Sangamo Therapeutics, Inc. (SGMO) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Sangamo Second Quarter 2020 Teleconference. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker, Mr. McDavid Stilwell. Please go ahead, sir.

Good afternoon, and thank you for joining us today. With me this afternoon on this call are several members of the Sangamo executive leadership team, including Sandy Macrae, Chief Executive Officer; Sun Lee, Chief Financial Officer; Mark McLean, Chief Business Officer; Jason Fontenot, Interim Head of Research; Bettina Cockroft, Chief Medical Officer; and Melita Sun Jung, Head of Business Development. Slides from our corporate presentation can be found at our website, sangamo.com, under the Investors and Media section in the Events and Presentations page. This call includes forward-looking statements regarding Sangamo's current expectations. These statements include, but are not limited to, statements relating to our pipeline of genomic medicine product candidates; our ability to develop, obtain regulatory approvals for and commercialize therapies to treat certain diseases and the timing, availability and cost of such therapies; plans and time lines for Sangamo and to conduct clinical trials and share clinical data and the potential for data to demonstrate clinical benefit to patients; the potential to use certain technologies to develop AR therapies, our collaboration strategy and the potential to earn fees, milestone payments and royalties from our collaboration; plans and time lines for building and opening manufacturing facilities, the effects of the evolving COVID-19 pandemic; the anticipated benefits of our organizational changes; our expectations regarding our financial performance and resources and other statements that are not historical fact. Actual results may differ substantially from what we discuss today. In addition, these statements are not guarantees of future performance and are subject to certain risks and uncertainties that are discussed in documents that we file with the securities and Exchange Commission, specifically in our quarterly report on Form 10-Q for the quarter ended June 30, 2020. The forward-looking statements stated today are made as of this date, and we undertake no duty to update such information, except as required under applicable law. On this call, we discuss a non-GAAP financial measure. We believe this measure is helpful in understanding our past financial performance and our potential future results. This is not meant to be considered in isolation or as a substitute for the comparable GAAP measure. The comparable GAAP measures and reconciliations of GAAP to the non-GAAP measures discussed on this call are included in today's press release, which is available on our website. And now, I'd like to turn over the call to Sandy.

Thank you, McDavid, and good afternoon to everyone on the call. Last week, Sangamo and Novartis announced a global collaboration to develop gene regulation therapies for three undisclosed neurodevelopmental targets, including genes linked to certain forms of autism spectrum disorder and intellectual visibility. We believe that this seventh collaboration with yet another accomplished biopharmaceutical partner further validates the confidence our industry has in Sangamo's zinc finger protein platform and illustrates the value and potential of genomic medicine and neuroscience. We are thrilled to be collaborating with Novartis, who bring exceptional expertise in URO development and is committed to pioneering the next wave of inhibitive treatments. The collaboration will leverage our proprietary zinc finger protein transcription factors or Zfptfs in an effort to regulate or activate the expression of genes that are inadequately expressed in individuals with certain types of neuro developmental disorders. Under the collaboration agreement, Sangamo expects to receive an upfront $75 million license fee payment and may earn up to $720 million in other development, regulatory and commercial milestone payments, comprised of up to $420 million in development milestones and up to $300 million in commercial milestones. Sangam was also eligible to earn tiered high single-digit to sub teen double-digit royalties on potential net commercial sales of products arising from the collaboration. At Sangamo, we are prioritizing our opportunities and optimizing our resources in order to thoughtfully build our pipeline of medicines, leveraging our zinc finger protein technology, which we believe we can engineer to address virtually any genomic target. By partnering with collaborators such as Novartis, who have therapeutic area expertise in clinical trial and commercial infrastructure to support development of treatments for biologically complex diseases, we believe we can maximize the value of our technology and get our medicines to patients as quickly as possible. Partnerships have enabled us to build a pipeline in therapeutic areas from neurology to oncology that are significantly strengthened by the expertise and infrastructure of our collaborators. The Novartis collaboration marks our fourth partnership in the CNS area alone, building upon our expansive collaboration with Biogen announced earlier this year, and our ongoing partnerships with Pfizer and Takeda in neurodegenerative diseases. These collaborations demonstrate the versatility of our zinc finger platform to address many CNS diseases, the promise of genomic medicine and neuroscience and our ability to continue to important deals, as there are still many more CNS targets that our technology could address. Including the Novartis collaboration, these CNS partnerships have already generated $450 million in upfront cash and potentially could generate $3.24 billion in future milestone payments, in addition to future royalties and potential net commercial sales of approved products. In the last four years, partnerships have brought in nearly $780 million in cash through upfront and milestone payments and equity purchases and have been an important part of our ability to fund our proprietary pipeline. In the second quarter, Pfizer presented bollock data from the Phase I/II ALTA study, evaluating or SB-525 gene therapy in hemophilia A. We are very excited about the results and look forward to Pfizer initiating the Phase III study later this year will provide more details about the data and program in her remarks. In response to the ongoing COVID-19 pandemic, Sangamo continues to prioritize employee safety and welfare, while responsibly advancing the business. Our modified lab operations and updated safety protocols remain in place, which allow us to continue critical research and manufacturing readiness while protecting employee safety and adhering to social distancing guidelines. In fact, we continue to make excellent progress in these areas despite the challenges of COVID-19. For example, our manufacturing quality teams at our Brisbane facility demonstrated tremendous creativity and result in achieving an important milestone in our process of retaining GMP certification despite COVID-19 restrictions. We completed execution of the environmental monitoring performance qualification or which validates that the clean room air and cleaning regimes and controls inside the facility are affected. We are continuing to compile microbiological results that will support our successful GMP qualification and remain on track to have our Brisbane manufacturing facility operational this year. We continue to work diligently with our clinical trial site partners to protect the safety of our patients in our trials, maintain data integrity and assess the appropriateness of dosing patients. Lastly, I'm delighted to be joined today by Jason Pontone, our Head of Cell Therapy, who has assumed the role of Interim Head of Research. He has already contributed tremendously to Sangamo with his vision for cell therapy and we're excited for the impact we will have across the entire research group, keeping us focus on research that can translate to the clinic and at the forefront of genomic science. Jason's appointment was part of an change we announced to our R&D team, where we separated research and development functions. A search for a Head of Development is currently underway. This change is designed to increase the speed and efficiency of the clinical translation of our science and allows us to industrialize zinc finger protein engineering while retaining our strength in basic research and adding new capabilities in late-stage clinical and product development. Further, with regards to organizational updates, this quarter, we promoted Jusprit Gill, Head of quality to Senior Vice President and Chief Quality Officer. We expect she will continue to play an essential role in progressing our manufacturing strategy. With that, I will turn the call over to our Chief Medical Officer, Bettina.

Good afternoon. As Sandy mentioned, we inside or announced updated results from the Phase I/II study evaluating or SB-525 gene therapy in patients with severe hemophilia A. The data were presented by a study investigator at the Virtual World Federation of Hemophilia 2020 World Congress. The results demonstrated that all five patients who received the per kilogram dose exhibited sustained Factor VIII activity level, with a median of 64.2% by chromogenic assay based on patient level geometric means after week nine post infusion. No patients experienced bleeding events or required Factor VIII infusions. The Factor VIII activity levels reflect measurements up to 61 weeks, the extent of follow-ups for the longest treated patient in the cohort. was generally well tolerated by the patients. The data affirm previous finding from this study. Pfizer noted that they are encouraged by the potential of to demonstrate long term durability, an important element for patients living with severe hemophilia A. Pfizer and Sangamo plan to present further follow-up data from the ALPHA study when all five patients in the per kilogram dose cohort have been followed for at least one year. The Phase III lead in study is currently ongoing, and Pfizer has announced that it's planned to dose patients in the pivotal Phase III trial later this year. Moving on to our wholly owned gene therapy in Fabry disease, which we are evaluating in the Phase I/II STAR study. As we detailed previously, timing of dosing of patients has been impacted by the COVID-19 pandemic. Our team continues to work closely with principal investigators on this study, and we have successfully screened and enrolled several patients who are eager to receive the infusion at the earnest opportunity. We're working closely with the investigators and the clinical trial sites to make this happen as soon as it is deemed safe and appropriate. Over the second quarter, we have continued to receive additional approvals for the Phase I/II STEADFAST clinical study evaluating our first-in-human cell therapy, TX200 and in HLA-A2 mismatched kidney transplantation. In addition, at the end of July, we received the recommendation from the European Medicines Agency on the classification of advanced therapy medicinal product, for TX200. The ATMP classification will allow us to pursue TX200 development in a delineated regulatory framework with precise scientific and regulatory guidance. I will now turn the call over to Sung for an overview of the financial results. Sung?

Thank you, Betina, and good afternoon, everyone. We're pleased to share our financial results for the second quarter of 2020. We reported a net loss of $35.9 million or $0.26 per share compared to a net loss of $30.3 million or $0.26 per share for the same period in 2019. Total revenues were $21.6 million compared to $17.5 million for the same period in 2019. Turning to expenses; non-GAAP operating expenses, which exclude stock-based compensation expense, were $52.7 million compared to $46.2 million for the same period in 2019. The increase in operating expenses reflects our headcount growth and facilities expansion to support the advancement of our therapeutic pipeline and manufacturing capabilities. These increases were partially offset by a decrease in clinical and manufacturing supply expenses. Moving to the balance sheet; we ended the quarter with $665 million in cash, cash equivalents and marketable securities. This balance reflects the $350 million received from our partner, Biogen. We anticipate receiving an additional $75 million upfront license fee of the third quarter from our new partner, Novartis. Our balance sheet remains strong, and we believe we have the ability to reach several important R&D milestones, including the first potential BLA filing for hemophilia A. Turning to 2020 full year guidance. We are revising our non-GAAP operating expense guidance from an estimated range of $245 million to $260 million to an estimated range of $210 million to $225 million. This reduction is primarily being driven by the effects of the evolving COVID-19 pandemic and its anticipated impact on our clinical program time lines. I will now turn it back to Sandy for closing remarks.

Thank you, San. I am pleased with the progress we've been making at Sangamo this quarter, keeping our research and manufacturing activities on track in spite of the challenges presented by COVID-19. We've been working with Pfizer to present exciting, updated results from our hemophilia A program and partnering with Novartis, yet another top pharmaceutical company who were compelled by our highly differentiated zinc finger protein genomic medicine platform. These accomplishments have put Sangamo a strong position to deliver important near term milestones, such as the dosing of the first patient in Pfizer's Phase III hemophilia A trial this year, further enrolling and dosing the Fabry disease gene therapy study and getting our AAV manufacturing facility in our Brisbane headquarters operational by the end of this year. I'd like to close by thanking the many team members at Sangamo who contributed to the initiation of the collaboration with Novartis, particularly our neuroscientists and business development teams, their passion and their dedication brings tremendous value to Sangamo. We, along with our partners at Novartis, are excited to begin working on pioneering treatments we hope will change the lives of patients by moving beyond the symptom focused treatments of today and towards therapies that can potentially alter the natural history of these lifelong, challenging neurodevelopmental disorders. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Maury Raycroft with Jefferies. Your line is now open.

Overall, congrats on our progress in nature. Taking my questions. First question is just on the Novartis deal recently, definitely validates your technology and what you guys have done in the neuro space. Just wondering if you could talk more about capacity for additional deals like this? And if there's any other perspective that you can provide into the deal with Novartis?

So Maury, thank you for your question. We are delighted with the Novartis deal. They truly are experts in new development. I wonder if Mark, who's our Chief Business Officer, could help you answer the question about how we think about future deals. Mark?

Thanks, Sandy. Yes. So I think it's safe to say that these deals have been very important in terms of expanding our pipeline of activity to support these partnerships in areas that we wouldn't otherwise be entering into. So we look at that as really an expansion of our R&D portfolio and putting that in the competent hands of folks that are familiar with the disease areas and have the skill sets and capabilities to take those forward successfully. Finally, we have our own targets, and we'll continue to prosecute and take forward as Sangamo whole owned own. But in the case that other companies want to access our technology, we were more than happy to engage with them in those kind of conversations.

And could you may be comment on how the deal came about after the bidding [ph] process?

Yes, absolutely, Sandy. So Novartis approached us with an interest in addressing neurodevelopmental up-regulation targets at the genomic level, and they recognize that our platform has the power to address these challenging targets, and the conversation progressed from that part that point on to evolve into the collaboration we recently announced.

Yes. And Maury, we're excited because these are new targets for us. So it isn't that we've given away something from our pipeline. It's that we've added to these three targets are things that we had not considered prosecuting. We're delighted to be able to help Novartis, and we're really pleased to put them in the hands of a company that is passionate at this area, and can get it to patients as quickly as possible.

Hey, great, thank you for all of our perspective and I'll hop back this year.

Thank you. And your next question comes from the line of Nicole Germino with Securities [ph]. Your line is now open.

Good afternoon, everyone, and thanks for taking my question, and congrats again, on the new Novartis collaboration. Just a little bit more on if you could give us a little bit more on the color on the same approach for neurodevelopment to targets. Can you talk to us more about autism, the target selection, and what was the strategy for identifying these?

So, I want to make sure I understood your question. You're asking us about how we select targets, and...

More about the -- with Novartis petering for these neurodevelopmental targets, did they present you with the target? And how did they come about with this target? How do they...

So I understand your question. So these are things that Novartis are passionate about. The there are many targets within the CNS, I think quoted hundreds of genes are linked in some way to important medical disorders. Sangamo is no expert in all of these. We have things that we are interested in. We did the Biogen deal earlier this year based around mainly around neuro-degeneration around and synuclein for Alzheimer's and Parkinson's, respectively. And in those conversations, we ran a process. Novartis was part of it for a short time. And but it was clear that they were more interested with development and had some fascinating ideas about how they could use our technology to address those conditions. And it was really pleasing to build work and his team at and to take these forward. There are many targets in the brain. And if other people come to us and ask for unencumbered targets, we'll look to see whether we think we can do it and also whether we believe that they can prosecute them well.

Great, thanks so much.

Thank you. Our next question comes from the line of Jim Burchinal with Wells Fargo. Your line is now open.

Yes, hi guys, Congrats on all the progress during the quarter and the Novartis collaboration. A couple of questions. I guess just first on the manufacturing facility you're building out in Brisbane and having it fully operate so by year-end. We've seen a fair amount of large pharma interest in gene therapy manufacturing at scale, acquisition by Thermo Fisher. How would you position your manufacturing capabilities relative to other leaders in the space?

Thanks, Jim. Thanks for the question. So, is this something you can you want to speak to?

Sure, Sandy. So Jim, basically, I would describe this manufacturing strategy as twofold. So as you know, over the last past year and even this year, we have made significant investments in our future manufacturing capability. And by the end of this year, we do expect to have manufacturing up and running here in our Brisbane facility. And then beyond this year, going into next year, we do expect cell therapy manufacturing both in Brisbane and in our French facility in Velban.

Got it. And maybe just a follow-up on the Novartis and Biogen collaborations. Obviously, with the earlier point on the validation that's created around your zinc finger proteins in the regulation. What are you doing internally to leverage those capabilities? And when might we get some visibility on internal programs in the CNS space?

So that's a great question. Jason, as our leading our research organization. Do you want to talk about what we're doing for CNS Research?

Sure, sure. Thanks, Andy. Well, I mean, we've got a variety of targets that we are looking at for our internal programs. And I think we'll probably disclose those as we advance them further. But as I think Sandy has pointed out, the great thing about our platform is that we have a technology that we can apply to potentially in the genome. And so we're working on the things that we feel we're best positioned to move forward ourselves. And we're partnering the targets that we feel like we have the opportunity to get to the clinic with partners in a better way.

And Jim, what are the real benefits of these partnerships is it allows us to build a group of scientists and some neuroscientists to put together the things that the partners have asked for. And almost as a byproduct of that, we develop an expertise in CNS diseases and in delivery to the brain. And so it gives us an internal platform to build on that will hopefully result in some targets are Sangamo owned and delivered.

And maybe just quickly, one follow-up. You can have a partnership with undisclosed targets without us trying to figure out what they are. So is there anything you can say about the targets for autism spectrum disorder? Whether they're novel targets known? And if there's any degree of validation, if you were to sort of look in the literature?

I think the best thing we can say is they're undisclosed. The autism specs is still when Novartis approached us, I think we all went on a very steep learning curve for autism. And what comes strikes me is that there are within that spectrum, there are a few targets that are closely linked syndromically to subsets of autism, now is and by any means, the whole of the autism spectrum disorder. But I think the belief in Novartis and that Sangamo endorsed is if they can show benefit in a subgroup, it may be possible to test those medicines in the larger spectrum that are less linked to specific genes. But we have to let our friends at the Novartis talk about this.

Great, well thanks for taking the questions guys.

Thanks, Jim.

Thank you. Our next question comes from the line of Gena Wang with Barclays. Your line is now open.

Thanks. This is David [ph] on for Gena. Congrats on the progress. I have two questions. First one is on Fabry's disease. So you've commented that more than two patients have enrolled in June. Can you just comment on how many more have been enrolled? And what are some of the gating factors before they can be dosed?

Is that those are the two questions. So it's Fabry, the patients and then the gating factors. I think that is most appropriate from Bettina, our Chief Medical Officer, Bettina.

Absolutely. So in fact, we we've made making progress in successfully enrolling several subjects. I don't think we'll be disclosing the exact number here. But suffice it to say that now it's just a matter of scheduling the infusions of these first subjects. In terms of gating, we're just looking at that safe and appropriate opportunity to initiate the treatment in the context of the pandemic. And we are working very closely with the trial sites who are also very eager to make this happen.

Got it. Very helpful. Actually, I have another question. This was actual one question. So second question is on hemophilia a gene therapy. So will we expect an update for the gene therapy later this year. And then going forward, how are you and your partner, Pfizer, plan to provide a good update with the investors?

David, this feels like one for you.

Sure. So we and Pfizer said that the next update will come after all the subjects in the dose cohort have passed through a year of follow-up. So that's as much as we've said about the timing of the next update.

Very, thank you guys,

Thank you. Our next question comes from the line of Evan Wang with Guggenheim Securities. Your line is now open.

Hi, thanks for taking the question. I have two questions. Can you describe the applicability of the genomic regulation platform outside of neuro? And is saying about pursuing opportunities there?

And your second question?

The second question is with the balance sheet from the two recent deals with Sangamo considering any kind of strategic decisions around pipeline or tech platform to kind of enhance or accelerate? And what does Sangamo thinks is the best way to do so?

So, I'm going to give the first one to Jason. And then Mark, can you take the second one? So Jason, the use of transcription factors will be limited to the brain.

Absolutely not. We are the exciting thing about our zinc finger platform is that we can use it to target nucleases, we can use it to target repressors, activators. And in all of those cases, there is utility in different tissues and opportunities, both for in vivo use as well as ex vivo in the cell therapy platform. And we are exploring all of those options.

Jason, can you tease out the difference between a transcription factor and the nucleases, which is more analogous to other people's descriptions of editing?

Yes. So when people use the term editing, I think it's often used in the context of nucleases, in our case, the zinc finger nucleases. And then, of course, our competitors with the CRISPR/CAS9 programs; and in those context, we are introducing brakes into the DNA. And sometimes that's necessary and important. But in other situations, being able to do something without causing a double-stranded break in the DNA becomes very important and offers a lot of advantages. And that's a particularly interesting and powerful part of our platform with our transcriptional activators and our transcriptional repressors. And it's something that we're looking to deploy both in our cell therapy programs as well as in our in vivo programs in the CNS and in other tissues.

And Mark, can you talk about how this fits into our portfolio management?

Can you hear me okay in my line just cut off for a little.

We can hear you.

Okay. Good. Yes. So obviously, as we take a look at our technology, in particular, the CAR-T regs and some of the work that we're doing to enhance delivery to the brain and other target tissues, we'll continue to take a look outside where we can partner appropriately to gain access to things that will complement and improve our ability to deliver important transformative medicines. I mean, our clear objective is to continue to expand our cell therapy capabilities, including advancing wholly owned assets in that space. And in addition, really optimizing R&D growth and ex vivo engineering.

Thank you. I hope that answers your questions.

Yes. Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Ritu Baral with Cowen. Your line is now open.

Hey guys, thanks for taking the question. I guess if we think about the Novartis deal and the Biogen deal sort of event diagram, what either diseases or targets are both outside both deals and that might be indications that you guys are interested in going after. Sandy, I think you alluded to something you guys had in mind. Can you talk further about what you guys might want to take forward?

So I'm going to pass this on to Mellita in a moment because Mellita did both deals and did a fantastic. I mean, very few people do nearly 500 million worth of deals in the course of the year. But we gain expertise by being in the CNS and being with partners that are expert in it. Mellita, can you help us think about how the targets were chosen and how what that leads for single?

Sure. Happy to, Sandy. So it's important to keep in mind that all of the deal exclusivities and the global rights are very specific to the identified target. As you'll recall, the Biogen collaboration with the rights for the 12 neurological targets. And the Novartis collaboration is exclusive to genome regulation. So this is our zinc finger protein transcription factor platform that Jason was just talking about, with the aim specifically to up-regulate expression of key genes and three neurodevelopmental target. The collaboration will also leverage our proprietary gene regulation technology similarly to the Biogen collaboration. And they also have access to proprietary AAVs for delivery. As Mark and Jason both mentioned, that's an area of continued investment and interest for us. So as you can see, because we craft these deals on a target-by-target basis, it leaves really a whole unencumbered universe of additional targets that we can then pursue on our own or partner with others.

Yes, one example…

Yes. Go ahead, Sandy.

An example that we spoke about at our R&D Day in December of last year was prior disease, for example, where we showed evidence that we can turn down prime expression within the CNS, which has both hereditary form and an acquired animal zoonotic phone, I guess it is. But that is just an example of many targets that we would consider. And know that we have an actively churning CNS machine gives us an opportunity to go into other areas.

Got it. And a follow-up question on Fabry. Should we be thinking about dosing like your like your other studies, low doses, high doses with gated treatment of the patients that you've enrolled?

Bettina?

Yes. Yes. In fact, what we have said is that we are going to have a low, medium and high dose and that's exactly as you described it with gating with safety review as we move from one cohort to the next.

The agency is great gaining confidence in AAV treatment, but it's still a novel a new thing, and this is only the second or third the second time we've done a gene therapy trial. And therefore, it's appropriate that we are prudent and start with a low dose and move through those doses. And we are not going to talk about the results until we've dosed all three cohorts because we feel that, that will give a much more meaningful result that will be much more informative.

Got it. Any additional color on what the doses are at this point?

David?

We haven't yet disclosed beyond the low, medium and high.

Got it, okay. Thanks for taking the questions.

Thank you very much.

Thank you. This concludes today's question-and-answer session. I would now like to turn the call back to Sandy for closing remarks.

So, as you can see, it's another exciting quarter for Sangamo. We're delighted for your support. And I just want to wish you and your families to stay safe and well. And we look forward to talking to you again soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a great day.