Sangamo Therapeutics Inc (SGMO) 2014 Q1 法說會逐字稿

Good afternoon, and welcome to the Sangamo BioSciences teleconference to discuss first quarter of 2014 financial results. This call is being recorded.

I will now pass you over to the coordinator of this event, Dr. Elizabeth Wolffe, Vice President of Corporate Communications.

Thank you, Michelle. Good afternoon, and thank you for joining Sangamo's management team on our conference call to discuss the Company's first quarter 2014 financial results.

Also present during this call are several members of Sangamo 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, Senior Vice President of Research and Chief Scientific 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 quarter; Ward will then briefly review first quarter financial results as well as our financial guidance for 2014; Geoff will provide an update on our ZFP therapeutic programs; and finally, Edward will update you on our goals for 2014 and beyond. 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 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 the 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 operation 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 first quarter results for 2014, as well as recent progress and future plans for the development of our ZFP therapeutics pipeline.

2014 is a very important year for Sangamo, and we began with a very event-filled first quarter. As most of you aware, in early January we announced an important partnership with Biogen Idec that will help accelerate our hemoglobinopathies program through clinical trials and into commercialization.

In addition to the economics of the agreement, which included a $20 million upfront payment as well as reimbursement from Biogen for our internal and external research and development program-related costs, the program further validates our ZFP genome editing platform as a transformative technology capable of genetic cures.

Over the past couple of years, there's been a growing interest in the area of genome editing. As this collaboration demonstrates, there is a clear understanding that our zinc finger nuclease platform, with its proven specificity and efficacy and growing clinical safety database, is, and I believe will remain, the gold standard in the genome editing space.

Biogen Idec certainly recognized these truths, and as such are a tremendous partner for our beta-thalassemia and sickle cell disease programs, and we are delighted to be working with them to bring these potential curative treatments to patients.

On the clinical front, in early March our HIV program received significant attention following publication in the New England Journal of Medicine of data from our first Phase I clinical trial. In addition, the paper came out during the week of one of our most important HIV meetings of the year, the Conference on Retroviruses and Opportunistic Infections, or CROI, at which we presented data from our recent clinical studies of SB-728-T.

Together, these two events created a great deal of visibility around our efforts to develop a functional cure for HIV/AIDS. Later on this call, I've asked Geoff to briefly summarize the New England Journal of Medicine paper and its importance on our program, the recent CROI data, and provide you with more details regarding our plans for our HIV program going forward.

Finally, near the end of the first quarter we completed a $100 million follow-on financing. We sold 4.4 million shares of common stock at a public offering price of $22.50 per share, which resulted in net proceeds to Sangamo of approximately $94 million.

To state the obvious, the financing gives us much greater flexibility to accelerate our process of forward integration, as well as to continue to evaluate and acquire products and technologies, such as delivery technologies, which will enhance the safety, efficacy and value of our ZFP therapeutics.

In addition, as we advance products through preclinical testing towards submissions of multiple IND applications and subsequent clinical studies, we see a distinct advantage in building out our internal capabilities in AAV and mRNA GMP manufacturing.

So, collectively, our recent partnership and our recent financing have had a very positive impact on our financial situation, both for this year and, as we successfully meet our development goals, for the years to come.

And on that note, let me hand the call over to Ward for an update on our first quarter 2014 financial results, as well as our updated financial guidance for 2014.

Thank you, Edward, and good afternoon, everyone. As you know, after the close of the market today we released our financial results for the first quarter ended March 31, 2014, and I am pleased to review the highlights of those results.

Revenues in the first quarter of 2014 were $8.1 million, compared to $4.6 million for the same period in 2013. First quarter 2014 revenues were comprised of revenue from Sangamo's collaboration agreements with Shire, Biogen Idec, Sigma-Aldrich, and enabling technology agreements, as well as approximately $0.5 million of revenue from research grants.

The increase in collaboration agreement revenues was primarily due to the Company's collaboration and license agreements with Shire and Biogen. Sangamo recognized $5 million of revenues related to research services performed under the collaboration agreement with Shire in the first quarter, and $400,000 of revenues related to research services performed under the collaboration agreement with Biogen in the same period.

In addition, pursuant to the agreements entered into with Shire in January 2012 and Biogen in January 2014, Sangamo received upfront payments of $13 million and $20 million respectively, which are being recognized on a straight line basis over the initial 6-year research term for Shire, and 40 months for Biogen. The Company recognized $0.5 of the Shire upfront payment, and $700,000 of the Biogen upfront payment, as revenue for the first quarter of 2014.

Total operating expenses for the first quarter of 2014 were $15.7 million compared to $11.5 million for the same period in 2013.

Research and development expenses were $12 million in the first quarter of 2014 and $8.2 million for the prior-year quarter. The increase was primarily due to increases in external research expenses associated with our preclinical programs, personnel-related expenses including stock-based compensation, and professional services expenses.

General and administrative expenses were $3.6 million in the first quarter of 2014 and $3.3 million for the same period in 2012 -- excuse me, I should say 2013.

Non-cash stock-based compensation expense was $1.9 million for the quarter, with approximately $1.1 million in research and development and $800,000 in general and administrative.

For the first quarter of 2014, we reported a consolidated net loss of $7.6 million, or $0.12 per share, compared to a net loss of $6.9 million or $0.13 per share for the first quarter of 2014.

Turning to the balance sheet, I am pleased to report that as a result of our March financing and the upfront payment from Biogen, we ended the first quarter of 2014 with $244.2 million in cash, cash equivalents, short-term investments and interest receivable. Our net cash provided by operating activities was $11.4 million for the quarter.

We are updating our financial guidance for this year with respect to our year-end cash. We expect to have cash and investment balances of at least $225 million at the end of 2014, inclusive of research funding and milestones from Shire and Biogen, but exclusive of any new funding from a partnership or other sources.

We are reiterating our earlier guidance with respect to 2014 operating expenses and revenues. We expect operating expenses to be in the range of $65 million to $70 million, and revenues in the range of $45 million to $50 million.

Revenues include partial recognition of the upfront payment and research funding for internal and external research program-related costs from Biogen, and partial recognition of the upfront payment, research funding, and potential milestone payments from Shire.

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

Thanks, Ward. As you have heard, we ended the first quarter of 2014 with approximately $245 million, which, relative to our burn rate, is a very strong cash position.

We also believe that this balance sheet strength will enable us to complete our ongoing clinical trials, and to bring up to eight new products to INDs by the end of 2015. These new drug applications include both programs partnered and funded by the Shire and Biogen, as well as our proprietary programs in lysosomal storage disorders, that have significantly benefited from our partner-funded work.

As Ward mentioned, as we have previously discussed, we are guiding to higher revenues and operating expenses this year as we ramp up activities to move our first four of these programs to IND applications.

In 2014 our goal is to file IND applications for our Shire-partnered programs in hemophilia A and hemophilia B, which will trigger a total of $8.5 million in milestones for each program.

These IND applications, and the IND for our Biogen-partnered program in beta-thalassemia, are most likely to be filed towards the end of 2014. However, we envision that the IND application for our HIV program in stem cells is likely to be filed in mid-2014.

This program will be our first ZFN-modified stem cell application to enter the clinic and will use mRNA delivery of the ZFNs that we are also evaluating in T cells in our ongoing HIV clinical trials.

Speaking of our SB-728 HIV program, I've asked Geoff to briefly describe the data from our recent published -- recently-published New England Journal of Medicine paper, more recent data from the latter trials that were presented at CROI in March, and our plans for the next stage of this program.

Thanks, Edward. There were two significant clinical data releases from our SB-728-T program in the first week of March. The first, on March 5, was the publication in the New England Journal of Medicine of Phase I clinical data from one of the first studies of SB-728-T, our T cell approach to the treatment of HIV/AIDS.

The data presented in this high-profile publication set the scene for the following day's presentation of some of the most recent clinical data from the latest SB-728-T trials at the Conference for Retroviruses and Opportunistic Infections, or CROI.

As you know, our goal with this approach is to modify the immune system of an HIV-infected individual to enable functional control of the virus, enabling their immune system to suppress levels of replicating virus in the blood without the use of antiretroviral medications, or ART.

To achieve this, we are using our ZFN technology to disrupt the CCR5 gene in CD4 T cells. The aim is to make these critical immune system cells resistant to infection and destruction by HIV, so that they can participate with the rest of the immune system in overcoming the virus.

Based on the data that we've obtained from our clinical trials thus far, we believe that with sufficient numbers of our modified cells and the appropriate immunological background, this goal is achievable. We also have data to indicate that, in contrast to ART, an immunological approach such as SB-728-T may also be able to erode the all-important viral reservoir and make the idea of a functional cure a reality.

The New England Journal paper described data generated in the Phase I trial that we carried out in collaboration with Carl June and Pablo Tebas at the University of Pennsylvania.

Briefly, this was an open-label study of a single dose of SB-728-T in 12 HIV-infected subjects whose virus was well controlled by ART. The primary objective was to assess safety and tolerability of administration of a single dose of SB-728-T. Secondary outcomes included measures of immune reconstitution and HIV resistance.

The study evaluated treatment in two cohorts of six subjects each. Subjects in Cohort 1 were immune responders, individuals who had demonstrated from -- of CD4 T cells after ART. The subjects in Cohort 2 were so-called immunological non-responders -- individuals who had demonstrated inadequate recovery of CD4 T cells after ART.

In the study, T cells from HIV subjects were isolated and the cells' DNA edited with ZFNs to knock out the CCR5 gene. The CCR5 gene encodes a co-receptor required for HIV infection, and without this protein on the cell surface the T cells are resistant to HIV infection.

After modification, the cells were returned to the subject in a so-called autologous infusion, and we monitored the safety of the treatment and a variety of immunological parameters.

Four weeks after SB-728-T treatment, Cohort 1 subjects underwent an interruption from ART of up to 12 weeks. We found, and have continued to observe in subsequent clinical trials, that ZFN-modified T cells are well-tolerated when infused, and that treatment is associated with an increase in the levels of total circulating CD4 T cells.

The modified cells readily engrafted and were able to traffic throughout the body to key sites of HIV persistence, such as the gut-associated lymphoid tissue. The data also demonstrated that the modified cells persist, and moreover appear to have a selective advantage, showing a preferential survival compared to unmodified cells when exposed to HIV during a planned interruption of ART.

Importantly, the clinicians noted that SB-728-T treatment was associated with decreased viral loads in several subjects who were taken off their ART. This group included one subject who experienced the longest delay in rebound of viral load when ART was withdrawn, and achieved a decrease to undetectable levels during the 12-week period.

This subject was later found to carry a natural mutation of CCR5, CCR5 delta-32, in one of the two CCR5 genes, making the individual a CCR5 heterozygote. Thus, following exposure to the ZFNs targeting CCR5, this subject had a greater percentage of T cells that were modified at both copies of the CCR5 gene, so-called biallelic modification, and were therefore fully resistant to HIV infection.

Preliminary analyses suggested that the levels of circulating cells with biallelic modification of CCR5 may correlate with control of viral load. This observation made sound scientific sense, and we subsequently initiated two important clinical studies to further study this relationship.

The first trial, SB-728-902 Cohort 5, enrolled CCR5 delta-32 heterozygotes to continue to evaluate this population. A second trial, SB-728-1101, enrolled subjects that don't necessarily carry the advantageous CCR5 mutation, but who as part of the protocol undergo a preconditioning with the drug Cytoxan.

Cytoxan preconditioning has been widely used in the development of adoptive T cell therapies for cancer, to increase the numbers of modified circulating T cells. In our application we're using the drug to increase the proportion of circulating T cells that are ZFN-modified.

On March 6, Dr. Gary Blick, one of our principal investigators, presented the most recent data from the Cytoxan dose escalations study at CROI. He also updated the status of a subject from Sangamo's SB-728-902 Cohort 5 study who had demonstrated sustained control of viral load, noting that at the time of presentation the individual had controlled their viral load for over 31 weeks, without ART, and remained on a treatment interruption.

Data from the Phase I/II clinical trial, SB-728-1101, demonstrated that increasing doses of Cytoxan preconditioning prior to a single infusion of SB-728-T led to a dose-dependent increase in both engraftment of CCR5-modified cells, and notable increases in total CD4 cells above the baseline.

We observed the greatest decrease in viral load, a drop of 1.9 logs from peak, during a treatment interruption from ART at the highest Cytoxan dose of 1 gram per meter squared. At doses up to 1 gram per meter squared, the drug and SB-728-T treatment were shown to be safe and well tolerated in HIV-infected subjects. As expected, the most common side effects of Cytoxan, nausea and vomiting, increased with dose, necessitating the use of prophylactic antiemetics.

The 1101 trial has been extended to study six additional subjects in order to determine the optimal Cytoxan dose. Early data from this cohort suggests that an optimal dose will lie between 1 and 2 grams per meter squared, as more Cytoxan side effects, particularly severe -- more severe symptoms of nausea, were observed at 2 grams per meter squared.

We now better understand the baseline immunological parameters that are required for viral control. These include the threshold level of T cells that have undergone biallelic modification, the capability of the immune system to respond to the virus, and the size of the viral reservoir.

We also know that the inflammatory status of the HIV-infected individual, as identified by cell surface marker and gene expression profiles of immune system cells, is important for the successful engraftment of SB-728-T.

With this information on hand, as we have previously guided, we will treat a further 12 subjects at the optimal Cytoxan dose. In addition, having established that the SB-728-T treatment is safe and well-tolerated, we have also developed a new proprietary manufacturing process to use messenger RNA delivery of the ZFNs used in CCR5 modification of the T cells.

This modification to the protocol provides both process and cost saving advantages over viral delivery, which will enable re-treatment if necessary, and offers the potential for greater CCR5 biallelic modification.

We intend to evaluate messenger RNA delivery in a subset of these 12 subjects and to enroll and complete treatment of all subjects by the end of 2014.

All in all, the data presented at CROI and published in the New England Journal of Medicine in March, support our development program for SB-728-T [potential] functional cure for HIV/AIDS.

This is a very exciting time for Sangamo. We're making good progress in our HIV program both in T cells, and as we prosecute the expanded Cytoxan preconditioning studies, and in stems cells, as we move towards the filing of an IND application for this program mid-year.

We're also working hard towards our goal of filing seven additional INDs by the end of 2015. I look forward to updating you on our progress with these ambitious goals on future calls.

And with that, I will turn the call back to Edward.

Thanks, Geoff. So, as you have heard, we will complete enrollment and treatment of our Phase II clinical trial in our SB-728-T HIV/AIDS program by the end of this year, and have a new IND file -- application filed for our HIV stem cell approach, around the middle of this year.

With positive data from either of these ongoing studies, we plan to partner our HIV program for further development and commercialization as we increasingly look forward -- look to forward-integrate in other therapeutic areas.

More specifically, as we begin to forward-integrate into later-stage clinical development, GMP manufacturing, and ultimately commercialization, we are successfully leveraging the work and advancements that have been funded by our partnered programs, and are able to use these advances to accelerate the development of our own proprietary programs.

We are largely focused on monogenic diseases -- diseases in which there is no ambiguity between the mistake in the gene and the disease. Initially we are pursuing lysosomal storage disorders, many of which are currently being treated with frequent enzyme replacement therapy. These disorders provide opportunities in which technical proof of concept can be obtained relatively early in preclinical animal models and small clinical studies.

In addition, our therapeutic approach, aimed at providing genetic cures for these monogenic diseases, require a relatively modest initial investment in GMP manufacturing infrastructure. Our recent financing gives us the resources to accelerate this process and to internalize this key competency, rather than rely exclusively on contract manufacturing organizations.

We will also continue to evaluate and in-license or acquire technologies that are synergistic with, or enabling for, the development of our ZFP therapeutics.

This is made possible by the fact that we are in very good shape financially. We ended 2013 with approximately $132 million, and expect to end 2014 with cash and cash equivalents of at least $225 million. This assumes that we meet our goals of filing INDs for our hemophilia program, which are partnered with Shire, but does not assume any new partnerships or financings.

We also intend to file an IND on -- for our Biogen-partnered program in beta-thalassemia by the end of this year. The first milestone for that program of $7.5 million, which we expect to receive in 2015, is associated with the Phase I trial.

Needless to say, we are looking forward to one of the most exciting periods in the Company's history, and we look forward to keeping you informed of our progress. To that end, we will be presenting at the Deutsche Bank Healthcare Conference in Boston later this week, the Bank of America Healthcare Conference in Las Vegas network, the UBS Global Healthcare Conference in New York, and the following week.

We will also be presenting data from a variety of our programs and research collaborations in monogenic diseases, HIV, T cell editing, and novel ZFP delivery methods, at the Annual Meeting of the American Society of Gene & Cell Therapy in Washington D.C. from May 21 to 24.

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

(Operator Instructions). Charles Duncan, Piper Jaffray. (Operator Instructions).

Sorry. It's Roy in for Charles, taking the question. Sorry, I missed a lot of the call, and I think maybe Ed addressed some of this at the beginning. But I had a couple of questions on the AAV platform, I guess. I just wondered if you could -- and if you've addressed this, just skip it and I'll read the transcript.

But if you could maybe discuss how strong the IP is. Is it more of acquired knowledge, trade secret kind of thing? Do you think [it is] something that will be commoditized, or should investors be watching for maybe key future litigation events?

So, Roy, I'm going to try and repeat the question. You're interested in AAV, and in particular you're interested in the intellectual property environment around AAV. Is that right?

Yes. I guess, how strong your position is. Is it really dependent on the patents, or is it trade secrets knowledge?

Well, I'll start with the intellectual property, and I'll be happy to talk a little bit about -- more on the manufacturing side. And then I'm delighted for any of my colleagues to chime in.

Sangamo has freedom to operate in essentially three AAV vector serotypes. And there are specifics around each one of these, but at the highest level they involve AAV5, AAV6, and then AAV2, through our acquisition of Ceregene.

And there are several other serotypes, as you and I'm sure people on the call are aware. And those serotypes have patents both pending and issued around those. But our focus is in the area of AAV2, AAV5 and AAV6. And again, we can dive into some of the biology around those, and why we think they have potential differences, and so on.

I guess I'm not going to comment on litigation in the space, except to say that there are patents filed broadly across multiple AAV serotypes.

In terms of non-patent intellectual barriers to entry, I certainly think that there are real, established processes for manufacturing and established release criteria. AAV has been probably put in vivo into more patients than any other vector system.

And so, I think there are clear strategies and approaches for making GMP AAV, that the FDA has seen and approved going into human clinical trials. And as you know, the first approved gene therapy product in Europe, of UniQure, is an AAV product. So, I'm going to stop there, and if Geoff or Philip or Dale want to add anything to that --

Yes. It's Geoff. I mean, I don't have a lot to add to what Edward has said. We have freedom to operate -- to -- in AAV serotypes that are able to do what we need them to do for our programs. But obviously, we derive our exclusivity from the technology that the AAVs deliver.

So, you know, delivery is one thing, but the ZFN provides -- and the ZFP technology, provides us with our unique, very strong intellectual property position, to the very unique therapeutic benefits that this technology brings.

Yes. That's a good answer.

Then, a related question, I guess, but if you could help educate me here, too. But the requirements for preclinical and Phase I studies for these kind of constructs -- I mean, once you get something into the albumin locus in the liver for a certain gene, do you need to go back and re-run the full preclinical and Phase I programs to target a different [gene with] that locus, if you think you can go straight into Phase II, that potentially be registrational maybe?

Well, let me repeat the question and make sure we're right. So, you're asking me if we have an IND for the albumin locus for Factor IX, and go through all the toxicology studies and human safety and -- from the Factor IX. You're asking me if we can skip all of that when we start Factor VIII, or Gaucher's, or Pompe's, or anything else we want to insert into the albumin locus. Is that the question?

Yes. Essentially just skip to patients. Correct.

Yes. My short answer is no. We don't think we can skip those things. It's a different product.

Do I think we can have a lot of confidence about the toxicology studies associated with the zinc finger nucleases, because those are used again and again at that -- at the same site? I do. But each one of these is a new product, a new IND, and is going to require a new IND.

So, with that said, again, I -- delighted for Geoff or Philip or Dale to comment further on that answer. Either I'm completely wrong and they don't want to say so in public, or they're in table-pounding agreement. Roy, I'll let you choose.

The table is pounding here.

Sounds good. Thank you.

Heather Behanna, JMP Securities.

Congrats on all the progress in the first quarter.

Thanks, Heather. It was a very busy but very productive quarter.

I just have a couple of clarifying questions. One is on the use of mRNA in the T cells. Is that protocol already accepted, or is that something that you have to -- would sort of go hand in hand with the IND for the stem cell approach?

Well, again, I'll start, and Geoff and Philip and Dale are all here, and they can comment. It would not go hand in hand with the stem cell IND. That's a separate IND. We do know that it's a new process and requires additional filings. But we do not expect that to be a rate-limiting step. Geoff or Philip, do you want to comment further on that?

I think, again, just to echo Edward, we're making good progress. It is a separate IND. But obviously, a lot of the issue -- a lot of the points that the mRNA product will have, relate very strongly to the package that we've developed with the antiviral approach. So, not completely similar, but significant similarities. And we'll tell you more as our progress continues along that path.

Great. And do you think we'll be getting any interim looks from the Cytoxan cohorts as the year progresses, or do you think that's a 2015 event?

Well, the easiest guidance, Heather, is to say it's a 2015 event. I think that's what we've said in the past. And I think that's the most reasonable response at this point.

With that said, you know, we have presented relatively regularly at ICAAC and at CROI, and those meetings offer good opportunities to continue to update on the program broadly.

Great. And then just -- let's just drill down a little bit more on the manufacturing you've been talking about, and sort of bringing things in-house. Is this something that would require you to expand facilities? Are you looking into that? Or, you know, what's involved in bringing in the GMP process for the RNA and for AAV and for everything else?

Well, yes, and it is an expansion of space for us. We're looking at at least two different approaches -- one where we'd expand in our existing site; or, two, where we would acquire or license facilities that are already up and running, potentially being less expensive and faster.

But, yes, it will require additional space. And I'll say, the financial guidance that we've given includes our efforts to continue to build out internal GMP manufacturing capabilities.

Fantastic. Thanks so much.

(Operator Instructions). I'm showing no further questions. I'd like to turn the call back over for any closing remarks.

Thank you very much. We'd like to thank you for joining us, and we look forward to speaking with you again when we release our second quarter 2014 financial information. We will be available later today if there are any follow-up questions.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.