Sangamo Therapeutics Inc (SGMO) 2011 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Sangamo Biosciences Quarterly Teleconference.

(Operator Instructions)

As a reminder today's call is being recorded. Now I will turn the conference over to your host, Dr. Elizabeth Wolffe.

Thank you, Matthew. Good afternoon, and thank you for joining Sangamo's Management Team on our conference call to discuss the Company's third quarter 2011 financial results. Joining me on the call are the Edward Lanphier, President and Chief Executive Officer, Ward Wolff, Executive Vice President and Chief Financial Officer, and Geoff Nichol, Executive Vice President, Research and Development. Following this introduction, Edward will highlight recent activities, Ward will briefly review third quarter financial results for 2011, and finally, Edward and Jeff will summarize the status of our ongoing ZFP therapeutic programs, and our goals for the remainder of 2011. Following that, we will open up the call for questions.

As we begin, I would like to remind people that the projections are forward-looking statements that we discuss during this conference call are based upon the information 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 obligation to provide updates in the future. Actual results may differ substantially from what we discussed 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 the Company files with the Securities and Exchange Commission, specifically our quarterly report on Form 10-Q and annual report on Form 10-K. These documents include important factors that could cause the actual results of the Company's operations to differ materially from those contained in our projections or forward-looking statements. Now I'd like to turn the call over to Edward.

Thank you Liz, and thank you all for joining us for our conference call to discuss our third quarter results for 2011. As we have had a busy few months let me begin by briefly recapping recent events. In early October, we announced our double-blind placebo-controlled Phase 2B clinical trial, SB-509901, did not meet study endpoints in subjects with moderate severity diabetic neuropathy.

We are obviously disappointed the trial did not produce a better outcome in the pre-specified primary and secondary endpoints. Therefore, as we discussed earlier this month, and based upon these results, we have discontinued further clinical development of SB-509 and will focus our attention our resources on a rich pipeline of ZFP therapeutic programs, particularly in HIV AIDS and in monogenic diseases.

In that regard, exciting new data from our Phase 1 studies of SB-728-T, a novel therapeutic approach to HIV AIDS, will be presented in 2 presentations at the 51st Interscience Conference on Antimicrobial Agents in Chemotherapy, or ICAAC in mid-September. These data have important implications for the future development of our HIV program, and later in this call, Jeff will provide a brief summary of our findings and outline our plans for 2 new studies of SB-728-T.

We also continue to validate the capability and breadth of applications of our ZFP technology with publications of pre-clinical data in high impact journals. In mid-October, we published a pre-clinical study in nature demonstrating highly specific ZFN mediated functional correction of the Alpha 1 antitrypsin gene defect in patient-derived induced pluripotent stem cells, or IPSCs.

The study is important for several reasons. It is the first demonstration of the potential of combining human IPSCs with the ZFN- driven gene correction to generate treatments for monogenic diseases. In addition, analysis of the entire coding sequence of the ZFN-corrected IPSC line, revealed that the only modification attributable to the ZFN activity was the targeted and corrected Alpha 1 antitrypsin gene.

This work further demonstrates the singular specificity that can be achieved using Sangamo ZFP technology. The ability to function at the DNA level with such exquisite specificity makes our technology ideally suited for the development of novel therapeutics targeted diseases in which a single gene has been demonstrated to have a central role.

Before I ask Geoff to give you more details about our future clinical plans for advancement of our CCR5 HIV program, let me ask Ward to summarize our financial results for the third quarter. 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, 2011 and I am pleased to review the highlights of those results. Revenues for the third quarter of 2011 were $1.9 million compared to $2.9 million for the 2010 quarter. The third quarter 2011 revenues were primarily comprised of revenue from Sangamo's collaboration agreements with Dow AgroSciences and Sigma Aldrich, enabling technology agreements and research grants.

The decrease in revenues between years was primarily due to the completion in July 2010 of the amortization period, over which the $15 million expanded commercial license fee received from Sigma in October 2009 was recognized as revenue under generally accepted accounting principles, or GAAP. Total operating expenses for the third quarter 2011 were $11.4 million compared to $11.7 million for the same period in 2010.

Research and Development expenses were $7.8 million for the 2011 quarter, and $8.8 million for the prior year quarter. General and Administrative expenses were $3.6 million for the third quarter 2011, compared to $2.9 million for the 2010 quarter.

Stock-based compensation expense was $2.1 million for the quarter with $1.0 million in Research and Development and $1.1 million in General and Administrative. For the third quarter 2011, we reported a consolidated net loss of $9.6 million or $0.18 per share, compared to a net loss of $8.7 million or $0.19 per share for the third quarter 2010.

With respect to the sequential quarters in 2011, our third quarter operating results closely tracked the results for the first 2 quarters with slightly lower operating expenses of $11.5 million in Q3, compared to $11.8 million for both Q1 and Q2. Turning to the balance sheet, we ended the third quarter of 2011 with $85 million in cash, cash equivalents and marketable securities, and we remain on track to end 2011 with at least $85 million in cash.

This is exclusive of any new funding from a partnership, but it does include anticipated cash receipts related to milestones and other contractual obligations from our assisting partnership agreements. Our financing in April provided us with additional capital to bring our ZFP therapeutic programs to points of optimal value inflexion, while strengthening our balance sheet as we evaluate partnership opportunities across our portfolio, and maintaining our historical perspective of having multiple years of cash burn on hand.

I also want to reiterate guidance from our second quarter call with respect to expected operating expenses and revenue for 2011. We continue to expect 2011 operating expenses to be relatively flat compared to 2010 in the range of approximately $43 million to $47 million for the year, and revenues and related cash proceeds to be in the range of $10 million to $12 million this year.

In summary, with respect to finances and operating leverage to support our research and clinical development pipeline activities, I am very pleased to report the third quarter results, which track to our 2011 operating plan, combined with our financing, keeps us in a solid financial position. We look forward to keeping you updated on our progress. Thank you, and I will now turn the call back over to Edward.

Thanks, Ward. As you have heard, we continue to manage our cash, and with our expected fourth quarter revenues we remain on track to meet our financial objective of ending 2011 with at least $85 million in cash and cash equivalents. This cash position enables us to aggressively move our clinical pipeline forward to points of significant value inflexion with the aim of establishing partnerships with major pharmaceutical companies for individual programs and program areas.

As I mentioned earlier, in September of this year, at ICAAC, we presented data from our SB-728-T studies, our lead ZFN genome editing clinical program, which we are developing for the treatment of HIV AIDS. Our product vision for this ZFP therapeutic, is to provide ZFN modified CCR5 negative, CD4T cells that are protected from viral infection, as they no longer express a functional CCR5 receptor, yet are capable of mounting an effective anti-HIV immune response, thereby enabling a functional cure for HIV.

To that end, we have been conducting Phase 1 clinical trials in different populations of HIV-infected subjects, to test not only the safety and feasibility of this approach, but to rapidly determine the most appropriate population in which to provide clinical proof of efficacy. The data presented at ICAAC, are consistent with our product vision, and provide us with a clear path forward for our next phase of clinical development.

Let me turn the call over to Geoff, who will summarize our findings thus far, including the new data, and give you more information regarding our clinical development plans for this program. Geoff?

Thanks, Edward.

Our ZFN CCR5 disruptive T-cell therapy SB-728-T, is a novel approach to HIV treatment, designed to provide a functional cure. We've been testing the drug in Phase 1 clinical trials across a wide range of disease stages, not only to establish the safety of the method but also to establish the optimal population and conditions that will enable us to most rapidly demonstrate a clinical effect.

Thus the trials began begin with a single dose study at the University of Pennsylvania in subjects on HAART, who had relatively good T-cell levels at baseline, that is greater than 450 cells per microliter. That was followed by our dose escalation study in subjects on HAART, who have lower CD4 counts of baseline classified is immunological non-responders.

Having demonstrated the safety of the approach, we most recently initiated a Phase 1/2 study at the highest dose in subjects that were treatment naive and viremic. Data presented at the 2011 Conference on Retroviral and Opportunistic Infections, or CROI, in early March and most recently at ICAAC, from the 2 Phase 1 studies in aviremic subjects, have allowed us to make several important observations.

Firstly, SB-728-T treatment is safe and well tolerated in HIV subjects that have been tested. Secondly, we have observed some basic pharmacological parameters for our ZFN-modified T cells.

ZFN-modified CCR5 disrupted cells engraft, expand, and don't just remain circulating in the blood, but traffic normally to sites such as the gut-associated lymphoid tissue that are thought to be the principal areas of active HIV replication in subjects on HAART. In addition, SB-728-T treatment may have positive effects on the health of the overall immune system, as judged by several measures that are important to HIV-infected individuals.

We have observed remarkable increases in total CD4 T-cells following SB-728-T infusion in the great majority of the patients tested in our Phase 1 trials. There is no other treatment that has been shown to do this to the degree that we have observed in these studies. As a consequence, in the majority of subjects that enter the trials with CD4 and CD8 ratios below 1, we have observed an improvement to normalization of that ratio.

Finally, we have seen very promising effect on viral load in aviremic subjects on HAART that have undergone treatment interruptions following SB-728-T engraftment. As we described at ICAAC, 6 subjects were enrolled into Cohort 2 at the University of Pennsylvania trial and under went a 12-week treatment interruption of their anti-retro viral medications 1 month after SB-728-T treatment.

All subjects experience the expected rise in their viral loads after halting their medication. Interestingly, in 3 of those subjects, viral load then decreased during TI by 10 to 100 fold, and in 1 subject fell to undetectable levels before the subject resumed HAART accordance with the protocol.

The development of aviremia is highly unusual during treatment interruptions in HIV patients. As many as you know, this particular individual already carried the natural Delta 32 mutation in 1 of the 2 copies of the CCR5 gene, making him a so-called heterozygote for that gene mutation.

The advantage of entering this trial as a CCR5 Delta 32 heterozygote, is that further modification as a result of the ZFN treatment gives the subject of higher number of cells in which both CCR5 genes are modified, and thus a higher percentage of cells that are completely resistant to HIV infections.

Furthermore, when we calculated the estimated rates of engraftment of the so-called biolytically modified cells across subjects during the treatment interruption, we saw a statistically significant correlation with the observed decrease in viral load during the TI. This observation is consistent with the hypothesis under which we began this program, and gives us an important signal as to the threshold of percentage biolytic modification and engraftment that we may need to achieve control of viral load in patients whose immune system is maximally reconstituted by HAART therapy.

With our goal of moving this program quickly to a point where we can confirm this antiviral effect, we are initiating 2 new studies we alluded to it after the ICAAC data presentation. The first study is to re-capitulate and further explore our initial observations in HIV-infected CCR5 Delta 32 heterozygote.

In the study which has been added as a fifth cohort to our original SB-728-902 trial, we will enroll up to 20 subjects who are on HAART, and who will undergo a 16-week treatment interruption 1 month after SB-728-T treatment. This study will as previously, re-institute HAART if a subject's CD4 count falls below a certain threshold, or viral loads rise to a higher level.

But importantly, will also have a provision to relay resumption of HAART if patients are aviremic at the end of the treatment interruption period. Screening of potential CCR5 heterozygote subjects has begun, and we will update as to the status of this trial at appropriate medical and scientific meetings as data becomes available.

The second trial that we plan to initiate takes the observation of enhancing engraftment of biolytically modified cells much further, and potentially applies to the entire population of HIV infected patients. The rationale behind the study design is to use what is called a lymphopenic pre-conditioning regimen that transiently depletes T-cells in the subject, and not only makes space for new cells, but sets up a response in the body that signals remaining sales to rapidly multiply to address this depletion.

We plan to enroll subject in this engraftment enhancement study that are on HAART. Immediately prior to administration of SB-728-T, we will precondition their immune systems to induce a lymphopenic state, stimulating the transfused ZFN-modified cells to undergo significant growth and expansion. This is expected to enhance engraftment of the modified cells, and as a consequence, the engraftment of biolytically modified cells. As I mentioned, lymphopenic pre-conditioning has been effectively used in other adoptive T-cell settings, and has resulted in significantly enhanced engraftment of the transplanted or [colygous] T-cells.

For example, in Dr. Carl June's on Chronic Lymphocytic Leukemia that was recently published in the New England Journal of Medicine, he observed up to 1000 fold expansion of the modified T cells infused after conditioning. The agent that we plan to use is routinely used to treat autoimmune conditions with acceptable safety and tolerability, and has also been previously used in subjects with HIV, resulting in the induction of temporary lymphopenia, with no long-term effect on the CD4 counts.

The proposed clinical trial design will involve aviremic subjects on HAART. We will conduct a dose-escalation phase to establish safety and efficacy of the engraftment enhancement, and will subsequently expand enrollment at a well-tolerated lymphopenic dose, to evaluate effects on viral load. All subjects will undergo a treatment interruption, following expansion of SB-728-T, again with a provision for HAART resumption is they are aviremic at the end of the TI.

We are currently consulting with our clinical advisors on the details of the design of the trial. Subject to a new regulatory filing we anticipate enrollment in the dose escalation cohorts to begin in the first half of 2012. Again, we will update the status of this trial at appropriate medical and scientific meetings, as data becomes available.

Finally, I would like to update you on our SB-728-10-02 trial. As we have discussed, the recent ICAAC data suggest that subjects that have higher biolylic engraftment of CCR5 modified cells, experience better reduction in viral loads, and the patients with the best reconstitution of their immune system are those most likely to make best use of the modified CD4 cells. As a result, we believe the best proof of concept population is subject on HAART, with maximal immune reconstitution, in whom biolylic modification can be greatly enhanced, whether by treating heterozygotes or using a pre-conditioning regiment.

The time for implementing this enhanced strategy is opportune. We are just completing accrual of the 10-02 study having enrolled 21 subjects. We will present data from the study in 2012, when we have follow-up data on the entire cohort. With that, I will turn the call back over to Edward.

Thanks, Geoff. As you have heard today, our ZFP technology platform provides us a powerful, highly specific tool to address diseases for which a therapeutic gene target has been clearly defined. Much of our developing therapeutic platform is focused on unmet medical needs that fit exactly this profile.

Our goal remains to establish ZFP therapeutics as a new and highly-differentiated class of human pharmaceuticals, moving programs forward initially on our own but eventually with suitable corporate partners and ultimately, forward integrating to carry appropriate programs to commercialization on our own.

In addition to our HIV clinical program, we have an active research and pre-clinical programs in monogenic diseases including the hemophilias, and hemoglobenopathies, Huntington's disease, and several other unmet medical needs. We look forward to keeping you informed of our progress in future calls and presentations. To that end, we will be presenting at Lazard Capital Markets Eighth Annual Healthcare Conference in New York on November 15. This completes our prepared comments. I would now like open up the call for your questions.

(Operator Instructions)

The first question comes from Charles Duncan of JMP Securities. Your line is open.

Thanks for taking my question. Good afternoon. Edward, my first question is regarding the 2 new trials you have outlined. First of all, thank you for the clarity on those. They look to be pretty interesting, but Geoff mentioned a new regulatory submission, and I'm not sure I'm clear on what would be required to get those trials going, and if they are in, you said the first half of 2012 is that backend loaded?

Let me speak at a very high level, and then, certainly, Geoff can add color. In terms of the heterozygote study, that will be Cohort 5 of our existing protocol, and I think as Geoff outlined, we have begun screening subjects on that study.

What will require a new protocol submission is the engraftment enhancement study, as that is a different protocol, and we expect as Geoff outlined, to submit that and initiate screening and accrual that trial in the first half of next year. Beyond that, Charles, is that direct to your question? I want to make sure we are responsive.

That answers my question. My second question is regarding these 2 studies. In some ways they appear to be hypothesis generating, but also it seems like the answers to them may help inform a path forward. Could you help us understand whether or not you think in 2012, you're going to be in a position to design perhaps a randomized controlled trial or a path to market that would be fairly definitive?

I will speak at a very high level, and then Geoff can certainly chime in. Our goal in these 2 studies, is to aggressively pursue the signal we have seen from the Phase I work that were presented at ICAAC. I think these studies are designed to do exactly that.

If successful, the goal would be to utilize the data from these 2 to have a clear sense of the path forward, to commercialization. Geoff, do you want to maybe add to that on these?

Yes, Charles, I would echo that. There's a couple of purposes to the studies. One is really to confirm proof of principle and proof of concept. That is definitely the first stage.

I think the studies we have done to date have been to some extent hypothesis generating, and they have generated the hypothesis that actually you need the best immune reconstituted patients, and that implies that they need to be on HAART to let that occur and maximize biallelic modification engraftment levels.

I think we are going to try to confirm that strategy in terms of proof principle. I would agree that then leads on to controlled studies, almost certainly, to then confirm that hypothesis. It feels like a pretty standard development paradigm here. In terms of the timing of asked, I don't think we have guided to the timing yet.

Is it possible that could be a 2012 event towards the end of it?

I think at this point, Charles, the guidance is that we expect to start both of these trials in the first half, and we will definitely update before we present data at a clinical meeting. I will just put it on myself, I am reluctant today to get too far out in front of saying when and where we would be presenting data from trials we have not even really begun yet.

Yes, that makes sense. With regard to other programs that are possible, the monogenic or genetically defined diseases, in 2012 would you anticipate any increased visibility on what the next program could be out of that effort?

Yes, absolutely. And you'll see, very direct, as we move into 2012 very direct, and I'll add to what I have always said, data-driven guidance on our prioritization of programs that will be moving forward in the monogenic disease phase.

Perhaps IND enabling type work?

Let's be positive and say to your earlier question, that we will be very much out in front on discussing the next steps are there.

If I could ask one last question for Ward, with regard to the cash guidance. If I add up the revenue for the year, it seems like revenue in the fourth quarter could exceed that in the third quarter. Is it usual that at the end of the year you anticipate some sort of revenue milestone payment or something?

You are correct, Charles. The back quarter, particularly in 2011, is heavily skewed to a number of milestones or other contractual obligations. We have the least expected revenue for Q4, that relates to the DAS minimum annual royalty stream, to consulting we are doing for DAS, to our one milestone with JDRF, and additional funding from both SERM and Huntington's programs, So, at this point, we are expecting those revenues will effectively offset the burn for the quarter.

You talked about 2 years of cash. I guess that must assume you have an idea of what the expense would be for these development efforts next year, and that would be roughly on the same order og magnitude as this year?

We haven't given guidance specifically for next year, but I think it's fair to say we expect as of right now that our cash consumed in 2012 will be at or below the 2011 level. And, I don't think we have said 2 years of cash, but in any event, we view multiple years, if we track to our historical burn, in the $20 million to $25 million range on an annual basis.

Thanks for taking my questions.

Thank you, Charles.

The next question is from Ted Tenthoff from Piper Jaffray. Your line is open

Thank you. Just to confirm the data that you will be showing in the treatment naive patients, That was about 13 patients that were enrolled, and you will report that by year end?

No, the 10-02 trial that Geoff discussed says we have accrued 21 subjects on that trial, and we expect to present the full cohort in 2012.

Okay, pardon me. That 21 does not include the new cohort 5, is that correct?

That's correct. What I was answering there, Ted, the subjects on the 10-02 trial, which is the treatment naive study.

Okay, perfect. With cohort 5, the goal is to enroll about 20 heterozygotes Delta 32 mutant patients?

The protocol provides for up to 20. That's right.

Awesome. I think this is an interesting up the approach, and I'm looking forward to seeing that data next year.

Thanks, Ted.

(Operator Instructions)

Our next question is from Liana Moussatos from Wedbush Securities. Your line is open.

Thank you. Can you talk about any safety issues with the lymphopenic pre-conditioning that you are going to use?

Hello, Liana.

Hello, Edward.

Yes, delighted to. This is certainly Geoff and Dale's area of expertise. I think the intent was, and I'll obviously turn it over to Geoff to comment further, that the intent was in the script to go through some of the history of this approach, and the data that has been generated. Geoff, is there anything that you want to amplify from beyond the script?

Liana, just to reiterate, this approach is well-used. The agent that you can use in this setting have been used in nonmalignant settings such as autoimmune disease, for a long time with an adequate safety profile, and indeed have also been used in HIV patients, and finally, this will be a dose escalation study. We don't anticipate any significant issues on that front.

Okay. No changes in infections or anything like that from this?

No.

Thank you.

Thank you, Liana.

Thank you, and I am showing no further questions from the phone lines.

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

Ladies and gentlemen, thank you for joining today's conference. This does conclude the program, and you may now disconnect.