Sangamo Therapeutics Inc (SGMO) 2016 Q3 法說會逐字稿

Good afternoon, and welcome to the Sangamo BioSciences teleconference to discuss third quarter 2016 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, Liz. Good afternoon, and thank you for joining Sangamo's management team on our conference call to discuss the Company's Third Quarter 2016 Financial Results. Also present during this call are several members of our senior management team, including Sandy Macrae, President and Chief Executive Officer; Ward Wolff, Executive Vice President and Chief Financial Officer; Dale Ando, Vice President of Therapeutic Development and Chief Medical Officer; Michael Holmes, Vice President of Research; and Curt Herberts, Vice President and Head of Corporate Development.

Following this introduction, Sandy will highlight recent activities and the significant events from the past quarter. Ward will then briefly review our third quarter 2016 results as well as our financial guidance for the remainder of 2016. And, Sandy will provide an update on our ZFP therapeutic program, and update you on our goals for the remainder of 2016 and beyond. Following that, we will open up the call for questions.

As we begin, I'd like to remind everybody that the projections and forward-looking statements that we discuss during this conference call are based upon the information that we currently have available. This information will likely change over time. By discussing our current perception of the market and the future performance of Sangamo with you today, we 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 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 Sandy.

Thank you, Liz, and thank you all for joining us for our conference call to discuss our 2016 Third Quarter Financial Results, our recent events and our activities around the continued development of the Company and the pipeline.

It's truly been a busy and productive quarter at Sangamo. As I promised in our second quarter call, we're making significant changes in order to build an organization that will effectively translate our groundbreaking science into genetic therapies that can transform patients' lives.

Individually, the steps are small, but this is how our goals will be achieved with steady and predictable progress. While these activities are largely internal at the moment, their effect will become evident to the outside world in our achievements and actions going forward. We are mapping out a path of clear goals and creating an organization that is built to achieve reliable success.

As I mentioned on the last call, we had an important Board of Directors meeting in late September. This was our Yearly Strategic Planning Meeting, and my first Board of Directors Meeting as CEO. At that meeting, we laid out a detailed business plan, and I am delighted to report the Board were very pleased with the near- and long-term path that was outlined, and gave us their blessing to move forward on it.

I must also tell you, I'm very impressed with the hard work that the leadership team has put into generating this plan, and the willingness of everyone within the Company to put in the hours and embrace the changes that we have proposed. And, as I mentioned, while many of these activities have not been particularly visible to investors, they're already making a huge difference to the efficiency, cohesion and morale of the organization, and I believe that we will maximize our potential for success in the coming year and beyond.

But, before I tell you of our plans, let me recap some of the recent accomplishments.

As we promised, we resolved our supply issue and initiated the Phase 1/2 clinical trial for our in vivo genome-editing program for hemophilia B. We have three sites open in California, and we will be qualifying and opening additional sites in other parts of the country in the coming weeks and months. We are not going to comment on individual subject recruitment or to report on each subject's progress, but we will report meaningful clinical data when we have it, most likely at appropriate scientific or medical meetings.

Early in the quarter, we also announced that we received orphan drug designation from the US Food and Drug Administration, or FDA, for this program. I will provide more information on benefits of this designation and our regulatory strategy later in the call. I would like to point out that as the first-ever in vivo genome editing program to go into the clinic, this is a landmark for the field.

Our hemophilia B program is also the first clinical program using our albumen-based zinc finger nucleus, or ZFN, in vivo genome editing platform, and potentially has many more applications.

We promise to file an Investigational New Drug or IND application for our cDNA AAV approach for hemophilia A this year. We remain on track to do this. We also submitted to the FDA the results of our in vitro experiments that were repeated in the mucopolysaccharidosis, or MPS I and MPS II programs. As we anticipated, we received clearance from the Agency to move forward with Phase 1/2 clinical studies for both of these indications.

We are delighted to be able to proceed with these important clinical trials, and are working hard to initiate them. I look forward to providing updates on our progress in early 2017.

As I alluded to in the last call, based on improvements in our core technology, we have generated new, more-specific ZFNs, directed to the BCL11A enhancer for treatment of beta-thalassemia and sickle disease. These are programs that we are advancing with Biogen, and I expect I'll have more to say on these improvements and progress in that collaboration in future calls.

And finally, on a slightly different note, on October our exclusive licensees in the development of the ZFPs for use in improving plant crops, Dow Agro Sciences, announced that they have completed a non-exclusive global option and licensing agreement on the exact precision technology platform for research and commercial development of new crop solutions across Monsanto's companies' research portfolio. This platform is based on our ZFP technology for genome editing and gene regulation.

And, while Dow has not been very vocal in the past about their use of this technology, quotes in the press release issued jointly by the companies confirm that our technology is under active development for crop improvement. The Vice President of Research and Development at DAS, Dan Kittle, noted that exact technology is helping to deliver next generation crop improvements into the hands of farmers. And, Monsanto's Biotechnology lead scientist added that Zinc Finger Nucleuses are a well-established technology for gene editing, and that Monsanto is pleased to pursue applications of this genome-editing technology for the development of new plant discoveries and solutions for farmers.

So, in all, it's been a busy and productive few months, and we expect the pace of progress to continue, and visibility to increase as we head into 2017.

But, before we go into more detail on our ZFP therapeutic programs and the plans we discussed with the Board of Directors, let me hand the call over to Ward for an update on our Third Quarter 2016 Financial Results, as well as our financial guidance for the end of the year. Ward?

Thank you, Sandy, 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, 2016, and I am pleased to review the highlights of those results with you now.

Revenues in the third quarter of 2016 were $2.8 million, compared to $8.6 million for the same period in 2015. Third quarter 2016 revenues comprised revenue from Sangamo's collaboration agreements with Biogen and Shire, enabling technology agreements, and $100,000 of revenue from research grants. The decrease in collaboration agreement revenues was primarily due to a decrease in revenues after the amendment of our collaboration and licensing agreement with Shire in the third quarter of 2015, which returned the rights to the hemophilia programs to Sangamo, as well as the decrease in revenues from the Biogen agreement as the initial research phase of these programs has matured and activities during this quarter were largely internal.

In the third quarter of 2016, Sangamo recognized $1.2 million of revenues related to research performed under the collaboration agreement with Biogen, and $200,000 of revenue related to research services provided under the collaboration agreement with Shire. In addition, pursuant to the agreements entered into with Shire in January 2012 and Biogen in 2014, Sangamo received up-front payments of $13 million and $20 million, respectively. The payment from Shire is being recognized on a straight line amortization basis over the initial six-year research term. Beginning in January 2016, the payment from Biogen is being recognized on a straight-line amortization basis over approximately 42 months, which reflects the revised service period related to our deliverables under the agreement with Biogen. Sangamo recognized $500,000 of the Shire up-front payment and $600,000 of the Biogen up-front payment, as revenue for the third quarter of 2016.

Total operating expenses for the third quarter of 2016 were $22 million compared to $21.3 million for the same period in 2015. Research and development expenses were $17 million in the third quarter of 2016 compared to $16.7 million for the third quarter of 2015. General and administrative expenses were $5 million in the third quarter of 2016 compared o $4.6 million for the same period in 2015.

Total non-cash, stock-based compensation expense was $2.7 million for the quarter, with approximately $1.8 million in research and development, and approximately $900,000 in general and administrative.

For the third quarter of 2016, the Company reported a consolidated net loss of $19 million, or $0.27 per share, compared to a net loss of $9.2 million, or $0.13 per share for the third quarter of 2015. I refer you to today's press release for a summary of the nine month year-to-date results.

Turning to the balance sheet, Sangamo ended the third quarter of 2016 with $155.4 million in cash, cash equivalents, short-term investments, and interest receivables. Our net cash used in operating activities was $17 million for the third quarter ended September 30, 2016, resulting in $53.6 million net cash used in operating activities for the year to date.

Regarding our financial guidance for full-year 2016, we are reiterating our guidance from our second quarter call. We expect to end the year with at least $140 million in cash, inclusive of research funding from existing collaborations as well as funding from grants, but exclusive of any new funding from a collaboration partnership, equity financing, or other new sources.

With regard to operating expenses and revenues, we continue to expect operating expenses in the range of $85 million to $95 million, and revenues in the range of $12 million to $17 million for the full year of 2016. Revenues include partial recognition of up-front payments and reimbursement of research services from existing collaborations.

In summary, we are on track to execute our operating plan for the remainder of 2016 and possess the balance sheet strength to advance our clinical portfolio to important data readouts over the 2017 and 2018 time frame.

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

Thanks, Ward. As Ward outlined, we have a solid cash position and expect to end 2016 with $140 million in cash and cash equivalents, which will allow us to accomplish our near- and mid-term goals to initiate and carry out these all-important clinical trials. We understand that this is critically important, and initiating clinical trials on our four proprietary programs is a major focus for the Company in the next six to nine months.

Let me give you some insight into our activity since I joined the Company in June, which includes some of the areas that we discussed with the Board.

One of the first things that we did as we began to formulate our business plan was to [go out to] investigators and analysts as well as our business partners and academic collaborators, and ask what you thought Sangamo did well and what the Company could improve on. First, thank you to all of you who helped us by giving us very useful feedback. Obviously, these different groups had some areas of focus that were specific to each, however, in general the responses were remarkably consistent across all constituencies. And while there were some pretty hard truths, there was also some encouraging feedback.

We learned that there was a general acknowledgement that our science and our scientists are outstanding, and our scientists are perceived to be leaders in the genome-editing field. There was an understanding that our company has great potential and tremendous opportunities ahead. However, you also told us that our strategy was not clearly-articulated. Expectations weren't well-managed. We were underperforming, and missing timelines. And, there was clear frustration that we were not adequately translating our groundbreaking science into clinical progress.

The need for clinical validation of the technology is obvious, and our past inability to execute on clinical plans has clearly been a major deficit for the Company. This is something that we will rectify beginning with the steps that we have outlined today.

With this information at hand, the rest of our business plan has been formulated to organize the company so it can achieve its full potential as efficiently as possible. Our business plan was more than just a list of programs on which we wanted to focus, but also covered several areas for development of the Company including developing a clinical organization that is adequately-staffed and structured, to translate our science into clinical trials and to carry these out efficiently. This has been a major area of focus for us in the past four months, and we have and continue to make key hires into the clinical team to strengthen it.

As you may have seen, Geoff Nichol, who had served for over five years as our Executive Vice President of RD, recently left the Company. Geoff has been a valuable member of the team and brought great experience to the R&D organization. Personally, I will be forever grateful to him for being a colleague and for helping me transition into my new role. We wish him all the best in his future endeavors.

As part of our recognition of the clinical group, I am putting a flatter management structure in place. I will not hire a new head of R&D, but will have Michael Holmes, our Head of Research, report directly to me, and hire a new Head of Clinical Development, a position for which we are actively recruiting and expect to hire soon.

We are developing a regulatory strategy for our program, which includes expansion beyond the US for hemophilia and NPS clinical studies, and a pathway to treatment of the pediatric population in these indications. We see pediatric patients as potentially benefiting the most from our genome-editing approach, and we are committed to moving these therapeutics into younger patients where the medical need is greatest. This must be carried out in a prudent fashion, however, particularly for the MPS disorders. There's a striking need for better options for these children.

As I mentioned earlier, our hemophilia B program was awarded orphan drug designation in July of this year. This designation is important, as it means that we are eligible for a seven-year period of US marketing exclusivity upon approval, as well as tax credits for clinical research costs, the ability to apply for annual grant funding, clinical trial design assistance, and the waiver of the Prescription Drug User Fee Act, PDUFA, filing fees.

We are also developing a research organization that can not only support efforts to generate IND enabling studies, but still has the capacity to great and innovative science for which it is rightly famous. The team is already beginning to re-find its mojo, and I look forward to sharing in more detail some of the game-changing improvements that they have made to the technology, that will not only benefit immediate programs like the Biogen collaboration, but will have far-reaching consequences for the power of the entire populations and our programs going forward.

We have a mandate to continue to build our technical operations group, which is being bed by a recent addition to our team, Dr. Mohammad El-Kalay, who brings over 25 years of operational management experience in biologics manufacturing to our organization, and will be responsible for overseeing all processes including external manufacturing.

We have also been focused on corporate hygiene, a term which we use to include a variety of activities including strengthening processes and procedures for development and prosecution of our pipeline; optimization of our organizational structure; general employee care and maintenance; and while making Sangamo a great place to work.

And last but not least, we're also working hard to improve our image and the communication of our strategy, expected milestones and progress. We will behave differently, setting clear goals and achieving them on time. My anticipation is that we will not just look different for the sake of looking different, but our new face will truly reflect the energy, enthusiasm and creativity of our people, the power of the technology that we have built, and the potential that we can realize to make a significant difference to the lives of patients and families.

As I mentioned at the beginning of the call, we laid out plans in each of these areas for the Board who are fully-supportive, and I look forward to further discussing the fruits of this plan with you in upcoming calls.

In the immediate future, we are focused on moving four proprietary programs into the clinic: hemophilia A and B, MPS I, and MPS II. Hemophilia B, MPS I and MPS II are all in-vivo genome editing programs. Our hemophilia A program uses an AAV including a [Factor VIII] cDNA which we believe, based on published non-human primate data, has a potential to be best-in-class.

While this is something of a departure from a previous ZFP focus, going forward we will use our considerable experience in gene therapy, genome editing and gene regulation, to develop the best medicines that we can to serve patient need.

We will complete the follow-up of subjects in our HIV T cell program, and will look for an opportunity to present and publish the data from these studies. Our stem cell study is ongoing as an investigator-sponsored study at City of Hope, and funded in part by CIRM, and we will continue to prosecute this trial through to its completion. However, we will not commit to additional studies or investment in HIV without a partner.

In terms of the next wave of programs in our pipeline, as you know, we are also working with Biogen to develop ex-vivo genome editing applications for beta thalassemia and sickle cell disease, and expect to have more information to share on the progress of these programs in future calls.

With positive data from the in vivo genome editing programs that are entering the clinic in the next months, we have additional proprietary programs that'll be thoughtfully moved into our clinical pipeline. We have very interesting data in our other lysosomal storage disorder, particularly our Fabry disease program. We also have considerable experience in genome editing of T cells, and continue to see T cell oncology as a promising area for future collaborative ventures.

One of the exercises that I've undertaken since I joined Sangamo is to fully review and prioritize the Company's research-stage programs. As I think I mentioned before, one of the great discoveries I made when I joined Sangamo was that the science was so much better than I appreciated when I took the job. One of the outcomes of my review of research, was the group was putting that science and technology to use in some very interesting applications. While we have focused the group, what is clear is that there are plenty of applications of our science that could fuel the long-term pipeline and growth of the Company.

We have initiated the first trial of our in vivo genome editing platform, our hemophilia B study, and expect our MPS I and MPS II studies to be opened in early 2017. All of these trials are dose escalation studies, and will enroll adult subjects. However, our goal with sufficient dosing and safety data is to move rapidly into pediatric patients. We believe that our ability to make a permanent change to the genome is where the specific advantage of our genome editing approach lies, and makes this an obvious choice for a potentially life-long therapeutic solution. We expect to have preliminary data from these trials at the end of 2017 and when we have clinically-relevant data, we will present it at an appropriate scientific or medical meeting, as has been our previous practice.

So, in summary, the third quarter was a very busy and productive period for us, with steady progress in terms of initiating clinical activities for proprietary programs, and in the reorganization of the Company and its procedures and programs. Some of this has been more visible internally than externally, however, it will all positively impact the development and advancement of our therapeutic programs.

While we are investing heavily in our organization, we expect to end 2016 with at least $140 million in cash and cash equivalents. We are in a position to file an IND application for the hemophilia A program this year, and in the next year to achieve proof of concept in clinical studies which will provide not only safety and early efficacy data, but drive significant value.

My goal and my responsibility is to build an organization as both mature and reliable, but nimble and imaginative. We will take small steps, but step-by-step we will achieve what we promise, and in doing so make significant progress in bringing products through clinical development to the patients whose lives they can change, creating shareholder value in the process.

We look forward to updating you at several upcoming investment banking conferences. We will be presenting at the Jefferies Global Healthcare Conference, the Piper Jaffray Healthcare Conference in November, and at the 35th Annual JPMorgan Healthcare Conference in January of 2017, all of which will be webcast and available on the website.

We will also present pre-clinical data from our hemophilia program at the annual meeting of the American Society of Hematology, or ASH, in early December.

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

(Operator instructions) Our first question comes from the line of Liana Moussatos with Wedbush Securities, your line is now open.

Congratulations on all your progress, and thank you for taking my question. I want to just clarify timing of data releases from the hemophilia and the MPS trials. Did you say that that would be 2018 when the first data would come out, or will we see maybe some interim data in 2017?

Liana, thank you for your call and your question. We want to get this data to you as soon as possible. We're starting the trials at the turn of the year, and we hope to have some data in 2017 but it will be towards the end of that year or the beginning of 2018, is a reasonable expectation. We want to give you the data when it's at its most meaningful, and so we'll wait until we have solid clinical information to share.

Okay, and you mentioned progress with Dow Agro Science and Monsanto. Is Sangamo receiving any royalties from agricultural products sales or research tool sales now?

Thank you for your question. Curt?

So, we have a standard agreement with Dow Agro Sciences, and we receive the minimum annual payments, and we haven't given any additional guidance beyond that.

Okay.

Liana, as you know, we typically had a payment from DAS in the fourth quarter of the calendar year, and we expect that as well this year.

We were pleased by their validation of the technology.

Okay, and then before Sangamo had a research tools agreement, I think it was with Sigma-Aldrich?

That's correct.

And then they were [fired], and is Sangamo receiving any payments from that?

We are, Liana, yes. Modest payments, but we did indicate earlier in the last few quarters that sometimes it increased due to the significant licensing. But yes, we still receive royalties.

Okay, and my last question is, any progress in obtaining a partner for HIV, since Q2?

So, we still have to talk about this, the HIV data, and once we've pulled all that data together we will be active. We are and will be actively talking with companies that are expert in this field. Sangamo isn't an HIV company, and I think to best bring that medicine to patients it would have to be through another HIV company.

Thank you very much.

Thank you.

Our next question comes from Ritu Baral with Cowen and Company. Your line is now open.

Good afternoon.

Hi, thanks for taking the question. I wanted to dig in a little bit on the details of the ongoing hemophilia B study. One, you said you have three sites open. What's the total site count going to be, right now as planned?

We don't usually guide to that. We -- this is, if you imagine this is a very important technical groundbreaking study, so we need to make sure that we only deal with the very best investigators. So, we -- it'll be posted on ClinTrials.gov as we work with it, but we're not discussing our plans for site opening.

Got it. The different doses, can you give us clarity on what the doses are, and also will enrollment be staggered for any potential safety observation or DSMBs between the dose arms?

I think that's very wise, because we have to do this very prudently. Dale, do you want to talk about this?

In terms of the dose escalation, we wait -- we treat patients, we're treating the initial patients on the dose escalation, sequentially. And that, before we move from one dose level to another dose level, we have a safety monitoring committee with three external experts, and basically get the agreement from them to dose escalate. And this is not a discussion with the FDA, but with our own external experts that comprise this committee.

We feel it's important to do this carefully and prudently, and I think the system that Dale has put together where we get external validation of the safety and to move on is a very wise way to do it.

Sandy, when does that occur? How long do you need to, say, follow the first two patients before you'll start the mid-dose?

So, for each patient we gather four weeks' worth of data, and then we accumulate that data and present it to the DSMB. So, that process itself takes some days to gather the data and present it to them. But, as soon as they approve it, we will move on to the next cohort.

Got it, okay. And then, the hemophilia factor in B, this is the wild-type factor, not Padua, is that correct?

That's correct.

Okay. So, given the recent gene therapy hemophilia B experience from other AAV non-gene-editing-based therapies, is there anything that you -- any lessons learned from dosing, from steroid use, that would be applicable to your program, given the slightly differential biology? Like, how might you deal with liver enzyme elevations, knowing that it means something a little different for you guys than it does for the other AAV programs?

So, that's a very good question, and it's a very important one. And I think the first principle has to be that we think about the patient first, and take advice from experts in the field. I think the use of steroids is something that has to be done carefully and well. Lower doses of virus, I think one is able to avoid the use of steroids. But, to have a very clear plan in place within the protocol that if there's any changes in the liver function, that you would initiate treatment of steroids. Dale and his team have taken advice from external experts, including hepatologists, who are very confident that the changes in liver function that have been seen are not damaging to the patients, nor a significant health risk, but something we wish to avoid.

So, for the lowest doses, for example in the Factor VIII trial, we would -- we do not feel that the steroid will be necessary. For higher doses of virus and in discussion with the MPS experts, we have agreed with them that we will initiate steroid treatment as a prophylactic, preventative measure, at the beginning of the trial.

The Factor IX is somewhere in the middle. So, the advice from the hemophilia experts is that steroids are not something they would choose to use with hemophilia patients. And so, what we've decided as a compromise, where we will initiate that trial without the use of steroids but monitor it incredibly carefully, and be very comfortable and prepared to initiate steroid treatment, should we see any change in liver function. So, I think what you're hearing is, the steroid question isn't a simple binary one but reflects which disease you're in, which patient population, and what your virus dose is.

Do you have a set threshold for hemophilia B right now? Liver enzyme elevation threshold for startup (multiple speakers) --?

We do, we do, but we have a very clear protocol of what we're going to do. We're not discussing that publicly.

Got it, and then, last question on MPS, MPS I. Given the current population and the treatment, are you going to be enrolling -- are you going to be required to enroll enzyme-na?ve or treatment-na?ve patients, or what is the background of patient that you're going to be looking to enroll when those studies start in 2017?

Yes, important because again, this is about patients and patient safety, and benefit risk. Dale, do you want to have a work on this?

Yes, some -- most of the patients will be on enzyme replacement therapy, but the half life of that therapy is very, very short. It's about four to six hours. So, this will allow us to continuously monitor levels of IDUA in the blood in these subjects. The other group of subjects are subjects who have had a bone marrow transplant, but again, even with the transplant the levels of IDUA are very, very low. So, we will continue to measure both tissue and plasma levels of IDUA.

Got it. Thanks for taking all the questions, looking forward to the progress.

Okay, thank you very much.

Our next question comes from Charles Duncan with Piper Jaffray, your line is now open.

Hi, guys. Most of my questions have been asked, but I appreciate the opportunity to ask one. I guess on the hemophilia B program, it sounds like you're not quite yet actively enrolling patients. So, it may be premature to ask this, but how do you see the competition from other ongoing trials using gene therapy in this indication as challenging either site selection or perhaps patient enrollment?

That's a good question, and we are very cognizant of the small number of patients, the number of other competing therapies. Just to remind everyone that what we provide is a permanent solution. That's the proposition, rather than gene therapy, which one hopes it will last as long as possible for these patients, but may not give them a lifetime solution. And that's why the plan that Dale and the team have put forward is to get some form of safety data to discuss with the agency, and then move promptly into younger and younger children.

The study is open, the study is recruiting. The patients are being screened. But, there are as you know, many trials ongoing and active, and so we await with interest the first patient.

And Sandy, do you think that we may be able to see some progress towards that more pediatric patient population yet over the next 12 months or so? That seems to me to be a real point of potential value and differentiation.

I agree completely, and medical need, which is what drives us here at Sangamo. And I think that's a discussion that we've had with the agency, and we'll continue to have, and have a more meaningful one when we have more data. It is right and prudent to start in adults, and I think that would be my personal decision, as well as what the agency has required of us

I think for MPS I and MPS II where the disease has [sequelae] if untreated early on, the argument for moving into children earlier is much greater, whereas for Factor IX they may require more data of us in adults before we move to children. My ambition is to find a way to move into children, particularly in MPS I and II in 2017. It will depend on our speed of recruitment and on the data. We have been encouraged by, we have been contacted by MPS I and II patients. We've had discussions with the MPS Society, and they really see this as an interesting and important trial, and are giving us great support.

Okay, that's helpful, look forward to that increased visibility. Sandy, I wanted to ask you, I mean, it's clear from other analysts' questions that everyone is trying to figure out if there may be some clinical data in 2017, perhaps even ASH 2017, a little bit more than a year from now. And I guess I'm wondering, as you've conducted diligence in coming into this role, when you look at the pre-clinical evidence for activity including the non-human primate data, and you consider the dosing cohorts that you'll be starting in that hemophilia B study, would you anticipate possibly being in a position to have data for ASH 2017, or at least early activity from some of the early cohorts?

Good question. So, when I came in and saw this data, I've said before, the idea that we will drop a new gene into the albumin locus of somebody's liver is a fantastic piece of science. We need to go slowly and wisely, because we do not want to end up with patients expressing large values of factor that we will never be able to turn off again. So, we need to go very prudently.

We're not promising times. If we have data that suggests activity, we will make it known to the community. I think it is, it will be at the end of 2017. I think we're pushing it to get it to ASH.

Okay, super. That's fair, and I understand the caution or prudence in terms of not setting guidance. Last question, and sorry for the multiple questions, but you mentioned the recent September Board of Directors meeting, and laying out a business plan. I guess I'm wondering, is there one key element that you would highlight that you think is going to be most value-creating? I know that it's probably difficult to select just one, but what do you want to be known for in the next 12 and 24 months?

Reliable delivery, small steps, doing the right thing, again and again. And that was the discussion with the Board, so that's why we're focusing down on these four things. Getting the right people in to be able to make it happen, and not over-promising, not over-reaching, just making it happen a small step at a time.

Okay. Thanks for taking my questions.

Our pleasure.

Our question comes from Jim Birchenough with Wells Fargo, your line is now open.

Hi, guys.

Jim, good afternoon.

Hi, Sandy. Congratulations on all the progress. I guess a clarifying question, and then I've got a deeper question. The clarifying question is just, with the initial dose you're starting at in hemophilia B, is that expected to be therapeutic, or is it slightly sub-therapeutic? How do we think about where you're starting?

It is on the -- we would be fortunate to see a therapeutic effect at that dose. We may do, but this is a -- we have to start low. We owe it to the patients to start low, until we can understand -- this is the first time -- I want to keep underlining to people, this is the first time anyone's put a new gene in somebody's liver. And we need to get this right, and if that involves us taking an extra cohort to get there, then that's what we need to do.

And so just following on that, at what point would you anticipate having -- being in the therapeutic range where you'd expect to see a signal of efficacy? Is it the second cohort, third cohort, or is it hard to say at this point?

I would imagine second cohort is when we will be looking, third cohort is when we'll be demanding it to show us results. And remember, as I said with Liana at the start, we take time between each patient and then after we've had a cohort of two patients, we get an external validation that's safe to increase. And so, we need to march this reliably throughout the year, and that's why even the second cohort data we will be in the mid to latter part of the year, and we would only talk about it if we felt it was truly meaningful and informative. I think there's a danger that if we come out with data that is not completely convincing, that we will all dissect this and not be able to make the right decisions.

And then Sandy, thinking about historically some of the challenges Sangamo has had and part of it was not appreciating the technical challenges in HIV, as an example. And so, when you think about the technical challenges for your first program in hemophilia B, how do you think about the challenge of using three vectors? And it might be helpful for us to understand how you've thought about, is there particular challenges around manufacturing a product with three vectors? Is there a cap to the load from three vectors that creates some risk in terms of immune reaction? And not to introduce math into the conference call, but if we think about transfection efficiency, should we think if you've got a transfection efficiency of 80% for each vector, do you just go 0.8 times 0.8, 0.8, and you've got a 0.5 transfection efficiency? How do we think about these things? Because I think technical challenge has often been not really properly addressed in the past, and I think you're trying to do that.

Absolutely. And so, we are making sure we hire the right people. One of the most important hires of the past couple of months was Mohammed, who has got this wise experience and is building a technical operations group and process development group to maximize that. But, maybe Mike, you could touch on three vectors and the efficiency of transfection?

Hello, happy to. In terms of the three-vector systems, this -- we chose that system because we found that in our pre-clinical studies, it was the most efficient in terms of providing us with the highest levels of gene modification and expression of the therapeutic trans gene. The three-vector system in terms of thinking about the transfection efficiency itself, the AB vector is very efficient for transducing liver hepatocytes. And so, in the three vectors that are infused, essentially they're mixed together, and we found that the liver hepatocytes very efficiently take up all three vectors. And really, it was during our pre-clinical studies that we really optimized, what was the optimal dose and ratio in terms of providing the two ZFN vectors and donor vector, and to ensure that an optimal number of hepatocytes received all three vectors.

And so, it was really these pre-clinical studies that really informed as far as what our strategy was going to be, and really identified what the dose and ratio was to get optimal amounts of gene modification and target integration.

And then maybe a similar scientific question -- when you think about the hemophilia A program and what you've seen in non-human primates, and you think that -- I think you've said 10-fold expression level, or you know, there's a big difference in terms of what you're seeing in those models versus others. Is that a function of improved transduction efficiency? Is it expression efficiency? Is there something about the promoter system? Or, is there anything about the conditioning that you're using in the non-human primates that makes a difference? Just trying to understand if you've broken that down at all.

So, that's a great question, because we're very pleased and proud of that project. Bridget has done a great job in coming up with a very effectively-expressed construct, and I think your -- and I think until we get into humans, we will not know exactly how it compares against Spark and against BioMarin. And so, we are under-promising, and asking you all to be patient, and let's see head-to-head in patients.

However, the NHP data is very enticing, and encouraging. Mike, do you want to talk about the molecular biology that went into it, and then the way our experiments are designed?

Certainly. In terms of the molecular biology, the two main problems with the [Factor VIII cDNA] approach is that the [field's] experience is really one of designing a vector that could efficiently express Factor VIII, in designing a vector that was small enough and had the appropriate properties to efficiently package the vector. And I think what we set out to do was take a very [itera] process to make modifications to the vector that would, number one, improve Factor VIII expression and allow us to improve the packaging efficiency such that we could manufacture this vector at scale and provide sufficient vectors to support clinical studies. And really, there was -- there's quite a bit of work on every component of the vector in terms of the Factor VII cDNA, the expression cassette, as well as the promoter, the liver-specific promoter that's used to efficiently drive expression of Factor VIII.

And it was really by optimizing all these different components and putting them together that we were able to generate what we think is a potential best-in-class vector that really solved these core issues -- number one, once again, getting high levels of Factor VIII expression while being able to produce and manufacture this vector at sufficient scale to support clinical studies.

And Mike, do you want to touch on the use of steroids? Because this is a question that we've had from several sources.

So obviously, our first studies were in mice and then we moved into non-human primate studies. And the idea, obviously, is one of the big problems is that Factor VIII is -- well, I should say human Factor VIII which is expressed by our vector, is highly immunogenic in mice and non-human primates. And when we set out to do the study, we essentially wanted to prevent this host immune response of the non-human primates from essentially targeting and clearing the human Factor VIII from the plasma.

So, what we did is, we treated the non-human-primates with steroids that would allow us to appropriately assess the levels of Factor VIII independent of the host immune system within non-human primates, essentially targeting and clearing this protein out.

Great. Well, thanks for spending all that time, and very helpful, and congrats again on the strong start.

Thank you.

Our next question comes from the line of Gina Wang with Jefferies, your line is now open.

Gina, how are you?

Thank you. I'm good, how are you?

I'm very well, thank you.

Thank you. So, I will ask two questions, follow-up questions regarding the hemo A AAV program. So, the first one is, wondering if you know the percentage of empty capsid?

Do we know the percentage of empty capsid?

Yes.

So certainly, we've done a variety of characteristic studies on our AB vector. So obviously, it's very well-characterized, but we're not really going into the details of all the different analyses in assays that are done to qualify this vector.

I see. So, just wondering if you could give a range? Is that like, above -- I mean, below 40%, or is that --

Gina, I know that some people try, have made a thing of empty capsid, and even adding empty capsid is not something we discuss.

Okay. And then maybe for the [fellow] [nitrate] use, right, in the non-human primates. So, just wondering, have you done any studies without any [solo] [nitrate] use in non-human primates? Because some argument is, other non-human primates, they either did not have the steroid use, and would that be an apple-to-apple comparison given the (multiple speakers) slightly different?

Gina, you're absolutely right, as always, that it's an important question. Non-human primates are a precious resource, not just because of cost, but because of the ethics of abusing them in lots of experiments. The data we have seen shows that there is any data, any difference between steroids and non-steroids, it is small. And it doesn't explain the difference that has been seen between our data, and data such as BioMarin. However, I would guide you again to what was said I think with Jim, which is, until we go into humans and compare like with like, I don't think we will properly understand the relevance of the non-human primates.

It is a significant difference we see, and it encourages and has driven us forward to put this into Man.

Okay. So, also another question is, regarding the data for hemo A program. Since this is relatively straight forward, gene therapy approach versus the hemo B [IV VIP] program, should we expect to see the initial clinical data earlier than ASH? Like, IHA, is that possible?

So, as this call has gone on, first we start to ASH and now we're earlier than ASH? I think that will be -- I think that's an ambitious -- I would love to have the data as soon as possible, because I think this is a really important program for Sangamo, and it speaks to the excellence of our science, the diversity of our approach, and our focus to deliver. I promise you, as soon as we get an indication of the efficacy we will talk on this.

Okay. And now the last question is regarding the MPS I and II programs. Just wondering, will the initial dose also similar to the hemo B [IV VIP] program at around [5e12] range?

It will be similar dose.

Okay. And then, you know, since patient will start with a steroid prophy, will you plan to taper off at some point?

Yes, I'm an endocrinologist, and steroids are often given safely and well, and as long as you have a very clear plan. And so, we have a very clear tapering plan that we've agreed, we've taken advice from both experts in the field and other physicians, so as we can treat these patients as well as possible.

Thank you.

Thank you, Gina.

Our next question comes from Whitney Ijem with JPMorgan, your line is now open.

Whitney, good afternoon.

Hi, thanks for taking the questions. So, first one, just to go back to the hemophilia B trial, fully appreciate that you don't want to share sort of immature data. But, I guess, what will we see as the trial progresses? Do you plan to announce kind of the first patient treated, and then when you move to the second cohort? Or, how will we be able to track the progress, without actually seeing any data?

We will talk as soon as we have meaningful clinical data.

Okay. And then in hemophilia A, I think I recall you mentioning that you plan to use an adaptive trial design, or something, maybe differentiated than hemophilia B. Am I correct in that, and then if so, is there any more color you can give there?

Yes, it's -- I think what we're going to do is, the kind of technique that they use for small molecules more frequently, where you learn from the dosing that has been -- the pharmacokinetics of the dosing that's happened before, to choose which dose you then increase to. And we hope by doing this, we can make as many data points useful in predicting the final dose that we get, and that we can move to clinically-effective dose as early as possible.

We want to get our data out, and competing with the others as soon as possible, so our urgency is as great as yours.

Got it. I'll leave it there, thanks for taking the questions.

Thank you, Whitney.

(Operator instructions) Our next question comes from the line of Roy Buchanan with Janney Montgomery Scott, your line is now open.

Hi, great. Thanks for taking the question. Just a quick one. You guys have presented on some LCA10 constructs, quote-unquote, off the shelf. Have you guys looked at off-target, and can you give us a sense of what that rate is if you have? Thanks.

Mike, what can you talk about with that?

So certainly, in the data that we presented, we had designed some off-the-shelf reagents that were able to target right on top of the most common mutation in CEP290, and it's a very difficult target to go after for a variety of reasons, in terms of really trying to target right on top of this precise mutation. And I think with our technology, it essentially allows us to very precisely target right on top of this mutation, and we can see very high levels of gene modification that were approximately --

85%?

Yes, that it was about 85% on-target modification. Essentially being able to generate these reagents within a couple of weeks. I will say that these particular reagents we haven't looked at the specificity. Along in that data package or presentation at the meeting, we certainly had talked about the CEP290 as well as our ability to target the TCR Alpha gene that's involved in expressing the T cell receptor in primary human T cells. And certainly, off-the-shelf reagents showed very high levels of greater than 90% on-target modification, with no detectable off-targets. I think really this presentation was going about just talking about how very quickly we can generate reagents that precisely target a unique site in the genome with a high degree of specificity.

Essentially 290 we hadn't looked at off-target specificity, but the reagents in general had been very, very specific.

But Roy, just to explain what our normal process would be -- so we have these off-the-shelf, out-of-the-library constructs of the fingers, and we were delighted that we could get up to 85% cutting at this locus. What we would then do, would be to tune them, to tune down any off-target. And what we found increasingly, even over the time I've been here, is that we have great control of off-target cutting, and can take it down to levels that are right at the detection level of the current assays.

So, I have great confidence that if we ever did choose to follow LCA10, that would not be a problem.

Okay, got it. Thank you.

Thank you.

Our next question --

Liana, do you have another question?

I forgot to ask, what's the status of the Huntington's program?

It is in the hands of Shire, and we believe that they are -- when we talk with them, they are loving it, and taking it forward.

But we don't know about clinical progress or anything just general?

It's in their hands, and it's most appropriate for them to talk about it.

All right, thank you very much.

And that concludes today's question-and-answer session. I'd like to turn the call back to Dr. Macrae for closing remarks.

Thank you, Liz. We'd like to thank you for joining us, and we look forward to speaking with you again when we release our Fourth Quarter and End-of-Year financial information in early 2017. We'll all be available later today if there are any follow-up questions, so I wish you all a good afternoon.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone have a great day.