Sangamo Therapeutics Inc (SGMO) 2012 Q3 法說會逐字稿

Good afternoon and welcome to the Sangamo Biosciences Teleconference to Discuss Third Quarter 2012 Financial Results. This call is being recorded. I will now pass you over to the coordinator of this event, Dr. Elizabeth Wolffe, Senior Director of Corporate Communications.

Thank you, Sayeh. Good afternoon and thank you for joining Sangamo's management team on our conference call to discuss the Company's third quarter 2012 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; Geoff Nichol, Executive Vice President of Research and Development; Philip Gregory, Vice President of Research and Chief Scientific Officer; and Dale Ando, Vice President of Development and Chief Medical Officer.

Following this introduction, Edward will highlight recent activities and significant events from the past quarter, Ward will then briefly review third quarter financial results as well as our financial guidance for the remainder of 2012. Jeff will provide an update on our ZFP therapeutic clinical programs, and Philip, our pre-clinical programs and, finally, Edward will update you on our goals for the rest of 2012. Following that, we will open the call for questions.

As we begin, I'd like to remind everyone that the projections and forward-looking statements 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 the documents that the Company files with the Securities and Exchange Commission, specifically, our quarterly reports on Form 10-Q and our annual report on Form 10-K. These documents include important factors that could cause the actual results of the Company's operations to differ materially from those contained in our projections or forward-looking statements.

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

Thank you, Liz, and thank you all for joining us on our call to discuss our third quarter results for 2012 as well as recent events and our plans for the rest of the year.

It's been an important quarter for data from both our clinical and pre-clinical programs, and we are pleased to have an opportunity to provide you with more details on this call. Our lead clinical program, SB-728 T, which we are developing as a potential functional cure for HIV is currently in two Phase II studies that are progressing on plan. Both trials are designed to maximize the engraftment of SB-728-T for ZFN mediated CCR-5 disrupted autologous T-cells.

We anticipate having preliminary data from these trials in the first half of 2013 and final data in the second half of the year. Meanwhile, we continue to learn from our previous Phase I trials as we analyze data and conduct long-term follow-up on subjects who participated in these studies.

In September, we and our collaborators presented immunologic data from these studies at the 52nd Interscience Conference on Antimicrobial Agents and Chemotherapy, or ICAAC. The data suggests that SB-728-T treatment has the potential to reconstitute the immune system in HIV-infected individuals and gives us further insight into the unprecedented positive effects that we have seen on the levels of CD-4 T-cells in treated subjects. I have asked Geoff to provide you with more details later in the call.

We also recently presented data from our pre-clinical pipeline, specifically our program to develop ZFP therapeutics for Huntington's disease with our partner, Shire. The presentation was given last week at the annual meeting of the Society for Neuroscience and was chosen by the meeting organizers as a hot topic of the conference.

Without going into details now, the data demonstrated that we have generated very specific and selective ZFP therapeutics that can be used to address genetic diseases such as Huntington's. I've asked Philip to provide you with the details of the presentation and to explain the rationale for our approach later on the call.

Before I hand the call over to my research and development colleagues to provide more details on our ZFP therapeutic programs, let me ask Ward to summarize our third quarter 2012 financial results as well as our financial guidance for 2012. 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, 2012, and I am pleased to review the highlights of those results.

Revenues for the third quarter of 2012 were $4.9 million compared to $1.9 million for the same period in 2011. Third quarter 2012 revenues were comprised of revenues from the Company's collaboration and license agreement with Shire to develop ZFP therapeutics for hemophilia, Huntingdon's disease, and other monogenic diseases, existing collaboration agreements with Sigma-Aldrich Corporation and Dow AgroSciences, as well as approximately $700,000 of revenue from research grants.

As we mentioned in today's press release, the increase in collaboration agreement revenue was primarily attributable to the Company's agreement with Shire. We are amortizing the $13 million up-front license fee over the initial six-year research term resulting in $0.5 million recognized as related revenue in the third quarter.

In addition, collaboration agreement revenue included $2.7 million recognized as revenue from Shire for research services. The increase in collaboration agreement revenues was also partly attributable to increased royalty revenue from Sigma.

Total operating expenses for the third quarter of 2012 were $10.7 million compared to $11.4 million for the same period in 2011. Research and development expenses were $7.6 million for the third quarter of 2012 and $7.8 million for the same period in 2011.

General and administrative expenses were $3.1 million for the third quarter of 2012 compared to $3.6 million for the same period in 2011.

Noncash stock-based compensation expense was $1.4 million for the quarter with approximately $800,000 in research and development, and $600,000 in general and administrative.

For the third quarter of 2012, we reported a consolidated net loss of $5.8 million, or $0.11 per share compared to a net loss of $9.6 million, or $0.18 per share for the third quarter of 2011.

Turning to the balance sheet, we ended the third quarter of 2012 with approximately $76.1 million in cash, cash equivalents, and marketable securities.

With increased collaboration revenues from the Shire agreement, we are revising upward our financial guidance with respect to our revenues for 2012. We expect revenues to be in the $18 million to $20 million range, up from our previous estimate of $14 million to $18 million, exclusive of any new funding from a partnership or other sources.

The rest of our financial guidance remains unchanged from our second quarter call in July. We expect 2012 operating expenses to be in the range of $43 million to $47 million and expect to have cash and investment balances of at least $75 million at the end of 2012.

We are pleased to report that the third quarter results are tracking to our 2012 operating plan. Our therapeutic collaboration with Shire has enhanced our leverage in managing our finances and balance sheet, and we are in an excellent financial position to complete our ongoing clinical trials and continue to advance our pre-clinical pipeline.

We look forward to updating you on the near to midterm financial impact of our development plans at the December 6th analyst briefing and to reporting our fourth quarter and end-of-year 2012 results in early 2013.

Thank you, and I will now turn the call back over to Edward.

Thank you, Ward. Our business model for developing our ZFP technology platform has enabled us to partner not only selected therapeutic programs as we have with Shire but also non-therapeutic applications of our technology. These non-therapeutic partnerships with Sigma in research reagents and transgenic animals and Dow AgroSciences in plant agriculture have brought significant resources into the Company -- approximately $87 million, to date.

The amortized up-front payment and ongoing research funding from our alliance with Shire as well as the ongoing revenues from our collaborations with Dow and Sigma enable us to aggressively move our ongoing clinical and both our partnered and Sangamo-owned pre-clinical therapeutic programs to points of significant value inflection while maintaining a very modest burn rate.

As you have heard, we have significantly increased our year-end revenue guidance. We have a very solid cash position, and we are on track to meet our balance sheet guidance of ending 2012 with at least $75 million in cash.

So -- with that foundation, on to our clinical and pre-clinical development programs.

First, I have asked Geoff to update you on the data that we presented at ICAAC in September and the impact of these positive data on the product that we are developing as a functional cure for HIV/AIDS. Geoff?

Thanks, Edward. Our zinc finger nuclease technology allows us to specifically modify and disrupt or knock out any gene of our choosing. In the case of our HIV program, we are targeting the CCR-5 gene, which encodes a major co-receptor for HIV entry into CD-4 cells. CCR-5 is a good target for a ZFN approach to HIV, as we know that there is a well-characterized natural mutation, CCR-5delta32, which makes the CCR-5 protein non-functional. This enables individuals who carry it on both copies of the CCR-5 gene to resist HIV infection despite repeated exposure to the virus.

In our ongoing clinical program, we are disrupting CCR-5 and the CD-4 T-cells of HIV-infected individuals with the aim of generating a population of these cells that will be both protected from HIV infection and capable of mounting an effective immune response to the virus.

If successful, the ZFN approach would enable a functional cure in these patients such as they could control their HIV without taking antiviral medication. Our therapeutic product, ZFN CCR-5 modified autologous CD-4 T-cells is called SB-728-T. Results from our Phase I studies have been very encouraging. The data demonstrate that the modified cells engraft well once infused back into the body appear to act and traffic like unmodified cells and are persistent.

We can still detect modified cells in all of the subjects that we have treated, some of whom were infused over two years ago. Consistent with the biology and the original hypothesis of this program, we have shown that there is a statistically significant relationship between the level of engraftment of ZFN modified cells in which both copies of the CCR-5 gene are disrupted, so-called biallelic modifications and the level of virus in the blood in HIV-infected subjects during a treatment interruption from their antiretroviral medication.

This observation prompted us to initiate two Phase II studies, which aimed to maximize engraftment of biallelically modified T-cells. Both trials are going well and, as Edward mentioned, we expect to have preliminary Phase II data in the first half of next year and the full data set by the end of the year.

A further observation that was made in the Phase I studies was the unprecedented positive effect of SB-728 T treatment on the immune system and particularly in the levels of circulating CD-4 T-cells, the cells that the HIV infection destroys. With SB-728 T treatment, we see a sustained increase in CD-4 T-cell counts in the blood in the majority of subjects, which also leads to a normalization of the CD-4 to CD-8 T-cell ratio, a marker of the overall health of the immune system.

These are effects that had not been seen to this magnitude with any other treatments, not even with the instigation of highly active antiretroviral therapy or HAART. We try to better understand the mechanisms of this increase, looking more closely at the types of cells that were part of this phenomenon and the role that they play in immune function.

This work, which we presented at ICAAC, was carried out in collaboration with the laboratory of Dr. Rafick-Pierre Sekaly, who is co-director and Chief Scientific Officer of the Vaccine and Gene Therapy Institute of Florida and a leader in this area of immunology.

We analyzed the types of CD-4 cells in blood samples from the nine subjects enrolled in our SB-728-902 study that were collected prior to and over the period of a year post-treatment with SB-728 T. You may recall that the trial was focused on HIV-infected subjects who were on HAART, but who had CD-4 T-cell counts of less than 500 cells per microliter -- so-called immune non-responders, as their immune systems had not bounced back as well as might have been expected once they went on to HAART.

In all subjects we saw durable increases in CD-4 T-cell count above baseline, which, overall, was statistically significant. In five of the nine subjects, CD-4 counts improved to greater than 500 cells per microliter, a level that was maintained throughout the year post-treatment, and which, for reference, is the usual T-cell count threshold for initiation of HAART in HIV-infected subjects.

In some subjects, we also observed a very dramatic initial increase in CD-4 counts during the first two weeks post-SB-728 T infusion, which stabilized over the next few months at a lower but still greater level of T-cells than at baseline.

As you can imagine, these observations have generated a great deal of interest. When we look more closely at the types of CD-4 T-cells in the circulation post-treatment, we found increased levels of so-called transitional and central memory T-cells. We also saw that the CD-4 T-cells in the SB-728 T product were of a memory phenotype. Why is this important? Well, memory T-cells are a vital part of the immune system. They remember previously encountered foreign invaders such as viruses or bacteria. These cells can survive in the body for the individual's lifetime, and when they re-encounter the same virus or bacterium, they re-activate, producing a faster and stronger immune response than the previous encounter.

As our aim is to provide a protective reservoir of immune memory cells to replenish the cells killed by HIV and to generate an effective immune response against the virus and opportunistic infections, these are precisely the cell types that we want to protect and have multiply in HIV-infected individuals.

SB-728 T treatment appears to expand the total memory T-cell pool, and by CCR-5 modification could protect a proportion of that pool from HIV entry, suggesting that SB-728 T treatment has the potential to reconstitute and protect an effective and durable immune system in HIV-infected individuals. This is very encouraging for the type of product that we are developing.

In addition, the study also confirmed that our SB-728 T-cells appear to increase in number after infusion into the body and durably engraft as levels of ZFN-modified cells were sustained over the year-long period reported in the study.

We are continuing these analyses to look for immunological markers that may aid us in the development of our product and optimization of the engraftment process. We look forward to updating you on the progress of these studies and our Phase II clinical trials at scientific or medical meetings in the coming year.

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

Thank you, Geoff. As you have heard, these data are very encouraging and add to our confidence in the potential of SB-728 T to provide a functional cure for HIV. As Geoff mentioned, we expect that future updates on the program of our clinical studies will take place at major medical or scientific meetings.

Now I'd like to ask Philip to provide you with details of our approach to cure Huntington's disease, and the data that we have recently presented at the Society for Neuroscience. Philip?

Thanks, Edward. As you know, as part of our Shire collaboration, we are developing a ZFP therapeutic to treat Huntington's disease, an inherited neurodegenerative disease for which there is no treatment or cure.

It is a devastating disease. It has a high prevalence for inherited disorder affecting approximately 30,000 people in the United States, according to the National Institute of Neurological Disorders and Stroke, or NINDS.

The disease is generally fatal within 10 to 20 years of the initial onset of symptoms. The symptoms commonly become noticeable between the ages of 35 and 44 years but can start earlier. The most obvious early symptoms are jerky, random, and uncontrollable movements, which progress to rigidity and writing movements. Gradually, as the disease progresses, any action that requires motor control, such as speaking or eating, is adversely affected.

In addition, there is a progressive impairment of cognitive ability and memory. The NINDS estimates that at least an additional 150,000 patients beyond its stated 30,000 US symptomatic HD patients, have a 50% risk of developing the disease.

So why is Huntington's disease a good candidate for a ZFP therapeutic approach? It has been known for a long time that the disease is caused by a specific type of mutation in a single gene called Huntingtin, or HTT, which encodes a protein of the same name. This mutation is very well characterized and is specifically an expanded section of a repeated DNA sequence within the gene. Each repeat DNA sequence is three bases long reading CAG, which is the code for the immunoacid glutamine in the final HTT protein.

The HTT gene normally has somewhere between 18 and 25 copies of the so-called CAG repeat, but individuals with Huntington's disease have many more -- generally, greater than 40 CAG repeats, which leads to an expanded array of glutamines in the mutant protein. Indeed, Huntington's disease is sometimes referred to as a polyglutamine disease.

The mutant Huntington protein forms tangled clumps known as protein aggregates that accumulate in nerve cells and eventually become toxic to the cell. The greater the number of repeats the earlier the disease manifests itself. Huntington's is a dominance genetic disease, and just one copy of the faulty gene is enough to cause HD. So a child born to a parent with Huntington's has a 50% chance of getting the disease depending on which copy of the HTT gene is inherited from the infected parent.

Importantly, research in mouse models of the disease has shown that simply reducing the levels of the defective HTT protein can prevent or even reverse disease progression, thus stimulating a search for strategies that could reduce mutant HTT levels as a basis for potential HD therapy. However, most HTT-lowering methods decrease the levels of both the normal and disease forms of all HTT, a side effect that raises potential safety concerns for human application, as we know that the loss of all HTT expression in mice is lethal to embryos. Mice lacking the gene do not survive to birth.

For Huntington's we are using the gene-repression tool of our ZFP technology toolbox. We have designed and engineered ZFP transcription factors for ZFP TFs to specifically repress expression from the disease-causing HTT gene and thus lower the levels of mutant protein while preserving levels of normal protein.

Exploiting the fact that the defective HTT gene contains a longer CAG repeat track than the normal gene, we designed ZFP TFs that specifically targeted the expanded repeat to determine if we could selectively lower production of the disease-causing form of HTT without affecting levels of the normal protein.

And so lines derived from HD patients, with a range of CAG repeat numbers, we successfully lowered the production of the disease form of HTT protein by greater than 90% while leaving the levels of the normal protein largely unchanged.

Significant selective repression of the mutant HTT gene was obtained in HD patient-derived cells with only 43 repeats. In contrast, in cells where the normal gene contained 18 repeats, we saw no significant repression, thus demonstrating the selectivity of our ZFP therapeutics even when the repeat is expanded only into the lower threshold of the disease-causing range.

When we assayed our ZFP TFs in neurons derived from the R-16 mouse model of Huntington's, which mimics aspects of the human disease, they selectively repressed the expression of mutant HTT, which is required for the development of disease symptoms in these animals. Importantly, a genome-wide expression analysis confirmed that our ZFP TFs are exquisitely specific and targeted to the HTT mutant CAG repeat alone, strongly supporting the safety of this approach.

Mouse models are currently the only animal models available for Huntington's, and we are testing our ZFP therapeutics in animals including the R-16 mouse, which, as I mentioned, exhibits Huntington-like symptoms and so will enable us to assess efficacy of our ZFP TFs looking for both changes and the level of damage in the brain tissue as well as amelioration of symptoms.

Indeed, an academic group at Embalin, Spain, recently published a proof-of-concept for AAB delivery of a ZFP TF repressor of Huntington, demonstrating that HTT could be repressed in vivo with the expected improvements in disease phenotype. These data demonstrate the potential of ZFP-based approaches to HD, and we look forward to reporting on the behavior of our mutant glial (ph) specific ZFP TFs in the R-16 model in the near future.

I look forward to updating you on the progress on this and other programs at our analyst briefing in December. We plan to present a comprehensive overview of our pre-clinical pipeline.

And, with that, let me turn the call back over to Edward.

Thank you, Philip. As you have heard, our ZFP platform provides a range of powerful gene regulation and gene modification product development approaches and, importantly, can be designed to target any DNA sequence with singular specificity. We are focusing this technology on a range of diseases for which a single gene target has been identified and where ZFP therapeutic intervention can have a major, even disruptive, clinical benefit on the disease in question.

For HIV, the CCR-5 receptor is an essential co-factor for HIV entry, and we are making CD-4 T-cells resistant to infection using ZFNs to disrupt the CCR-5 gene and thus eliminate expression of this protein in these cells.

In hemophilia, we know that a mutation in the gene encoding the factor 8 or factor 9 protein means that blood does not clot fast enough. We can use ZFNs to provide a corrected functional factor 8 or factor 9 gene and restore normal clotting times. Huntington's disease is another classic example of a monogenic disease that is unambiguously correlated with a DNA mutation, which takes the same form in all affected individuals. We know that affecting the level of expression of the mutant gene and thus the protein that it encodes can have a therapeutic effect, and we have generated ZFPs to selectively repress the expression of the mutant protein. All of these and more are ideal targets for our ZFP technology.

Development of ZFP therapeutics from monogenic disease is a major focus for us in both our internal programs and our collaboration with Shire. Independently, we are also applying the technology in other monogenic diseases including hemoglobinopathies such as sickle-cell anemia and beta-thalassemia, lysosomal storage diseases, and gene-based immune disorders. Our goal is to develop disease-modifying therapies that can provide a genetic cure.

As you have heard, our clinical trials in HIV are progressing very well and are on schedule. In addition, we have a rich pipeline of pre-clinical programs, which include internal targets as well as those that are part of our collaboration with Shire. As expected, we expect to have much more to say about our pre-clinical pipeline specifically regarding data, milestones, and expected timing to IND filings as well as associated financial projections at our analyst briefing on December 6th.

Speaking of financial projections, we are on track to end 2012 with cash and cash equivalents of at least $75 million, which is more than sufficient capital to allow us to achieve our goals of aggressively advancing our clinical and pre-clinical therapeutic programs. This cash projection does not, however, include any new agreements or partnerships that we may develop beyond our recently announced agreement with Shire. And on that point, our business model is to selectively establish additional partnerships to help drive our programs forward through the development process and into the market.

So -- as you can see, this is an exciting time at Sangamo. We have a powerful platform technology that can be differentially applied to multiple therapeutic targets supported by a very strong balance sheet and business model. With that combination and, most importantly, we continue to make significant progress towards our ultimate goal, the establishment of ZFP therapeutics as a new and highly differentiated class of human pharmaceuticals that can provide the potential for genetic cures for many diseases.

I sincerely look forward to keeping you informed of our progress. To that end, we will issue a press release in November with details of how you may access the December 6th live webcast of our analyst briefing. We will also be presenting at the Lazard Capital Markets 9th Annual Health Care Conference in New York on November 13th and, in early January 2013, at the JP Morgan 31st Annual Health Care Conference here in San Francisco.

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

Thank you. (Operator Instructions) Liana Moussatos, Wedbush Securities.

Congratulations on your progress.

Thanks, Liana.

Based on the Phase I data, I thought it was very interesting about the treatment resulting in kind of normalizing the immune system in HIV-infected patients where the virus had destroyed part of it. Is this -- in your discussions with the FDA if SB-278 T treatment just restores the immune system and, say, reduces the strange cancers that result or the infections but maybe doesn't reduce viral load to nothing, would that still be a viable treatment that could get approved?

Liana, that's a very, very good question. It's actually -- I'll characterize it as a hotly contested kind of question. Because there is significant value in immune reconstitution and in keeping the CD-4 T-cell counts above 500, which is, arguably, one of the trigger points for going on HAART. With that said, however, the precedent for antiviral approvals in the HIV space is viral load, and that is very much the focus of our ongoing Phase II trials and very much the strategy in our development plan.

But let me pause and see if Geoff wants to add or subtract to any of that.

Yes, I mean, the idea of postponement, essentially, of the ultimate appearance of AIDS or the postponement of the necessity for HAART is obviously a hotly discussed area and has been the subject of some development programs in the past. But, yes, I'd just like to confirm, you know, we are protecting these CD-4 cells in order to try to actually have a normal, if you like, recall memory response against -- with essentially normal CD-4 help against the virus itself and really induce a functional cure. So we are aiming at rendering patients aviremic without HAART.

Thank you very much.

Thank you. (Operator Instructions) We have a follow-up from Liana Moussatos.

Can you go through a little bit more detail about what we would expect on December 6th in terms of clinical expectations for 2013?

Let me try and repeat it and happy to go into more detail if it's not sufficient. Our goal in December is to provide a -- really, a more of a near and midterm overview of our clinical and pre-clinical development programs. And so by going through the data around the targets that we're pursuing, the rationale for pursuing those, the product development strategy, delivery strategies, timelines for -- in the case of the pre-clinical programs to IND, in the case of the clinical programs, Liana, we've guided certainly to data in 2013 out of our ongoing Phase II programs in the first half and then the complete data sets in the second half. And then on the December 6th, just around that, overlaying all of those development plans with the financial projections that we believe are associated with the goals and the accomplishments that we have.

So I think it's a little bit of an incremental step for us in terms of looking forward beyond just that next year's financial guidance to really looking at the rationale and timing of our development plans and, again, the financials associated with that.

Thank you. I am showing no further questions at this time. I'd like to hand the conference back over for any closing remarks.

Great, thank you very much. We'd like to thank you for joining us. We look forward to speaking with you again when we release our fourth quarter and year-end numbers for 2012. We'll be available later today if you have any follow-up questions. Thanks very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect and have a wonderful day.