Sangamo Therapeutics, Inc.
Q3 2009 Earnings Call Transcript

Published: 5 Nov 2009

[Operator:]

Welcome to the Sangamo BioSciences Teleconference to discuss Third Quarter 2009 Results. This call is being recorded. I will now pass you over to the coordinator of this event, Dr. Elizabeth Wolffe, Director of Corporate Communications.

[Elizabeth Wolffe:]

Thank you, Lisa. Good afternoon and thank you for joining Sangamo’s management team on our conference call to discuss the company’s third quarter 2009 financial results. Also present during this call are several members of Sangamo senior management, including Edward Lanphier, President and Chief Executive Officer; Ward Wolff, Executive Vice President and Chief Financial Officer; and Dale Ando, M.D., Chief Medical Officer and Vice President of Therapeutic Development. Following this introduction, Edward will highlight the company's recent activities; Ward will briefly review third quarter financial results. Finally Dale and Edward will update you on our therapeutic programs and goals for 2009. Following that, we will open up the call for questions. As we begin, I’d like to remind everyone that the projections and forward-looking statements that will be discussed during this conference call are based up on 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’re 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 risk factors that could cause the actual results of the company’s operations to differ materially from those contained in our projections or forward-looking statements. Now, I’d like to turn the call over to Edward.

[Edward Lanphier:]

Thank you Liz and thank you all for joining us for our 2009 third quarter conference call. Past several months have been very important and productive for Sangamo with major advances on the clinical, business and financial fronts. Let me briefly review some of our accomplishments with you. On the ZFP therapeutic front on October 20, we presented new positive top-line data from our Phase 2 clinical trial of SB-509 in diabetic neuropathy at the Society for Neuroscience meeting. I have asked Dale to review the data from this presentation and provide you with a detailed explanation of their significance later in the call. However, the take-home message can be simply and clearly stated. These data provide mechanistic proof of concept, strengthening our belief that we have an active drug that has a neurodegenerative mechanism of action. Furthermore, these data allow us to define a drug responsive patient population. Based upon their baseline DN disease severity that we believe will optimize the identification of SB-509 responsive subjects. This information is very encouraging and will greatly aid in the design of future clinical trials of our lead ZFP therapeutic. In September, we announced that the FDA had reviewed and accepted our IND application to initiate a Phase I clinical trial of our ZFN-based therapeutic SB-728-T to treat HIV/AIDS. In contrast to the first trial that was initiated earlier this year with the University of Pennsylvania, this is a Sangamo sponsored [INDISCERNIBLE], which provides for a repeat dosing study in a much more common population of HIV infected subjects. Importantly, this trial enables us to more rapidly advance the clinical development of this drug on a path towards commercialization. We also recently received a major vote of confidence for the application of our ZFP technology as a platform for developing novel human therapeutics and the awarding of two significant research grants. Most recently, our collaborators at City of Hope and the University of Southern California were recipients of the California Institute for Regenerative Medicine or CIRM grant of $14.5 million to fund research into the development of a stem cell application of our CCR5 ZFN for HIV/AIDS. For those of you who have followed our SB-728-T program in T-cells, this program in hematopoietic stem cells moves up another step closer to emulating the results of the now famous [Berlin] patient. The second grant from the Doris Duke Charitable Foundation of approximately $0.5 million was awarded to Donald Kohn. Director of UCLA, Human Gene Medicine Program and a member of the Broad Stem Cell Research Center. This grant will support the application of our ZFN gene-editing technology also in hematopoietic stem cell at this time for the treatment of Sickle Cell Disease. For both of these programs, Sangamo will supply the ZFNs and in the case of the [stem] grant, we will also provide product management support. While these grants have been awarded directly to our collaborators and Sangamo will receive reimbursement for our share of the work, this $15 million in new funding enables the preclinical development of two ZFP therapeutic programs, very positive news on both, the scientific and financial fronts. In another development that speaks to the potential use of our ZFPs in therapeutic applications, we published a high-profile paper in the scientific journal Natural Biotechnology, demonstrating the use of our Zinc Finger Nuclease Technology to modify human embryonic stem cells and induced pluripotent stem cells. The work was carried out in the laboratory of Dr. Rudolf Jaenisch as the Whitehead Institute has received a significant amount of interest as the technique described in the publication, represents some major breakthrough in stem cell engineering and second-generation stem cell therapeutics. In the non-therapeutic applications of our technology, we recently announced the major expansion of our existing license agreement with Sigma-Aldrich, providing them with exclusive rights to develop and distribute ZFP modified cell lines for commercial production of protein pharmaceuticals and certain ZFP-engineered transgenic animals for commercial applications. Our Sigma relationship continues to be an outstanding mutual success story. Sigma is focused on unlocking the value of our technology and is committed to rapidly making it commercially available, driving revenues for both companies and visibility for our science. Under the terms of the new agreement Sigma made upfront payments of $20 million, including $15 million license fee and $5 million for our common stock at $7.86 per share. This is a major investment and one that they are working quickly to monetize. As Sigma's CEO pointed out on their recent third quarter earnings call, our ZFP technology platform quote will be a core component of Sigma-Aldrich's growth strategy in the high-value biologic tools and growth. We are very confident that Sigma has the enthusiasm, expertises and resources to develop this business fully. We have some indication of their passion for the technology and transgenic animals as Sigma has moved rapidly to identify and generate a selection of rat transgenic models for a variety of conditions and are doing a great job of marketing these models, as well as, offering our custom rat knockout service. So, as Sigma likes to say, stay tuned. Finally, on the financial front, in early October we completed an underwritten public offering of 3 million shares of common stock price of $7.20 per share that brought net proceeds of $20.9 million. With this financing and the proceeds from the expanded Sigma agreement, we have significantly strengthened our balance sheet, which in turn strengthens our position in third-party discussions and gives us the ability to continue to aggressively invest in our growing pipeline of ZFP therapeutic programs. Speaking to our financials let me now hand the call over to Ward to review our third quarter 2009 results. Ward?

[Ward Wolff:]

Thank you, Edward and good afternoon everyone. As you know, after the close of the market today, we released our financial results for the third quarter ended September 30, 2009 and I am pleased to review the highlights of those results. Revenues in the third quarter of 2009 were approximately $4.1 million, compared to $3.7 million for the same period in 2008. Total operating expenses for the third quarter of 2009 were $8.9 million compared to $10.1 million for the same period in 2008. Included in operating expenses was non-cash employee stock-based compensation costs of $1.5 million in the 2009 quarter compared to $1.3 million in the 2008 quarter. Research and development expenses were $6.2 million in the 2009 quarter and $7.6 million in the prior year quarter. General and administrative expenses were $2.7 million for the third quarter of 2009 compared to 2.6 million for the same period in 2008. For the third quarter of 2009, we reported a consolidated net loss of $4.9 million or $0.12 per share compared to a net loss of $6.3 million or $0.15 per share for the third quarter of 2008. With respect to the balance sheet, we ended the third quarter with $47.9 million in cash, cash equivalents, marketable securities and interest receivable. Our net cash used in operating activities was $4.6 million for the third quarter and $17.8 million for the first nine months of the year. I am pleased to say that we are on track with respect to our operating plans for 2009 through the third quarter. In addition due to our recent financing and expansion of our license agreement with Sigma-Aldrich as noted by Edward in his introductory comments, we are pleased to update the cash guidance to at least $85 million in cash and investment balances at the end of 2009 up from the earlier guidance of $45 million. With respect to the accounting treatment for the $15 million license fee from Sigma-Aldrich, we expect to recognize that revenue ratably over the three quarter period from October 2009 through June 2010. Thank you and I will now the call back over to Edward.

[Edward Lanphier:]

Thanks Ward. As you have just heard we now expect to end 2009 with at least $85 million in cash, which puts us in a very strong position going forward as we continue to pursue ZFP therapeutic partnering discussion while strengthening our ability to continue to advance our pipeline of ZFP therapeutic programs. On that note let me turn you over to Dale to update you on our ZFP therapeutic clinical programs and progress, particularly the data that we recently presented at the Society for Neuroscience Meeting. Dale?

[Dale Ando:]

Thanks Edward. As Edward mentioned this quarter's major news from a clinical program was a presentation of statistically significance prospectively defined top line data from our Phase 2 clinical trial of SB-509 in subjects with diabetic neuropathy at the Society for Neuroscience meeting. Specifically we presented data from our SB-509-601 trial demonstrating improved nerve fiber growth and regeneration in treated subjects versus placebo. This data provide direct histological proof of concept in man for the neuroregenerative mechanism or actions of SB-509. Further these data have also defined a drug responsive population based on the neuroregenerative and angiogenic actions of SB-509 for the design of future trials. First to remind you SB-509-601 was a double-blind placebo-controlled repeat dosing Phase 2 trial of a 110 subject with mild to moderate DN. Two third of the subjects were treated with drug and one third with placebo. All subjects received three treatments at 0, 60, and 120 day with 180 days post-treatment being the primary data now at this point. Data were collected at multiple time points and a clock multiple quantitative end point. One of the prospectively defined end points was IENFD or intraepidermal nerve fiber density. Some of you may recall that this is a portion of the study that was funded by the Juvenile Diabetes Research Foundation or JDRF and was carried out in collaboration with a group at John Hopkins University Medical School, led by Dr. Michael Polydefkis. INFD is an established direct measure of the small caliber sensory nerve fibers that are present in the skin and are responsible for terminal nerve-skin sensation. These are the primary skin sensory nerves involved in lost in diabetic neuropathy. A collaborator at Hopkins have demonstrated that the loss of these very fine nerves in the skin is a sensitive indicator of the primary sensory nerve damage, caused by elevated glucose and the progression of DN. The biopsies provide a direct histological measure of nerves damaged by DN and allow us to quantitatively evaluate increases in skin nerve density that would be consistent with the neuroregenerative properties of SP-509. IENFD was obtained using small punch biopsies in the skin of thigh. We measured INFD at baseline day zero, again 30-days after the final drug treatment or day 150. We also then investigate the effects of SP-509 on their regrowth of these nerves. In SP-509 treated subjects, we observed a statistically significant increase in the mean percent change in nerve fiber density from baseline, compared to a decrease for placebo treated. A rank some analysis of this data that was also statistically significant. These data confirm that the drug is active and demonstrates a direct proof of concept of a neuroregenerative mechanism of action in man. Data that was presented at this American Diabetes Association Meeting demonstrated that subjects entering the SP-509-601 trial with moderate severity DN versus mild disease severity had clinically relevant magnitude of improvement in the neurologic exam or NIS-LL in the SP-509 treated group, compared with placebo treated subjects. This was determined by a number of baseline measures such as, nerve conduction velocity or NCV and NIS-LL. In addition, this effective consistent with results of our Phase I clinical trial, which also evaluated a modest severity population. We stratify the subjects by the severity of their diseases as measured by baseline INFD. Subjects with more severe DN showed a statistically significant response in INFD to SB-509, compared to placebo. With an improvement of four fibers per millimeter or greater than four years of reversal of the DN damaged to the nerve fibers in the skin. We also present the data at the Society for Neuroscience Meeting that demonstrated that when other clinical responses to SB-509 were analyzed in subjects with more severe disease by IENFD, parallel improvements in NIS-LL and sural NCV were observed to be of clinically relevant magnitude and durable. Collectively these data clearly define for future SB-509 trials, a moderate disease severity drug-responsive population for end points in previous DN Phase III trials. Interestingly, particularly in light of the potential for use of SB-509 in ALS, in this same group where the muscle component of the NIS-LL was specifically analyzed. Treatment dependent muscle strength improvements were evident in the SB-509 treated group, compared with placebo treated subjects. With a severity of vascular disease in the 601 studies subjects was taken into account using baseline levels of plasma ICAM-1, a mark of vascular damage. SB-509 treated subjects with more severe vascular disease higher ICAM-1 levels showed a statistically significant improvement in mean sural NCVs changed from baseline compared to placebo, providing strong support for the angiogenic mechanism of SB-509. As you’ve heard me say before, the function of a Phase II clinical trial is to establish parameters that were formed for the design of a later pivotal trial. As one designs these pivotal studies one not only needs to establish dosing regimen but in a progressive disease like DN one also needs to establish the appropriate severity of disease for an optimal target responder population. We then need to accrue test and evaluate subjects over a period where the greatest difference in approvable end points can be observed. At first glance it may be somewhat counter to that SB-509 appears to have more of an effective subjects with more severe disease. In fact, back in 2005 our advisors initially recommended and we focused on a mild severity DN population, as they expected SB-509 to have only a nerve protection effect. As you have heard, we have demonstrated that SB-509 has restorative and regenerative effect. Diabetes and hyperglycemia results major changes to the micro vascular compartment and later on affects large vessels resulting in stroke, triple vascular disease and myocardial ischemia. Initially DN is the result of toxic metabolic effect of blood glucose control directly on the nerves. As the diabetes duration increases there is significant damage to the microvasculature or small blood vessels that carries oxygen and nutrition to the nerves. In a milder DN situation there is minimal microvascular degeneration compared with moderate or severe disease. From a mechanistic perspective this dual nerve and blood vessel damage is counteracted by the dual function of SB-509, which increases the expression of VEGF-A, important nerve and blood vessel growth factor. These data collectively provide a compelling rationale for SB-509's greater effectiveness in the moderate to severe DN setting. In the 601 study based on baseline DN severity, a clear clinically relevant hypothesis was generated to evaluate subjects by asking the question, what is difference in response to SB-509 between mild and moderate severity DN subjects, based on the baseline quantitative measures that we use, NIS-LL, NCV, and IENFD. Using this hypothesis we have seen an unambiguous response to SB-509 treatment. Finally, when multi-baseline measurements of disease severity were considered IENFD, ICAM-1, NCV, and NIS-LL a drug-responsive population was identified that demonstrated a statistically significant, clinically relevant change in NIS-LL and NCV compared to placebo. So to summarize, SP-509 continues to be safe and well tolerated and we have established a neuroregenerative mechanism of actions along with a well-defined drug-responsive population. This is exactly what we set out to do in our Phase 2 program. To update you on our progress in some of our other SP-509 clinical programs, we have completed the accrual and treatment phase of expanded 701 Part B study in severe DN and we expect to present data from this study in the first half of 2010. We have also completed accrual from our Phase 2 study to evaluate SP-509 for treatment of ALS. However, given that this is an open label study we are pleased to have the opportunity to report preliminary data from some of the subjects in December in work-in-progress session at the 20th International Symposium on ALS, which is being held in Berlin, Germany. Finally, as Edward mentioned in addition to the clinical trial of our ZFN based therapeutic SB-728-T for HIV/AIDS, which is ongoing at the University of Pennsylvania, we recently announced the initiation of an additional trial of this drug. In contrast to the trial at UPenn, which is an academic study run by our UPenn collaborative, this trial is Sangamo sponsored and managed and is a repeat dosing trial in a patient population that are representative of approximately 30% of the HIV infected individuals in the US. With that update, I’ll turn the call back to Edward.

[Edward Lanphier:]

Thanks Dale. As you have heard over the past few months we have made progress on all fronts. We have significantly strengthened our balance sheet by our recent financing and by bringing non-dilutive funding into the company, through an expansion of our agreement with Sigma-Aldrich. This puts us on track to end 2009, with approximately $85 million in the bank as oppose to $45 million that we guided to on our last quarterly call. The expansion of our agreement with Sigma enables the acceleration of the uptake and adoption of the ZFP technology by industry and the academic community. Sigma is an aggressive and effective distributor of our ZFP technology and is heavily invested in its success. We believe that this will have both short and long-term benefits for Sangamo and our shareholders, as appreciation of the breadth, power, and value of our technology platform grows. The analysis of the data from our Phase II 601 trial has confirmed an SP-509 is an active drug with neuroregenerative mechanism of action, and has given us valuable information that has allowed us to define the DN patient population that is most responsive to SP-509. These data plus the additional capital that the financing and the Sigma agreement brought in strengthens our position in our ongoing discussions with pharmaceutical and biotechnology companies regarding the partnering of SP-509, as well as our ability to make decisions regarding the development of our ZFP therapeutic programs that will allow us to build substantial and sustainable shareholder value. So, in conclusion, we continue to make significant progress on our clinical programs, as well as our non-therapeutic partnering programs. We also continue to be successful in accessing the kind of significant additional capital necessary to aggressively advance our ZFP therapeutic pipeline. All of this activity has individually and collectively consistent with our long-term goal to grow the value of our company by establishing our ZFP therapeutics as a novel, drug development platform. Thank you for your attention this afternoon. We will provide additional updates at the Merriman Curhan and Ford 6th Annual Investor Summit on November 10th and our year-end and fourth quarter call in early 2010. This completes our prepared comments. I would now like to open up the call for your questions.

[Operator:]

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

[Charles Duncan:]

My first question is regarding the Sigma or the traction Sigma is getting, Edward I was at site for neuroscience and there was a surprise out of that, and then I spoke with some of the folks at Sigma that are selling the products. Can you tell me if you’ve gotten any sense for the how high the demand has been for animals versus the broader service? I have heard it's pretty good. What's the feedback you’ve gotten from Sigma?

[Edward Lanphier:]

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

[Charles Duncan:]

Okay. Then my follow-up question is on SP-509 development strategy. Edward now that company is pretty well capitalized and you have identified what looks to be a real responder group, could you perhaps contrast that thought process regarding partnering versus perhaps a more capital efficient clinical development plan and what your thought is there and perhaps if you are going to move forward with 509 in diabetic neuropathy, your sense of the size of trial order made into not actual numbers?

[Edward Lanphier:]

Well, Charles. Let me try and repeat what we have said in other settings and again on this call. We are in active discussions with pharmaceutical and biotechnology companies about the next phase of development of SP-509 or simply put partnering discussions. Those conversations are augmented, based upon the data that you have all now seen presented at Society for Neuroscience. So mechanistic proof of concept and from a neuroregenerative perspective as well as a definition of a clear responder group and Dale I think did a nice job today of talking about those data. So it's also augmented by our increased cash position from the Sigma expanded relationship as well as the financing we did as Ward mentioned, we are on track to end this year with at least $85 million in cash. So, we continue to move down the road in those discussions and if we can move forward with a partner in a way that we think is in the best interest of shareholders, we will definitely do that. We're also prepared, based upon augmenting our balance sheet to do the things that we think are in the best interests of shareholders and if that means pushing forward on our own with SB-509, we're certainly financially prepared to do that. Okay and then final question on DAS, any thought on increasing visibility on product development and/or business development under the Ag use of the technology platform?

[Edward Lanphier:]

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

[Operator:]

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

[Alastair Mackay:]

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

[Dale Ando:]

That's certainly is better to have a prospectively defined end points, now the top line end points from nerve fiber density was prospectively defined, so that's probably the strongest from a statistical point of view from that nerve fiber density data. The sub analysis is looking at the more severe IENFD groups. The real reason why the very and first, the P value was some light point 0.001 even though was sub-hoc analysis. So, it’s a quite a high relationship in that sub analysis.

[Edward Lanphier:]

Again I want to just to repeat, the IENFD data that we presented at Society for Neuroscience were exactly what you just said, those were top line prospectively defined end points in the trial, including all subjects and those data’s are statistically significant. You go further, the additional analysis that we did was based upon their biological finding looking at the disparity and then looking at those groups that were more responsive. So, and those were the data that we presented at Society for Neuroscience.

[Alastair Mackay:]

So it does sound like you have identified interesting calculation to go forward as you’ve discussed. Clearly a different question on HIV reagent, can you talk a little bit about the distinction if you see one between truncated CCR5 and a CCR5 that would generate novel mutation present perhaps a model challenge for the immune systems?

[Dale Ando:]

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

[Edward Lanphier:]

I’ll just add that we just look for the generation of unusual CCFI variance in the publication that was published in 2007 in niche of [biotechnology] there is supplementary information. So it looks very hard to find such truncation products and we are unable to find.

[Operator:]

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

[Bill Nasgovitz:]

This is all such great news with this royalty payment and upfront money or hurdle money. Congratulations and also the scientific findings, it seems that you’re really on to something, but the market could care less. So why do you think that is?

[Edward Lanphier:]

Well, Bill as you and I discussed many times I’m sure I can't opine on the markets with any sophistication compared to people on this call. What I can speak to is the performance of the company and I think the performance of the company is outstanding. We’ve had a very productive several months here again, from a clinical perspective from a research and data perspective, from a business development perspective and from a financial perspective. So, I know it’s frustrating to shareholders to see the stock go up and the stock go down. Again when I try to reiterate on the script and you and I discussed and have, about what we're doing and what I feel our job is, is to build substantial and sustainable shareholder value. That's not going to happen in a day or over the quarter or even over a single year, the stock may well fluctuate during that period of time. My belief is that we have the science, the intellectual property, the management team and the products to drive real substantial value over a period of time. So that's what I think we've positioned ourselves to do by augmenting our balance sheet over the last couple of weeks.

[Bill Nasgovitz:]

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

[Edward Lanphier:]

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

[Operator:]

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

[Edward Lanphier:]

We’d like to thank you for joining us. We look forward to speaking with you again when we release our fourth quarter and 2009 yearend financial information. We will be available later today for any followup questions. Thank you.

[Operator:]

Ladies and gentlemen that does conclude today’s conference thank you all for your participation.