improvements in motor nerve conduction velocity which we think is a result of these two mechanisms.

Thanks so much, Dale.

I'll just add to that, I think the investigators that are working on this are very enthusiastic about the mechanism, about the data that they've seen here and are moving forward with the program. In terms of business development, Pamela, again, just to reiterate our guidance, we now have the complete data set and the sub-analysis from 601 and 401 and 701A and that's the basis for our ongoing discussions with major pharmaceutical and biotechnology companies. And our business development group and clinical team are actively in discussions in due diligence around that program. And our plan is to seek a partner for that program this year.

Are you working on CMC development or is that something that you'll be doing with a partner?

I'm not quite sure what you mean. We have an extremely robust current manufacturing process. It is scalable. And highly qualified. So, in terms of incremental or significant incremental process development, product development, we're in pretty good shape there.

Okay, great. Thanks very much.

Thanks very much.

(Operator Instructions) We'll take a follow-up from Ted Tenthoff with Piper Jaffray.

Thank you. Just following up, too, on the ALS side. How is enrollment going there? And when -- remind me were there two cohorts to that one? And when do you think we might see data and what are the primaries on that study?

In terms of -- I'll speak to the first point, Ted. In terms of guidance on where we are in accrual and that sort of thing, we don't have an update for you at this time. We'll probably -- likely do that around appropriate clinical or scientific meetings.

How many patients are you enrolling or targeting?

You want to talk about the protocol?

Yes, 40 patients. Five patients are being treated precisely the way we've treated in diabetic neuropathy. Just in the lower legs.

And the other 35 patients are being treated in the sort of the spinal levels by injection into the muscles, the most severely affected spinal segments in the ALS disease. So, those are the two groups.

And then we're using, as a control, a very large database provided to us from the ALS Society.

Got it. How many sites is that study?

Right now, four.

Okay. Great. Thank you.

We'll take a follow-up from Charles Duncan with JMP securities.

Hi guys, thanks for taking my follow-up. I had a question on the HIV program again. Can you help me understand perhaps the biological difference in your view, Dale, between removing the CCR5 functionality versus having a congenital dysfunction or absence of it from the get-go?

There really shouldn't be that much difference. I think the German patient who underwent the transplantation, that's a situation where you had a matched unrelated donor transplant with the CCR5-delta32. And that -- that was basically transferred into the patient. You know in those situations, you don't really know whether it is the stem cell or the residual T-cell in the (inaudible) transplant that reconstituted that particular patient. But that patient did very well and I think really exemplifies the potential for using autologous modified cells.

Okay. And then hopping over to the diabetic neuropathy program, you had mentioned a possible dose weight relationship seen in 601. Can you help me understand if you've been able to translate that into some dosing phenomena or strategy in 701 or is that something you would use in, say, the 801 trial?

It is generally applicable to the whole program. Part of Phase 2 is to understand the dose relationship in the patient. Whether it is one single dose is good for everybody. Whether you have to dose according to the drug weight for kilograms or drug weight for meters squared of the patient. What is the pharmacologic -- the best optimal way to dose and in a Phase 2 study like the 601 where we have a very wide range of sizes of patients but one dose, it enabled us to understand that there was one way of dosing that was most likely the optimal. And in later studies, we'll pursue that.

I don't want to go into details about that because it will be part of an abstract. But this kind of database then allows you to make -- to basically look at something like NCV and look at patients divided by weight, milligrams per kilogram or milligrams per meter squared and look at the efficacy and understand what's the best pharmacologic recipe for dosing that patient.

Did you incorporate that -- those learnings in your 801 design?

No.

No, 801 started well before we had the subgroup analysis. I want to reiterate maybe at a little higher level what Dale just said because I think it is very important.

Obviously, in November when we announced the top line data from 601, there was a lot of disappointment around that. We thought it was prudent and appropriate to get those data out quickly. With the subgroup analysis, it really does address what Dale said are the objectives of Phase 2. To do good, clinical research to help define the most appropriate patient population, most appropriate end points, the time frames, follow-up, the dosing strategies and in that regard, this trial has been -- and the collective trials have been -- very, very useful and really accomplishing what we would have hoped to accomplish in a broad Phase 2 type program.

Thanks for the added color, Edward and Dale.

We'll go next to Alastair Mackey with GARP Research.

Sorry if this has been asked already but a question on HIV -- are any of the cells that have been harvested and expanded and then treated, are they being aliquited with some aliquats frozen or is the entire dose being given as a one-time thing to the patient?

Basically, the dosing side is the 10 billion. If we can make in excess of that, we will save that. Because, potentially, we could reinfuse the patients later. This type of manufacturing has been able to generate from approximately 1 billion cells, 100 billion cells so it really depends on the particular manufacturing run. So, so usually we don't just throw away any excess. We usually cryopreserve that and we know that they're good for years.

Are these cells being gene marked in addition to the CCR5 manipulation?

No, they're not. We're taking advantage of a natural highly frequently occurring change where the gene is cut so we're not putting anything -- there's nothing extra in there from the gene therapy. So, it is a hit-and-run gene therapy, basically.

So, the ZFNs target a specific site on CCR5 and we can use a molecular approach to identify cells that carry that mark and so the process itself, if you like, marks the cell without adding any novel information to the cell.

Okay. Very good. And then one question on the diabetic neuropathy program. Are you in a position to say whether for the 601 study, the three doses was neutral or was not neutral compared to a smaller number of doses? In terms of the subgroup analysis, what you've learned so far?

Probably not and that's mainly because the single treatment group is too small. So, that distinction of whether something is markedly better or not is very difficult to make. So, in the 701, we have two groups, one with two treatments and one with three treatments and from there, I think we can make a statistically balanced decision on whether two versus three is better.

Suppose that I just make the assertion that 601 failed because it was -- the number of doses was increased to three. Do you think that's a reasonable statement or would you disagree with that?

I think again, that's a hypothetical at this point and we will present subgroup analysis. I think the larger issues that we believe were most relevant in this is the severity of the population that was accrued and then the highly heterogeneous group from a weight and size differential. I think from a subgroup analysis, those are the two most significant elements in the 601 trial that I think are informing definition of the patient population and the schedule going forward.

Okay, thanks.

Sure, thanks, Alastair.

There are no further questions at this time. I would like to turn the conference back to our speakers for any additional or closing remarks.

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

Thank you, everyone. That does conclude today's conference. You may now disconnect.