Earnings Labs

Sangamo Therapeutics, Inc. (SGMO)

Q4 2010 Earnings Call· Wed, Feb 2, 2011

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Transcript

Operator

Operator

Good afternoon and welcome to the Sangamo BioSciences teleconference to discuss fourth quarter and full year 2010 financial results. (Operator Instructions) I would now pass you over to the coordinator of this event, Dr. Elizabeth Wolffe, Senior Director of Corporate Communications.

Elizabeth Wolffe

Management

Good afternoon and thank you for joining Sangamo's management team on our conference call to discuss the company's fourth quarter and full year 2010 financial results. Also present during this call are several members of Sangamo's senior management, including Edward Lanphier, President and Chief Executive Officer; Ward Wolff, Executive Vice President and Chief Financial Officer; Dale Ando, Vice President of Therapeutic Development and Chief Medical Officer; and Philip Gregory, Vice President of Research and Chief Scientific Officer. Following this introduction, Edward will highlight recent activities and the significant events in the past year. Ward will then briefly review fourth quarter and full financial results for 2010. Philip will provide an update on of our preclinical ZFP Therapeutic programs. And finally, Edward will update you on our goals for 2011. Following that, we will open the call up 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 markets 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 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

President

Thank you, Liz, and thank you all for joining us for our conference call to discuss our fourth quarter and full year results for 2010 as well as our plans for 2011. The past four months have been an important period of maturation for our ZFP technology, and for us as a therapeutic product development company, we believe that 2011 will be a transformational year for Sangamo. In the year ahead, we have several opportunities to present groundbreaking clinical data from our lead ZFP Therapeutic programs in diabetic neuropathy or DN and in HIV/AIDS. And this, needless to say, is where the rubber meets the road for a company working to establish a novel technology platform as the basis for the development of a new class of human therapeutics. So let me give you a few examples of recent progress along that road. In early January, we announced that we have completed enrollment of our Phase 2b clinical trial in subjects with moderate severity diabetic neuropathy on schedule, which means that we're on track to provide 180-day efficacy data in the fourth quarter of 2011. We also enrolled more patients than anticipated, 170 subjects rather than the 150 that we had initially proposed. But more on that later. We recently announced, in about four weeks from now, we will present the first clinical data from our Phase 1 trials of our ZFN-modified T-cell therapeutic, SB-728-T, for HIV/AIDS at the Conference on Retroviruses and Opportunistic Infections or CROI. I'll have more to say later in this call about the type of data that we will be presenting and our overall strategy and rationale for the trial that we are conducting, including our most recently initiated trial, a Phase 1/2 trial, in HIV-infected subjects who are not taking any antiretroviral medication. We…

Ward Wolff

Management

Thank you, Edward, and good afternoon everyone. As you know, after the close of the market today, we released our financial results for the fourth quarter and full year ended December 31, 2010. And I am pleased to review the highlights of those results. Revenues in the fourth quarter of 2010 were $4.7 million compared to $10.2 million for the 2009 quarter. The fourth quarter 2010 revenues were comprised of revenue from Sangamo's collaboration agreements with Sigma-Aldrich and Dow AgroSciences and agreements related to protein production as well as approximately $2.5 million of revenue from research grants. The decrease in revenues was primarily due to the completion in July 2010 of the amortization period for the commercial license fees received from Sigma in October 2009 under our expanded agreement. This was partially offset by continued revenue from Dow AgroSciences for ZFP manufacturing and research services. As we mentioned in the press release, the increase in research grant revenues was primarily due to renewed funding for our Phase 2b clinical trial in diabetic neuropathy from the Juvenile Diabetes Research Foundation, receipt of four qualifying therapeutic development program awards to support qualified expenses incurred in Sangamo's clinical development programs, Sangamo's portion of the Disease Team Research Award from the California Institute for Regenerative Medicine and research funding for the Michael J. Fox Foundation for Parkinson's Research. Total operating expenses for the fourth quarter of 2010 were $13 million compared to $12.7 million for the same period in 2009. Research and development expenses were $9.9 million in the 2010 quarter and $8.7 million for the prior-year quarter. The increase was primarily due to increased expenses related to our ongoing clinical trails of SB-509 and SB-728-T. General and administrative expenses were $3.2 million in the fourth quarter of 2010 compared to $4 million in…

Edward Lanphier

President

Thank you, Ward. As you have heard, we begin 2011, as we had previously guided, with $60 million, a strong cash position and one that will enable us to take our therapeutic programs forward to points of significant value inflection. Looking forward, we expect to end 2011 with approximately $35 million to $40 million in cash and cash equivalents. This cash projection does not include any new agreements or partnerships that we may develop this year. As you know, the broad applicability of our technology in multiple commercial markets has enabled us to develop a business model which has provided significant revenue from non-therapeutics applications. This has allowed us to move our maturing portfolio of therapeutic programs forward to the very modest cash burn. Our goal is to be as efficient as possible with our use of cash while aggressively building value. As I said earlier, 2011 will be a transformational year for Sangamo in terms of clinical data. First, our most advanced program is in the area of diabetic neuropathy. We have an ongoing double-blind, placebo-controlled Phase 2b clinical trial of our ZFP Therapeutic SB-509 on which we have now completed accrual. SB-509 is a neuroregenerative designed to be a first-in-class to these modifying drugs. There is a growing incident of diabetes. Currently available numbers suggest that there are approximately 24 million diabetics in the U.S. alone and roughly 60% of these patients will develop neuropathy as a result of their high glucose or high blood glucose. This complication of an already difficult disease is debilitating, frequently leading to infections of the feet and potential amputation and places an enormous burden on the healthcare system. This is a major unmet medical need. There is currently nothing available to halt or reverse nerve loss, only drugs that mask the painful…

Philip Gregory

President

Our ZFN platform provides a range of powerful gene modification tools, including gene disruption, gene addition and gene correction and moreover can be designed to target any DNA sequence. In monogenic diseases, which are diseases that are caused by mistake in a single gene, we can use ZFNs to correct that mistake. Our collaborator, Kathy High, who is a Howard Hughes professor at Children's Hospital of Philadelphia and the leading expert in the area of hemophilia, presented some truly spectacular data that her lab has generated on a mouse model of hemophilia B using the ZFNs from Sangamo. Her late-breaking abstract was one of only six accepted at the American Society of Hematology or ASH and was also featured in a roundup of the 20 best of ASH out of 3,500 presentations at the meeting. Her data demonstrated a permanent correction of the human Factor 9 gene in a mouse model, following a one-time systemic administration of our zinc finger nucleases. The ZFN correction process resulted in functionally-relevant levels of the circulating Factor 9 protein in the bloodstream capable of correcting the coagulation defect characteristic of hemophilia. There were couple of other important points beside the fact that we achieved a permanent functional collection. As you heard, our initial ZFN Therapeutic programs have all been in cells of the blood and bone marrow, T-cells and stem cells, cells that can be removed and treated ex-vivo. Factor 9 is made in the liver, and we are able to deliver ZFN systematically, that is into the bloodstream, to target them through the liver. While this is a demonstration in the animal, it is clearly a significant development with important indications for the therapeutic application of the technology. A more technical point, but again one with six significant indications for the development of this as a therapeutic, the method we use to correct the mutant Factor 9 gene could be used to correct over 95% of the typical mutations observed in patients, thus a single off-the-shelf formulation for virtually all hemophilia B patients. This was Factor 9 and hemophilia B. But there are many other monogenic diseases for which the disease gene is known. For example, mutations in the gene encoding Factor 8 are the cause of hemophilia A, to name just one. Our ZFN technology is a platform that's ideally suited for addressing monogenic and rare diseases, and we have active programs in (several). I'll be updating you on our progress in this area on future calls. And with that, I'll turn the call back over to Edward.

Edward Lanphier

President

Thanks, Philip. As you've heard, we have a very busy year ahead with data coming from our two leading clinical programs and a rich pipeline of important preclinical research. In addition to the work that we are doing internally on our therapeutics assets, our permanent shift to a non-therapeutic applications and technology continued to thrive. Sigma continues to do a great job of developing our ZFN assets with its composer, custom reagents, kits and custom cell lines as well as their transgenic animal programs which is a huge growth area, both scientifically as well as commercially. Our collaboration with Dow AgroSciences also continues to go well. Dow is employing our ZFN technology in its core focus crops and marketing the technology as ExZact Precision Technology. The company is working in other crops. These collaborations have allowed us to access capital in a way that is very different from most biotechnology companies. Over the past five years, our Sigma and Dow collaborations have brought in nearly $80 million. And importantly, we have retained significant downstream value in the commercialization of these assets, including in the case of Sigma a 10.5% royalty on sales of ZFNs and ZFN-based products, including transgenic animals. On the financial side, you can expect us to continue to carefully manage our expenses this year while working hard to build value through clinical data and new strategic partnerships. As you have heard, we expect to end 2011 with approximately $35 million to $40 million in cash, cash equivalents, which is more than efficient capital to allow us to achieve several points of significant value inflection. This cash projection does not include any new agreements or partnerships that we may develop. However, having said that, our business model is to partner our programs at points of clear value inflection. We believe that with positive Phase 2b data from our SB-509-901 study, we will be in a good position to establish our therapeutic partnership, enabling us to move this ZFP Therapeutic expeditiously into pivotal trials. 2010 was an important year for Sangamo and we expect 2011 will be an even more significant year of progress and clinical data from our ZFP Therapeutic programs. You can count on us to continue to stay focused on and make substantial progress towards our goal of establishing ZFP Therapeutic as a new and highly differentiated class of human pharmaceuticals. And we look forward to keeping you informed of our progress. We will be presenting at the BIO CEO & Investor Conference the week after next in New York, the Cowen Healthcare Conference in Boston in March and the Needham Conference in New York in April. This completes our prepared comments. And we'd now like to open the call for your questions.

Operator

Operator

(Operator Instructions) Our first question comes from Charles Duncan of JMP Securities.

Charles Duncan - JMP Securities

Analyst · JMP Securities

Edward, my first question is around CROI. I do definitely appreciate the disclosure on the types of data that we could see out of CROI, but it seems to me that you are clearly starting three different types of subjects with HIV. I'm wondering if you could give us a sense of the kind of markers of disease activity in hand that you might see in those different cohorts. Are the CD4 level counts going to be different and more important than viral load in those different cohorts of patients?

Edward Lanphier

President

I need to start with sort of first principles and work from there. So the data that will be presented in terms of clinical data are from a population of subjects who are on HAART and are aviremic. Let's just start with that principle or that premise, and that's where the experiment is. So first, what are the things that we hope to establish? Well, first, we would hope to establish that we have a reliable manufacturing method for making this T-cell product. And since it's the first time it's been used in man, it's really safety, safety, safety. From an outcome perspective, I think it's critical that people ask the kinds of questions or look for the kind of data that we discussed on the call. And that is do these modified T-cells, the ZFN, CCR5-modified T-cells, do they engraft, do they circulate normally, do they traffic normally, are they resistant and so on? And then lastly, what is the impact on the patient's own immune system? And you mentioned a couple of those parameters, CD4-CD8 ratios. What I want to make sure people understand is that in this preliminary data that's being presented in this aviremic population, people should not be looking for changes in viral load given that it's an undetectable population. That I think we'll look at in later studies in the treatment-naïve population as well as in the HAART failure population.

Charles Duncan - JMP Securities

Analyst · JMP Securities

You have opened up a trial in HAART-naïve patients, which frankly seems pretty interesting. Why would investigators want to pursue HAART-naïve patient with this novel technology? You must say something about investigators' interest in the technology is I guess what I'm asking.

Edward Lanphier

President

I will turn it over to Dale if he wants to comment. I think it does say a lot about patients' interest in a therapy that can create a compartment of the immune system that from a goals' perspective could be analogous to the these elite controllers. But we're a long way from presenting data that establishes that. And I think you're right in terms of the interest. Dale, do you want to comment about interest in the treatment-naïve population study.

Dale Ando

Analyst · JMP Securities

In general, the interest with this type of modification of CD4 T-cells is that it's an extremely novel way of approaching HIV and trying to decrease the amount of cells infected by the HIV virus in patients. So I think application of this particular T-cell modification to patients who are not on therapy with HAART is a very natural investigation to try to really elicit sort of the ability of these CD4 T-cells to be protected. So I think with respect to that, compared to the patients who are aviremic, this is a very clinical indication for this product. And that's the appeal.

Charles Duncan - JMP Securities

Analyst · JMP Securities

And finally one housekeeping question for Ward. Ward, could you give us the stock-based compensation in the quarter please?

Ward Wolff

Management

In the quarter, Charles, the total stock-based was about $2.1 million.

Operator

Operator

Our next question comes from Joseph Schwartz of Leerink.

Joseph Schwartz - Leerink

Analyst · Leerink

I was wondering if you could tell us what needs to happen in order to allow 70 to 80 to be administered systemically like the hemophilia mouse.

Edward Lanphier

President

Well, I'll ask Philip to respond to that. But one of the things we've talked about is our overall program. Two of three applications will be discussed or presented at CROI, the first being the T-cell program and the next generation being the hematopoietic progenitors. But we definitely have an interest in what we call the in-vivo application. And Philip, do you want to talk about on a high level maybe what we're thinking about it?

Philip Gregory

President

Sure. Actually we received Gates Foundation funding to look at precisely this question of whether there is a method that could be used systematically to not just protect the T-cells anymore, but appropriately hematopoietic cells from a direct in-vivo demonstration. If those studies are ongoing, the questions that we're trying to address are what will be the appropriate delivery mode and do we hit enough of these cells to create a resistant population, insufficient numbers to have the desired clinical outcome. But we're exited about the possibilities and we'll continue to explore this at the research level.

Joseph Schwartz - Leerink

Analyst · Leerink

And also, if you could just back up a second and remind us of the primary distinction between ZFPs and ZFNs. Would one approach be more desirable over the other? I know you have got many programs in each area. Could you just remind us of some of the basic principles and why you choose one versus the other?

Philip Gregory

President

The two arms of the technology, if you will, are transcription factor and nuclease technology. So the ZFP component is actually common to both. That's the targeting ability that gives us the ability to address a particular gene in a genome. The nucleus technology gives us the ability to edit the genome directly. So we can knock out genes completely. We can correct mutations that cause a disease. And we can add new information to a location in the genome with site specificity. The transcription factor of technology is more of a volume control. We are able to either increase the amount of expression in a particular gene or we can decrease it, but not necessarily completely shut it off. So more RNAi like, if you will, on the repression side. And so the choice of which platform to use is really driven by the disease, the biology of the gene in that disease and the clinical outcome that we need to drive to. If four of the same is the right thing, then obviously a ZFP activator might be the right thing to use. And that's what's being tested in SB-509. If you want to completely destroy and eliminate a gene like in CCR5, then the nuclear technology is the way to go.

Edward Lanphier

President

And if you want to correct a gene, like we did with the Factor 9 that Philip discussed, the nucleases where a donor allows you to change the DNA sequence inside the cell and permanently modify, in this case permanently correct, the mistake in a gene. So it's a very general, but very powerful core technology.

Operator

Operator

Our next question comes from Ted Tenthoff of Piper Jaffray.

Ted Tenthoff - Piper Jaffray

Analyst · Piper Jaffray

First, if I may, just a quick housekeeping question. With the guidance that you guys provided with relatively flat operating expenses this year, with the current studies that are ongoing, is R&D going be shaped like last year or do you think it'll be a little more front-end loaded or a little flat? Just trying to get some ideas of how you see the timing of the studies impacting that quarterly investment.

Edward Lanphier

President

I think the guidance we're going to give is going to be annual guidance versus quarterly guidance. I think your instincts are right in terms of where the costs will be first half versus second half. But I don't think at this point we're going to get into quarterly guidance.

Ward Wolff

Management

I would agree with that. I think what he said is right.

Edward Lanphier

President

One of the things that I try and say every time I'm in one-on-one with anybody is at least for a while we're probably not a particularly interesting financial story. What we are hopefully is an interesting and important clinical development and product development platform. And as long as we have sufficient cash to get to those material milestones, I think to me that's the critical piece of how we think about the finances and our business model.

Ted Tenthoff - Piper Jaffray

Analyst · Piper Jaffray

You guys are talking about the improvement in reagents in the ag business. How should we be thinking about that from contribution? Can you say what those backing out the amortization and put those royalties might have been in 2010 even just directionally? Obviously we're expecting that to grow going forward. But when do you see those as kind of breakeven businesses? I'm trying to get a sense of when that becomes really sustainable from those non-therapeutic partnerships?

Edward Lanphier

President

To your latter point, our cost of those partnerships is essentially zero. So when you say are they profitable businesses, when we get revenues from them I'd say they're "profitable business unto themselves". Questions are when will those revenues begin to materially offset and bring the overall company to that point. And again, these are important partnerships, but as, Ted, you and I've discussed many times and with others, these are financial guidance that will have to come from our partners. Now with that said, I think I would really encourage analysts and investors to listen to the Sigma-Aldrich presentation from JPMorgan. And to the extent, there is a transcript from their breakout session to get a sense. They were very specific about the kinds of growth and the kinds of things they expect in the zing finger nuclease space. But we'll leave that guidance and those growth projections to our partners. Ward, anything you want to say more on?

Ward Wolff

Management

No, I agree with all that.

Ted Tenthoff - Piper Jaffray

Analyst · Piper Jaffray

Is that directionally where the therapeutic stuff and more of where the focus is? I'm really excited to see that data. Help us understand what next steps will be in terms of driving this? Obviously we're talking about a very exciting approach here that I think would have regulatory backing. But what is this data going to provide for you for the next steps, driving for example HIV to commercialization?

Edward Lanphier

President

We've guided that we expect to present more data in the second half of this year and appreciate the opportunity to reiterate that guidance. And as I discussed on the call, we actually are looking across the full spectrum of the disease right now. And those data, to your question, will really help inform next steps in our development strategy. So I think that investors and analysts should look forward to the data at CROI and then look for more data in the second half of the year as those data are presented and also quite frankly are available to us. And that's what really will drive and inform our next steps in terms of moving to the next phase of clinical development.

Operator

Operator

(Operator Instructions) Our next question comes from Liana Moussatos of Wedbush Securities.

Liana Moussatos - Wedbush Securities

Analyst · Wedbush Securities

Any plans to take a monogenic/rare disease into the clinic using your technology this year or next year?

Edward Lanphier

President

No, I wouldn't say we are guiding to being in the clinic this year. I guess I probably wouldn't comment on beyond that or 2012. But I hope and believe that you get a sense of both our enthusiasm as well as priority by our discussion of it at the ASH meeting and here on this call. Obviously being able to do this in Factor 9 across the factors across monogenic diseases, and we certainly discussed in the past our interest in sickle cell and thalassemia and other rare and monogenic diseases. We have a lot of interest in those, and we fully intend to push those forward. But in terms of something in the clinic this calendar year, no, we wouldn't guide to that.

Liana Moussatos - Wedbush Securities

Analyst · Wedbush Securities

What about partnership?

Edward Lanphier

President

Well, I think what we've discussed in terms of partnerships is post the SB-509-901 trial and assuming positive data, we would move forward with partnering discussions around that program.

Operator

Operator

As there are no questions in queue, I'd like to turn the call back over to Edward Lanphier.

Edward Lanphier

President

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

Operator

Operator

Thank you, ladies and gentlemen, for your participation. That does conclude your program. You can disconnect your lines at this time. Have a great day.