Sangamo Therapeutics Inc (SGMO) 2009 Q3 法說會逐字稿

Good afternoon, everyone, and welcome to the Sangamo BioScience telephone conference to discuss third quarter 2009 results. This call is being recorded. I will now pass you over to the coordinator of this event, Dr. Elizabeth Wolff, Director of Corporate Communications.

Thank you, Lisa. Good afternoon, and thank you for joining Sangamo's management team on our conference call to discuss the Company's third quarter 2009 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, M.D., Chief Medical Officer and Vice President of Therapeutic Development.

Following this introduction, Edward will highlight the Company's recent activities, Ward will briefly review third quarter financial results; finally, Dale and Edward will update you on our therapeutic programs and goals for 2009. Following that, we will open up the call 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 perception of the market and the future performance of Sangamo with you today, we are not undertaking an obligation to provide updates in the future.

Actual results may differ substantially from what we discuss today, and no one should assume 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 risk 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. Thank you all for joining us for 2009 third quarter conference call. The past several months have been very important and productive for Sangamo with major advances on the clinical, business and financial fronts. Let me briefly review some of our accomplishments with you.

On the ZFP Therapeutic front, on October 20, we presented new, positive, top line data from our Phase II clinical trial of SB-509 in diabetic neuropathy at the Society of the Neuroscience meeting. I have asked Dale to review the data from this presentation and provide you with a detailed explanation of their significance later in the call. However, the take-home message can be simply and clearly stated. These data provide mechanistic proof-of-concept, strengthening our belief that we have an active drug that has a neuroregenerative mechanism of action.

Furthermore, these data allow us to find a drug responsive patient population based upon their baseline DN disease severity that we believe will optimize the identification of SB-509 responsive subjects. This information is very encouraging and will greatly aid in the design of future clinical trials of our lead ZFP Therapeutic.

In September, we announced that the FDA had reviewed and accepted our IND application to initiate a Phase I clinical trial of our ZFN-based therapeutic SB-728-T, to treat HIV/AIDS. In contrast to the first trial that was initiated earlier this year with the University of Pennsylvania, this is a Sangamo-sponsored IND which provides for a repeat dosing study in a much more common population of HIV-infected subjects. Importantly, this trial enables us to more rapidly advance the clinical development in this drug on a path towards commercialization.

We also recently received a major vote of confidence for the application of our ZFP technology as a platform for developing novel human therapeutics in the awarding of two significant research grants. Most recently our collaborators at City of Hope and the University of Southern California were recipients of a California Institute of Regenerative Medicine, or a CIRM grant, of $14.5 million to fund research into the development of a stem cell application of our CCR5 DFNs for HIV/AIDS.

For those of you who have followed our SB-728-T program in T cells, this program in hematopoietic stem cells moves us another step closer to emulating the results of the now famous Berlin patient.

The second grant from the Doris Duke Charitable Foundation of approximately $0.5 million was awarded to Don Kohn, Director of the UCLA Human Gene Medicine Program and a member of the Broad Stem Cell Research Center. This grant will support the application of our ZFN gene editing technology also in hematopoietic stem cells, this time for the treatment of sickle cell disease.

For both of these programs, Sangamo will supply the ZFN, and in the case of the CIRM grant, we will also provide project management support. While these grants have been awarded directly to our collaborators and Sangamo will receive reimbursement for our share of the work, this $15 million new funding enables the preclinical development of two ZFP Therapeutic programs. Very positive news on both the scientific and financial fronts.

In another development that speaks to the potential use of our ZFPs in therapeutic applications, we published a high profile paper in the scientific journal, Nature Biotechnology, demonstrating the use of our zinc-finger nuclease technology to modify human embryonic stem cells and induced pluripotent stem cells. The work was carried out in the laboratory of Dr. Rudolf Jaenisch at the Whitehead Institute, and has received a significant amount of interest, as the technique described in the publication represents a major breakthrough in stem cell engineering and second-generation stem cell therapeutics.

In the non-therapeutic applications of our technology, we recently announced a major expansion of our existing license agreement with Sigma Aldridge, providing them with exclusive rights to develop and distribute ZFP modified cell lines for commercial production of protein pharmaceuticals, and certain ZFP-engineered transgenic animals for commercial applications.

Our Sigma relationship continues to be an outstanding mutual success story. Sigma is focused on unlocking the value of our technology and is committed to rapidly making it commercially available, driving revenues for both companies and visibility for our science.

Under the terms of the new agreement, Sigma made upfront payments of $20 million, including $15 license fee and $5 million for our common stock at $7.86 per share. This is a major investment and one that they are working quickly to monetize. As Sigma's CEO pointed out on their recent third quarter earnings call, our ZFP technology platform, "will be a core component of Sigma Aldridge's growth strategy into high value biologic tools." We are very confident that Sigma has the enthusiasm, expertise and resources to develop this business fully.

We have some indication of their passion for the technology in transgenic animals as Sigma has moved rapidly to identify and generate a selection of rat transgenic models for a variety of conditions, and are doing a great job of marketing these models, as well as offering a custom rat knockout service. So, as Sigma likes to say, stay tuned.

Finally, on the financial front, in early October we completed an underwritten public offering of 3 million shares of common stock priced at $7.20 per share. That brought a net proceeds of $20.9 million. With this financing and the proceeds from the expanded Sigma agreement, we had significantly strengthened our balance sheet, which in turns strengthens our position in third-party discussions and gives us the ability to continue to aggressively invest in our growing pipeline of ZFP Therapeutic programs. And speaking of our financials, let me now hand the call over to Ward to review our third quarter 2009 results. Ward?

Thank you, Edward, and good afternoon, everyone. As you know, after the close of the market today we released our financial results for the third quarter ended September 30, 2009, and I am pleased to review the highlights of those results.

Revenues in the third quarter of 2009 were approximately $4.1 million compared to $3.7 million for the same period in 2008. Total operating expenses for the third quarter 2009 were $8.9 million, compared to $10.1 million for the same period in 2008. Included in operating expenses were noncash employee stock-based compensation costs of $1.7 million in the 2009 quarter, compared to $1.3 million in the 2008 quarter.

Research and development expenses were $6.2 million in the 2009 quarter, and $7.6 million in the prior year quarter.

General and administrative expenses were $2.7 million for the third quarter of 2009, compared to $2.6 million for the same period in 2008. For the third quarter of 2009, we reported a consolidated net loss of $4.9 million, or $0.12 per share, compared to a net loss of $6.3 million, or $0.15 per share for the third quarter of 2008.

With respect to the balance sheet, we ended the third quarter of $47.9 million in cash, cash equivalents, marketable securities and interest receivables. Our net cash used in operating activities was $4.6 million for the third quarter, and $17.8 million for the first nine months of the year.

I am pleased to say that we are on track with respect to our operating plan for 2009 through the third quarter. In addition, due to our recent financing and expansion of our license agreement with Sigma Aldridge, as noted by Edward in his introductory comments, we are pleased to update the cash guidance to at least $85 million in cash and investment balances at the end of 2009, up from the earlier guidance of $45 million.

With respect to the accounting treatment for the $15 million license fee from Sigma Aldridge, we expect to recognize that revenue ratably over the three-quarter period from October 2009 through June 2010. Thank you, and I will now turn the call back over to Edward.

Thanks, Ward. As you have just heard, we now expect to end 2009 with at least $85 million in cash, which puts us in a very strong position going forward as we continue to pursue ZFP Therapeutic partnering discussions while strengthening our ability to continue to advance our pipeline of ZFP Therapeutic programs.

Now, on that note, let me turn you over to Dale to update you on our ZFP Therapeutic clinical programs and progress, particularly the data that we recently presented at the Society for Neuroscience Meeting. Dale?

Thanks, Edward. As Edward mentioned, this quarter's major news from our clinical programs was a presentation of statistically significant, prospectively defined top line data from our Phase II clinical trial of SB-509 in subjects with diabetic neuropathy at the Society for Neuroscience Meeting. Specifically, we presented data from our SB-509-601 trial demonstrating improved nerve fiber growth and regeneration in treated subjects versus placebo. These data provide direct histologic proof of concept in man for the neuroregenerative mechanism of action of SB-509. Further, these data have also defined a drug responsive population based on the neuroregenerative and angiogenic actions of SB-509 for the design of future trials.

First, to remind you, SB-509-601 was a double-blind, placebo-controlled, repeat dosing Phase II trial of 110 subjects with mild to moderate DN. Two-thirds of the subjects were treated with drug and one-third with placebo. All subjects received three treatments at 0, 60 and 120 days, with 180 days post-treatment being the primary data analysis point. Data were collected at multiple time points and across multiple quantitative endpoints.

One of the prospectively defined endpoints was IENFD, or intraepidermal nerve fiber density. Some of you may recall that this is a portion of the study that was funded by the Juvenile Diabetes Research Foundation, or JDRF, and was carried out in collaboration with a group at Johns Hopkins University Medical School led by Dr. Michael Polydefkis.

IENFD is an established direct measure of the small caliber sensory nerve fibers that are present in the skin and are responsible for terminal nerve skin sensation. These are primary skin sensory nerves involved and lost in diabetic neuropathy. Our collaborators at Hopkins have demonstrated that the loss of these very fine nerves in the skin is a sensitive indicator of the primary sensory nerve damage caused by elevated glucose and progression of DN.

The biopsies provide a direct histologic measure of nerves damaged by DN, and allow us to quantitatively evaluate increases in skin nerve density that will be consistent with the neuroregenerative properties of SB-509.

IENFD was obtained using small punch biopsies of the skin of the thigh. We measured IENFD at baseline, day zero, again, 30 days after the final drug treatment, or day 150. We also investigated the effects of SB-509 under regrowth of these nerves. In SB-509-treated subjects, we observed a statistically significant increase in the mean percent change in nerve fiber density from baseline compared to a decrease for placebo treated. A rank sum analysis of this data was also statistically significant. These data confirmed that the drug is active and demonstrates a direct proof of concept of a neuroregenerative mechanism of action in man.

Data that were presented at this year's American Diabetes Association Meeting demonstrated that subjects entering the SB-509-601 trial with moderate severity DN versus mild disease severity had clinically relevant magnitude of improvement in the neurologic exam, or NIS-LL, in the SB-509 treated group, compared with placebo-treated subjects. This was determined by a number of baseline measures such as nerve conduction velocity, or NCV, and NIS-LL.

In addition, this effect is consistent with results of our Phase I clinical trial which also evaluated a moderate severity population. We stratified the subjects by the severity of their disease as measured by baseline IENFD. Subjects with more severe DN showed a statistically significant response in IENFD to SP-509 compared to placebo with an improvement of 4 fibers per millimeter, or greater than four years of reversal of DN damage to the nerve fibers in the skin.

We also presented data at the Society for Neuroscience Meeting that demonstrated that when other clinical responses to SB-509 were analyzed in subjects with more severe disease by IENFD, parallel improvements in NIS-LL and sural NCV were observed to be of clinically relevant magnitude and durable. Collectively, these data clearly define for future SB-509 trials a moderate disease severity drug responsive population for endpoints used in previous DN Phase III trials.

Interestingly, particularly in light of the potential for use of SB-509 in ALS, in this same group where the muscle component of the NIS-LL was specifically analyzed, treatment-dependent muscle strength improvements were evident in the SB-509 treated group compared with placebo-treated subjects.

With the severity of vascular disease in the 601 studies, subjects were taken into account using baseline levels of plasma ICAM-1, a marker of vascular damage. SB-509 treated subjects with more severe vascular disease, higher ICAM-1 levels, showed a statistically significant improvement in mean sural NCV changed from baseline compared to placebo, providing strong support for the angiogenic mechanism of SB-509.

As you heard me say before, the function of a Phase II clinical trial is to establish the parameters that will inform the design of later approvable trial. As one designs these pivotal studies, one not only needs to establish a dose and dosing regimen, but in a progressive disease like DN, one also needs to establish the appropriate severity of disease to an optimal target responder population.

We then need to accrue, test and evaluate subjects over a period where the greatest difference in approvable endpoints can be observed. At first glance it may be somewhat counterintuitive that SB-509 appears to have more of an effect on subjects with more severe disease. In fact, back in 2005, our advisors initially recommended that we focus on the mild severity DN population, as they expected SB-509 to have only a nerve protection effect.

As you have heard, we have demonstrated that SB-509 has a restorative and regenerative effect. Diabetes and hyperglycemia result in major changes to the microvascular compartment, and later on affects large vessels resulting in strokes, peripheral vascular disease, and myocardial ischemia. Initially, DN is the result of toxic metabolic effects of poor glucose control directly on the nerves. As the diabetes duration increases, there is significant damage to the microvasculature, or small blood vessels that carry oxygen and nutrition to the nerves. In a mild DN situation, there is minimal microvascular degeneration compared with moderate or severe disease.

From a mechanistic perspective, this dual nerve and blood vessel damage is counteracted by the dual function of SB-509, which increases the expression of VEGF-A, a potent nerve and blood vessel growth factor.

These data collectively provide a compelling rationale for SB-509's greater effectiveness in the moderate to severe DN setting. In the 601 study based on baseline DN severity, a clear clinically relevant hypothesis was generated to evaluate subjects by asking the question, what is the difference in response to SB-509 between mild and moderate severity DN subjects?

Based on the baseline quantitative measures that we use, NIS-LL, NCV and IENFD. Using this hypothesis, we have seen an unambiguous response to SB-509 treatment.

Finally, when multiple baseline measures of disease severity were considered, IENFD, ICAM-1, NCV and NIS-LL, a drug responder population was identified that demonstrated a statistically significant, clinically relevant change in NIS-LL and sural NCV compared to placebo.

So, to summarize, SB-509 continues to be safe and well tolerated, and we have established a neuroregenerative mechanism of action along with a well defined drug responsive population. This is exactly what we set out to do in our Phase II program.

To update you on our progress in some of our other SB-509 clinical programs, we have completed the accrual and treatment phase of expanded 701 Part B study in severe DN, and we expect to present data from this study in the first half of 2010.

We have also completed accrual from our Phase II study to evaluate SB-509 for the treatment of ALS. However, given that this is an open label study, we are pleased to have the opportunity to report preliminary data from some of the subjects in December in a work-in-progress session at the 20th International Symposium on ALS, which is being held in Berlin, Germany.

Finally, as Edward mentioned, in addition to the clinical trial of our ZFN-based therapeutic, SB-728-T for HIV/AIDS, which is ongoing at the University of Pennsylvania, we recently announced the initiation of an additional trial of this drug. In contrast to the trial at UPenn, which is an academic study run by our UPenn collaborative, this trial is Sangamo-sponsored and managed, and is a repeat dosing trial in a patient population that is representative of approximately 30% of the HIV-infected individuals in the US. With that update, I will turn the call back to Edward.

Thanks, Dale. As you have heard, over the past few months we have made progress on all fronts. We have significantly strengthened our balance sheet by our recent financing and by bringing nondilutive funding into the Company through an expansion of our agreement with Sigma Aldridge. This puts us on track in 2009 with approximately $85 million in the bank, as opposed to $45 million that we guided to on our last quarterly call.

The expansion of our agreement with Sigma enables the acceleration of the uptake and adoption of the ZFP technology by industry and the academic community. Sigma is an aggressive and effective distributor of our ZFP technology, and is heavily invested in its success. We believe that this will have short- and long-term benefits for Sangamo and our shareholders as appreciation of the breadth, power and value of our technology platform grows.

Analysis of the data from our Phase II 601 trial has confirmed that SB-509 is an active drug with neuroregenerative mechanism of action and has given us valuable information that has allowed us to define the DN patient population that is most responsive to SB-509. These data, plus the additional capital that the financing and the Sigma agreement brought in, strengthens our position in our ongoing discussions with pharmaceutical and biotechnology companies regarding the partnering of SB-509, as well as our ability to make decisions regarding the development of our ZFP Therapeutic programs that will allow us to build substantial and sustainable shareholder value.

So, in conclusion, we continue to make significant progress in our clinical programs, as well as our nontherapeutic partnered programs. We also continue to be successful in accessing the kind of significant additional capital necessary to aggressively advance our ZFP Therapeutic pipeline. All of this activity is individually and collectively consistent with our long-term goal to grow the value of our Company by establishing ZFP Therapeutics as a novel drug development platform.

Thank you for your attention this afternoon. We will provide additional updates at the Merriman Curhan and Ford Sixth Annual Investor Summit on November 10, and at our year-end and fourth quarter call in early 2010.

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

(Operator Instructions) First up is Charles Duncan, JMP Securities.

Hi, guys. Thanks for taking the question. My first question is regarding the Sigma, or the traction Sigma is getting. Edward, I was at the Society for Neuroscience and there was a surprise out of that in that I spoke with some of the folks at Sigma that are selling the products. Can you tell me if you've gotten any sense for how high the demand has been for animals versus the broader service? I've heard it's pretty good, but what's the feedback you've gotten from Sigma?

The feedback I've gotten, Charles, is from the same Society for Neuroscience. As you know, they had a large booth there, plus they sponsored a corporate symposium, which was, again, as you know, but others may not know, it was absolutely wall-to-wall, standing room only. And both the reaction that I got from the attendees of the meeting at the symposium, as well as from the Sigma people that were there is that there is a very high level of interest in the program. And I think they have already announced that, what is it, Philip, that Michael J. Fox has already ordered 15 -- 15 or 20, I can't remember, but I'll say 15 targets in transgenic rat models for Sigma. And that's just one of the disease areas. I know they are planning to do these same kinds of symposiums at cardiovascular meetings, the toxicology meetings, other disease -- cancer meetings. So, this is an area, as I said in the prepared remarks, that as an example of Sigma's passion and enthusiasm for the technology and their commitment to monetize it.

Okay. And then my follow-up question is on 509 development strategy, Edward. Now the Company is pretty well capitalized and you've identified what looks to be a real responder group. Could you perhaps contrast the thought process regarding partnering versus perhaps a more capital efficient clinical development plan, and what your thought is there. And perhaps if you are going to move forward with 509 in diabetic neuropathy, your sense of the size of the trial order of magnitude, not actual numbers?

Well, Charles, let me try and repeat what we've said in other settings and again on this call, that we are in active discussions with pharmaceutical and biotechnology companies about the next phase of development of SB-509, and so more succinctly put, partnering discussions. Those conversations are augmented based upon the data that you have all now seen, presented at Society for Neuroscience. So, mechanistic proof of concept from a neuroregenerative perspective, as well as definition of a clear responder group, and Dale, I think, did a nice job today in talking about those data.

But it has also been augmented by our increased cash position from the Sigma financing as well as -- or the Sigma expanded relationship as well as the financing we did. As Ward mentioned, we're on track to end this year with at least $85 million in cash. And so we continue to move down the road in those discussions, and if we can move forward with a partner in a way that we think is in the best interest of shareholders, we will definitely do that.

But we're also prepared based upon augmenting our balance sheet to do the things that we think are in the best interest of shareholders, and if that means pushing forward on our own with SB-509, we're certainly financially prepared to do that.

Okay. And then final question on [DAS]. Any thought on increasing visibility on product development and/or business development out of the ag use of the technology platform?

The answer to that is the same as always, ask DAS. But not to be quite so glib, Liz, they have a technology symposium coming up in a couple of weeks, a week? November 12. And it might be a good opportunity to get a first-hand sense of what they're doing. But at this point I cannot give guidance for Dow on that.

Okay, thanks. I'll hop back in the queue.

(Operator Instructions) Next up is Alastair Mackay of GARP Research and Securities.

Hi. Dale, I had a question for you about statistical significance when you're talking about the diabetic neuropathy trial. It would seem like one can only really speak with great confidence about the statistical significance when discussing predefined endpoints that preceded the trial. What would your thoughts be on that?

Well, yes, that certainly is better to have a prospectively defined endpoints. Now, the top line endpoint for the neurofiber density was prospectively defined, so that is probably the strongest, from a statistical point of view from that neurofiber density data. The subanalysis looking at the more severe IENFD groups. The real reason why we're very impressed by that is the P value was something like .001, even though it was a subhoc analysis. So, it is quite a high relationship in that subanalyses.

Again, Alastair, just to repeat, the IENFD data presented at the Society for Neuroscience were exactly what you just said. Those were top line, respectively defined endpoints in the trial, including all subjects. And those data are statistically significant. And to go further, the additional analysis that we did was based upon that biological finding looking at the disparity and then looking at those groups that were most responsive. And those were the data that were presented at the Society for Neuroscience.

So, it does sound like you have identified an interesting population to go forward with as you discussed. A different question on SB, the HIV reagent, can you talk a little bit about a distinction, if you see one, between a truncated CCR5 and a CCR5 that would give -- that would generate novel mutations and present perhaps a novel challenge to the immune system?

We don't have any actual data now, but the truncations and changes are just -- probably just a few amino acids and a deletion in a patient who has a preexisting tolerance to CCR5. So, that's not an optimal immunogenic situation for new peptide pieces on the end of a particular protein.

Phil, if you want to add anything?

Well, just to ask that we look for the generation of unusual CCR5 variants in the publication that was published in 2007 in the Nature Biotechnology, those (inaudible) information where we looked very hard to find such truncation products and they don't -- we were unable to find them.

Great. Thanks very much.

Thanks, Alistair.

(Operator Instructions) Next we'll go to Bill Nasgovitz, Heartland Funds.

Hello.

Hi, Bill.

This is all such great news with this royalty payment and upfront money, or hurdle money. Congratulations. And, also, the scientific findings, it seems that you've -- we're really on to something here, but the market could care less. Why do you think that is?

Well, Bill, as you and I have discussed many times, I'm sure I can't opine on the markets with any sophistication compared to people on this call. What I can speak to is the performance of the Company. And I think the performance of the Company is outstanding. We have had a very, very productive several months here, again, from a clinical perspective, from a research and data perspective, from a business development perspective, and from a financial perspective.

And so I know it's frustrating to shareholders to see the stock go up and the stock go down, but, again, what I tried to reiterate on the script and you and I have discussed in the past, what we're doing and what I feel our job is, is to build substantial and sustainable shareholder value. And that's not going to happen in a day or over a quarter, or even over a single year, and the stock may well fluctuate during that period of time. But my belief is that we have the science, the intellectual property, the management team, and the products to drive real substantial value over a period of time. And that's what I think we've positioned ourselves to do by augmenting our balance sheet over the last couple of weeks.

Well, that's great. Perhaps is there something that we've learned that we've -- in the trial, the designing of these trials or the execution of the trials that we can improve on?

Absolutely. I think the short answer there, Bill, is that we can improve on the selection criteria, the disease severity of patients that we accrue on future SB-509 diabetic neuropathy trials.

Okay, thank you.

Thanks, Bill.

And, everyone, that does conclude today's question-and-answer session. At this time I would like to turn the call back over to the President and CEO, Edward Lanphier, for any additional or closing comments.

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 2009 year-end financial information. We will be available later today if there are any follow-up questions. Thank you.

Ladies and gentlemen, that does conclude today's conference. Thank you all for your participation.