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Regulus Therapeutics (NASDAQ:RGLS)

Q3 2012 Earnings Call

November 20, 2012 5:00 p.m. ET

Executives

Amy Conrad - Director, Investor Relations and Corporate Communications

Kleanthis Xanthopolis - President and CEO

Gary Menzel - COO and EVP, Finance

Neil Gibson - Chief Scientific Officer

Steve Turkowiak - Controller and Director of Finance

Analysts

Jim Birchenough - BMO Capital

Simos Simeonidis - Cowen & Company

Alan Carr - Needham & Company

Operator

Good afternoon ladies and gentlemen and welcome to the Regulus Therapeutics third quarter 2012 conference call. [Operator instructions.] I would now like to turn the call over to Amy Conrad, director, investor relations and corporate communications. Please proceed.

Amy Conrad

Good afternoon, and thank you for joining us. On behalf of Regulus Therapeutics, I would like to welcome everyone to our conference call for the quarter end September 30, 2012. I hope you’ve all had a chance to review today’s press release. If you have not, and you need a copy, you can visit our website at www.regulusrx.com.

Joining me on today’s call are Kleanthis Xanthopolis, PhD, president and chief executive officer; Gary Menzel, PhD, chief operating officer and executive vice president, finance; Neil Gibson, PhD, chief scientific officer; and Steve Turkowiak, controller and director of finance.

During today’s call, Kleanthis will provide introductory remarks and general context. Gary will summarize our recent business accomplishments and third quarter 2012 financial results, and Neil will provide an overview of our microRNA product platform and programs. Following your questions, Kleanthis will wrap up the call.

Before we begin, I would like to remind you that this call will contain statements concerning Regulus’ future expectations, plans, and prospects, which constitute forward looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors including those discussed in our quarterly report on file with the SEC.

In addition, any forward looking statements represent our views only as of the date of this webcast, and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update such statements.

At this time, I would like to turn the call over to Kleanthis.

Kleanthis Xanthopolis

Good afternoon everyone, and thank you, Amy. I’d like to start by stating that this has been clearly a transformative second half of the year so far for Regulus, and this has been highlighted by a number of significant achievements that I’m proud to discuss with you today.

Most importantly, we successfully transitioned to a publicly traded company. We’ve raised $80.9 million in gross total proceeds over the last several months, which included proceeds from the IPO and two key business development transactions, which I will elaborate on in a few moments.

We were pleased to have the support in the IPO from one of our founders, Isis Pharmaceuticals, and both of our existing strategic partners, Sanofi and GlaxoSmithKline, as well as the support of our two new strategic partners, AstraZeneca and Biogen Idec. We believe the significant insider participation shows confidence in both our focused development of microRNA therapeutic and also the pedigree of the entire Regulus team to continue to build this great company.

At this point, I’d like to provide a broader perspective on the impact of Regulus’ recent entrance into the public markets. We believe that we significantly derisked the financial profile of the company by successfully raising enough capital to fund operations for at least three years.

We appreciate the support of both the public investors and our partners that enabled us to raise the most capital in any pre-clinical IPO in the past decade. We’re only the second pre-clinical company to go public within the last five years, and the only San Diego-based life science company to achieve this feat so far this year.

We also believe that the backbone of these achievements is the potential for our emerging product platform. At Regulus, we are focused on discovering and developing first-in-class drugs that target microRNAs to treat a broad range of diseases.

We believe that we’ve assembled the leading position in the microRNA field, including expertise in microRNA biology and oligonucleotide chemistry, a broad and dominant IP estate, and a disciplined drug discovery and development process. We believe the microRNAs will transform the traditional drug development model and become a new and major class of drugs with broad therapeutic applications.

We currently have multiple development programs, both independently owned and supported by our strategic partners, which have emerged from our microRNA product platform. As we continue to make good progress on the partner programs, we’re also very focused and excited about our proprietary efforts in oncology. Our goal is to advance and expand these efforts by pursuing [these] orphan indications in oncology. Neil will discuss our programs in more detail later on the call.

We also believe that the excitement around our product platform and the overall potential of microRNAs as therapeutic agents have been validated in part by our recent major successes on the business development front. We entered into a strategic collaboration with AstraZeneca to discover, develop, and commercialize microRNA therapeutics toward three exclusive targets, mainly focused on cardiovascular metabolic diseases.

We’re very happy to have AstraZeneca as a strategy partner for these disease areas, because of their excellent track record in developing and commercializing drugs in cardiovascular and metabolic diseases and their overall commitment to the RNA therapeutic field.

We’ve also entered into an important research and collaboration agreement with Biogen Idec to identify microRNAs as biomarkers for multiple sclerosis. We believe that this collaboration allows us to further explore our proprietary microRNA biomarker platform with Biogen Idec including their additional resources and expertise.

We are excited to explore the opportunity that microRNAs may have as biomarkers for MS, which is a truly devastating disease, and we believe the microRNA biomarkers may be used to select optimal patient segments in clinical trials to develop companion diagnostics and to monitor disease progression or relapse.

With this recent collaboration of our own ongoing proprietary work, our capabilities in identifying biomarkers is growing, and we look forward to prosecuting this opportunity more broadly.

Finally, at Regulus we believe that recruiting the best talent is essential to maintaining our leadership in the microRNA field. Earlier this month, we announced that Dr. Doug Williams was appointed to our board of directors. Doug currently serves as executive vice president of research and development at Biogen Idec. Doug is a recognized biotech leader, with a proven track record of more than 20 years in drug development, research, and operations. His industry expertise and reputation will be a tremendous asset to our team as we continue to build a great company.

I’d also like to take the opportunity and thank Dr. Stan Crooke and Barry Green for their wonderful services on our board for the past five years. During those years, which were very informative and formative for our company, their exceptional leadership inside and many contributions were invaluable to Regulus.

To summarize, it’s been a strong and productive period for us, with our leading microRNA product platform, strong financial position, significant strategic relationships, and accomplished team members, Regulus is now ready to transition to its next phase of development. We look forward to advancing our product platform toward attaining and unlocking the transformative potential of microRNA therapeutics.

With that, I will turn the call over to Gary for a review of our financial and recent business highlights. Gary?

Gary Menzel

Thank you Kleanthis, and good afternoon everyone. As Kleanthis mentioned, we have recently established strategic relationships with AstraZeneca and Biogen Idec. These deals are representative of a consistent theme in our disciplined financial strategy, namely that we would be selective in forming strategic alliances to complement our microRNA expertise with development skills that accelerate the commercialization of our product programs.

Under the terms of the AstraZeneca transaction, which was focused on developing therapeutics for three microRNA targets, we received an up-front payment of $3 million, and also $25 million from an investment in our common stock in a private placement concurrent with the closing of our IPO. We are also eligible to receive up to $509 million in milestone payments as well as royalties on commercial sales.

Under the terms of the Biogen Idec transaction, which is focused on identifying a microRNA biomarker signature for MS patients, we received an up-front payment of $750,000 and later received $5 million from the sale of a convertible note, which successfully converted into regular shares upon the closing of our IPO. We are also eligible to receive up to $1.3 million in milestone payments.

As a result of these two deals, and those previously signed with Sanofi and GSK, Regulus has raised $142.8 million from strategic partners to date. Importantly, we are eligible for up to $106.5 million in preclinical milestones as we move our drugs into the clinic.

Let me now briefly review our third quarter 2012 financials. Our net loss for the nine months ended September 30, 2012 was $10.5 million, compared to $5.6 million for the same period in 2011. The increase in our net loss was driven primarily by higher R&D expenses of $2 million to advance our research programs, noncash charges related to the amendment of one of our GSK convertible promissory notes of $1.7 million, and a decrease of $1 million in the amount of deferred revenue recognized from the longer amortization of our up-front payments received from GSK as a result of amending and restating our agreement with them in June 2012.

Operating expenses were $17.7 million for the first nine months of 2012, compared to $15.7 million for the same period in 2011. Our research and development expenses were $14.7 million in 2012, compared to $12.8 million in 2011. And general and administrative expenses were $3 million in 2012 compared to $2.9 million for the same period in the prior year.

We had cash, cash equivalents, and short term investments of $30.9 million at the end of September 2012, compared to $38.1 million at the end of 2011. Including the $70 million of net cash proceeds from our recent IPO and concurrent private placement, we anticipate a year end cash balance of more than $95 million.

Based on our current operating plan, we expect that the capital raised in the last several months will provide sufficient funding for operations through at least the end of 2015. We believe that our disciplined financial strategy will enable us to advance multiple programs toward the clinic without the need for additional equity financing.

Let me now turn the call over to Neil for a review of our microRNA programs.

Neil Gibson

Thank you Gary, and good afternoon everyone. First I’d like to provide you with a short overview of the exciting scientific opportunity and technology behind our microRNA product platform. Then I will briefly discuss our programs.

We are developing single-stranded oligonucleotides that are chemically modified chains of oligonucleotides that are mirror images of specific target microRNAs. We enhance the drug properties of these oligonucleotides such as potency, metabolic stability, and tissue distribution using our proprietary chemical modification. These chemically modified oligonucleotides we refer to as anti-miRs. We have demonstrated therapeutic efficacy of our anti-miRs in multiple different preclinical models of human disease.

Based on these robust data, we believe that our microRNA product platform is versatile and has the potential to provide significant therapeutic benefit in a broad range of disease areas. We have chosen to focus our initial efforts on developing anti-miRs that target select microRNAs in specific therapeutic areas: oncology, fibrosis, chronic hepatitis C viral infection, [RACD] and [unintelligible].

Our partner development programs target miR-21 in both kidney fibrosis and oncology, with Sanofi; miR-122 in HCV, with GSK; and miR-33 in atherosclerosis/metabolic diseases, with AstraZeneca. In our miR-21 and miR-33 program, we have demonstrated [in vivo] efficacy in preclinical models of specific diseases, and we look forward to nominating candidates for clinical development.

In our miR-122 program in HCV, the [unintelligible] candidates have demonstrated activity in different forms of the HCV virus, and we’re currently testing these molecules in non-human primates. We look forward to nominating a clinical candidate for this program in the relatively near future.

In addition to the progress we’ve made in our partner programs, we’re very excited about the advancement of our proprietary efforts focused on orphan diseases and niche indications. Our most advanced proprietary program targets [unintelligible] glioblastoma, or GBM, the most prevalent form of primary brain tumor.

GBM is considered a rare, or orphan, disease, and has limited treatment options with poor survival rates. We believe that we have a unique opportunity to utilize our technology in this disease. We have identified specific dysregulated microRNAs in distinct subtypes of GBM. For instance, miR-10b is highly overexpressed in the patient population called the [pro-neuro] subtype, and we believe that treatment of GBM cell lines with anti-miRs targeting miR-10b will reduce disease proliferation. This means that we have the opportunity to provide personalized treatment options for different patient populations.

Additionally, we have demonstrated target gene [unintelligible] after [intracerebral] [unintelligible] injection of anti-miRs in preclinical animal models of GBM, which we believe supports a clinically viable method of oligonucleotide delivery. We’re on track to demonstrate preclinical proof of concept by the end of the year.

Lastly, we continue to use our versatile product platform to pursue additional opportunities in orphan and niche indications by identifying various microRNA targets. We continue to use our proprietary resources to focus on various oncology targets, and look forward to reporting our progress to you.

I’d like to turn the call back over to Kleanthis for his closing remarks.

Kleanthis Xanthopolis

Thank you, Neil. Before we entertain questions, let me provide a brief summary and outline of our expectations for the near term. We’ve had an excellent second half of the year thus far, achieving significant financial and strategic goals that put the company on very sound footing, with funds to last for at least three years.

Our recent success has enabled us to begin the next phase of Regulus’ development. We’re now focused on the execution of our research and development plans, primarily focused on the selection of microRNA clinical candidates and timing of IND filings. Specifically, we expect to nominate at least two microRNA clinical development candidates within the next 12 months, and file at least two INDs by 2014.

We look forward to reporting our progress to you, and we’re now ready to take questions.

Question-and-Answer Session

Operator

[Operator instructions.] First question is from Jim Birchenough, of BMO Capital. Your line is open.

Jim Birchenough - BMO Capital

Just wondering, in terms of going from lead optimization to filing an IND with your anti-miRs, could you maybe just go through the process and what the gating items are between those two events? And then just also secondly, you mentioned on miR-122 I think close to a clinical candidate selection perhaps. Can you talk about in broad strokes what kind of criteria you’re looking for for a miR-122 in HCV?

Kleanthis Xanthopolis

Let me ask Neil to comment, and then I’ll come back to some of the more general [unintelligible].

Neil Gibson

Jim, there’s a couple of key steps as we move from selection of a clinical candidate toward the filing of the IND, including the GLP toxicology studies that we need to do, and also the scale up manufacturing and generation of the API needed to initiate the Phase I clinical trial. So really these are the two key aspects of the work that we need to accomplish once we have selected the clinical candidate.

For the miR-122 program, we’re really looking at something that’s obviously pangenotypic, but perhaps more importantly is suitable for subcutaneous administration at least once a month and can actually provide an opportunity for those patients who are difficult to treat, or who develop resistance to the current agents.

Kleanthis Xanthopolis

What I want to add to this, Jim, is as you very well know, the beauty of RNA therapeutics is the very high success rate from the clinical candidate to the IND, as has been demonstrated by Isis and other companies in the space, with a very conservative estimate that from clinical candidate to filing of IND is a traditional 12 month period. So other than what Neil outlined, which is the standard steps to support the IND, there’s really nothing mathematical about it. We are pushing forward and executing on a very specific timeframe that has been worked out by primarily Isis and Alnylam. What I’d like to add is that for this end, and based on our recent success, we are significantly enhancing our pharmaceutical development, CMC, and regulatory capacities within Regulus. And I think your answer on 122, Neil covered that.

Jim Birchenough - BMO Capital

And Kleanthis, just to follow up. Just want to make sure I understand. Is there any possibility of upside to IND filing in 2014? Could that slip into 2013? Or is that just not something that you’d expect based on typical timelines?

Kleanthis Xanthopolis

There’s always the potential upside, but we’d rather surprise you with a positive than promise something that we can’t deliver.

Operator

Our next question is from Simos Simeonidis of Cowen & Company. Your line is open.

Simos Simeonidis - Cowen & Company

Kleanthis, in addition to miR-10b, could you guys work on additional in-house, wholly owned programs, [unintelligible] clinic, in the next couple of years? Or do you think you’re all set in terms of proprietary programs for now?

Kleanthis Xanthopolis

That’s a good question. The big recent deal with AstraZeneca kind of disturbed the balance of the proprietary versus partner programs. Our aim is the balance that back to about 40% programs owned by Regulus and the remaining with our partners. So we do have the bandwidth, the desire, and the expertise to grow that part over the next two to three years. We’ll see more programs that are fully owned by Regulus, primarily if not exclusively in the area of oncology.

Simos Simeonidis - Cowen & Company

And then in terms of prioritizing your existing programs for us, I know miR-22 is further ahead in many ways, including having achieved clinical proof of concept for not only the specific target, but also for the space of microRNAs. But in terms of thinking about the other three programs, do you prioritize them internally, or for us? And in terms of percent of time that your R&D team spends, do you kind of divide it rather equally? Or do you not talk about stuff like that?

Neil Gibson

Obviously because they’re all partner programs, we have to pursue each project consistent with our resource allocations associated with the partnerships. And thus we’re moving each program along a parallel path. And so they’re all moving forward in parallel. And in addition to the data that we’ve talked about with 122, we just recently showed some really nice data where we inhibit miR-21 and can actually improve fibrosis and renal function in a mouse model of [all course] disease. So there’s a number of really exciting data that are emerging within these programs. But all of them are being advanced in parallel.

Simos Simeonidis - Cowen & Company

And then a final question for Gary. The guidance you provided, does that include any additional milestones from your partners, or is it just the cash, the $100 million you have in hand right now?

Gary Menzel

That’s correct. No additional milestones within that number through the end of the year.

Operator

[Operator instructions.] I have a question from Alan Carr of Needham & Company. Your line is open.

Alan Carr - Needham & Company

I wondered if you could discuss a bit more about the partner program. You have one or two nominated targets for each of those programs, or collaborations, with GSK, Sanofi, and AstraZeneca. How do you select other targets, and can you give us a sense on timelines for when other targets might be selected? I know you’re probably not going to give us dates, but could you clarify whether or not we would expect to have several programs in parallel with each of these partners? Or would they happen in serial?

Kleanthis Xanthopolis

The process is one that is dictated by the so-called joint steering committee between us and our partner. There are certain criteria, depending on the partnerships and the disease indication, that we essentially discuss in a very productive manner with our partners. Once the program is elected, we devote resources to move it forward in parallel with the others. It’s not to the exclusion of existing programs. And partially, of course, we have the programs advancing at different stages of development so that it’s not always a requirement to add additional FTEs to support these programs.

So you’re going to see, over the next two to three years, a constant flow of news to fill additional targets, and move programs through the clinical development, and from thereon to the clinic. And I will be happy and eager to communicate those to you as we cross these lines.

Alan Carr - Needham & Company

How many have been selected for each of these? Have there been any more selected for each of these programs since… I know the AZ deal was just done, but for example for GSK or Sanofi, have there been any more targets selected for those from when the deal was originally executed?

Kleanthis Xanthopolis

Yes, with the GSK deal we have programs being, naturally, nominated. 122 is an example. We’ve announced in the past 155 is another target that is a very interesting body of work that is going on. And a couple of others are under evaluation as we speak. With Sanofi, the intensity of the 21, and particularly the fact that you can use it in two different indications, oncology, and as Neil just told you, some very exciting recent data on kidney fibrosis, is taking a lot of our focus. But at any given time we are in discussions with Sanofi to nominate additional partners, and we certainly expect to do that in the near future.

Operator

Our next question is from Jim Birchenough of BMO Capital. Your line is open.

Jim Birchenough - BMO Capital

Just to follow up, so we’ve seen a pretty substantial inflection in publications on microRNA targeting over the last five years, so maybe you could just discuss what we should expect over the next 12 months in terms of publications from Regulus. And for public investors that might just be getting into the space, what are some of the forms we might see for presentation of data, whether it be ASCO or other meetings? When we think about the next 12 months, what should we be looking for in terms of presentation and publication of data?

Kleanthis Xanthopolis

You’re absolutely right. The rate of knowledge accumulation around microRNA at large continues to increase. We almost had 4,000 peer reviewed papers published last year alone, and that growth continues now, and we think it will continue to be the trend for the next several years.

Regulus has traditionally participated in that. We’ve got some very key publications. This year alone, we have had a couple of publications on 21, on science translational medicine, several in oncology. And we plan more of that to come. So you are going to see publications. We prefer to have them meaningful, so when we do publish we publish the studies that we think are very significant and contribute to overall strategic intent.

And then as we’ve said in the past, we are collaborating with at least two dozen external collaborations, and Regulus participates in these publications, and you’ll see them appearing at regular intervals, as they have in the past.

Neil, anything more?

Neil Gibson

Just to say that we have been obviously presenting at all the national meetings, whether it be the American Association of Cancer Research or [ASN] or the other equivalent meetings for each of the individual therapeutic areas.

Jim Birchenough - BMO Capital

And Kleanthis, you mentioned earlier, or it might have been Neil, preclinical proof of concept data upcoming. Could you maybe discuss that? What should we be looking for? And what’s the form of that? Will that just be a press release? How does that get shared with the rest of us?

Neil Gibson

The actual type of experiments are obviously within GBM, preclinical models. Specifically where the GBM model we’re using while we’re [expressing] miR-10b. So it would be just the generation of in vivo data that supports targeting miR-10b in that indication. And more than likely, we would certainly be including that as a presentation, for instance, or a poster, at any of the relevant oncology meetings that we would like to disclose that information.

Kleanthis Xanthopolis

And we will continue to do that. As an example, a couple of weeks ago there was a big kidney meeting here in San Diego where we presented the [unintelligible] data with a very significant positive feedback from the participants. So we will continue to do that. There are several other programs that are generating interesting data that we expect to publicize around key scientific meetings.

Operator

This ends the Q&A portion of today’s conference. I’d like to turn the call over to Kleanthis for any closing remarks.

Kleanthis Xanthopolis

Thank you all for joining us this afternoon. As I said before, we’re very proud of our recent accomplishments. I look forward to executing on our strategic objectives. We look forward to keeping you informed and continuing that dialog. Thank you again.

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