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Regulus Therapeutics (NASDAQ:RGLS)

Q4 2012 Earnings Conference Call

February 20, 2013 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

Analysts

Bill Tanner – Lazard Capital Markets

Simos Simeonidis – Cowen & Company

Alan Carr – Needham & Company

Nick Abbott – BMO Capital Markets

Liana Moussatos – Wedbush Securities

Operator

Good afternoon ladies and gentlemen and welcome to the Regulus Therapeutics fourth quarter and yearend 2012 conference call. My name is Kate and I’ll be your coordinator for today. 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 and year ended December 31, 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; and Neil Gibson, PhD, Chief Scientific Officer.

During today’s call, Kleanthis will provide introductory remarks and some general context. Gary will summarize our yearend 2012 financial results and financial outlook for 2013, and Neil will provide an update on 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

Welcome and thank you everyone for joining us this afternoon. Year 2012 was an outstanding year for Regulus, marked by major strategic and financial achievements that have solidified Regulus’ as the leader in the field of microRNA therapeutics. Over the last year and recent year, we’ve built a solid foundation for Regulus with the right people, the right strategy and appropriate financial profile. Specifically we formed key relationships with new partners AstraZeneca and Biogen Idec and expanded or continued our existing relationships with Sanofi and GlaxoSmithKline.

We successfully completed our initial public offering and we’re seeing significant entire participation from all of our strategic partners as well as one of our founder site pharmaceuticals. In addition to our recent achievements, we’re seeing significant commercial advancements in the overall RNA therapeutic space. Last month as you know, ISIS’s licensed drug Kynamro became the first systemically administered RNA product to be approved by the FDA and our other founding company, Alnylam continues to demonstrate human proof of concept in several of their RNAI programs. These recent successes by our founding companies in the RNA space further validate our scientific approach and we believe that microRNA therapeutics will be the next wave of innovative RNA therapies to evolve.

We therefore believe that we’re well positioned to achieve our key strategic corporate goals in 2013. These goals follows a strategic theme for the year. We call that our road to the clinic. This coming year, we expect to nominate our first clinical development candidate with one in the first half of the year, therefore keeping us on track to file our first I&Ds in 2014. We also expect to demonstrate the potential of our microRNA bio market platform and we expect to finish the year with over $6 million in cash, cash equivalents and short term investments without a need for additional finance.

Indeed, our time counts position and projected burn to support our research and development activities into 2016. We believe that achievements of our key corporate goals on the road to the clinic will leave us closer to unlocking the power and transform the potential of microRNA therapeutics.

So with these introductory remarks I’ll now turn to Gary to review our recent financials. Gary?

Gary Menzel

Thank you Kleanthis and good afternoon everyone. As Kleanthis mentioned, 2012 was a very successful year for us. We formed a strategic alliance with AstraZeneca and the collaboration with Biogen Idec and expanded or continued our existing strategic alliances with Sanofi and GlaxoSmithKline. The capital infusion from these alliances and collaboration and the subsequent successful completion of our IPO in the fourth quarter of 2012 has provided us with a strong cash position heading into the current year.

We ended 2012 with over $98 million in cash, cash equivalents and short term investments and reduced our debt outstanding to less than $5.5 million as of the end of the year. This very strong balance sheet should enable us to support our research and development objectives into 2016.

Let me now briefly review our 2012 financial results. Our net loss for the year ended December 31 was $17.4 million compared to $7.6 million in 2011. The increase in our net loss was driven primarily by higher operating costs of $4.4 million which I will discuss in a moment and non-cash charges related to the amendment and subsequent accounting revaluation of our convertible promissory note that was issued to GlaxoSmithKline in 2010, resulting in a non-operating expense of $4.7 million during the year.

Total operating expenses were $25.3 million in 2012 compared to $20.9 million in 2011. Our research and development expenses were $20.3 million in 2012, compared to $17.3 million in 2011. This increase is attributable to our continued investments in our research and development team, expertise and capabilities in response to our increased and expanded strategic partnerships and development candidates’ initiatives.

Our general and administrative expenses were $4.9 million in 2012, compared to $3.6 million in 2011. This increase is attributable to costs associated with the execution of our strategic partnerships and additional personnel and expenses required for the IPO.

We had cash, cash equivalents and short term investments of $98.1 million as of December 2012 compared to $38.1 million at the end of 2011. The increase was driven primarily by proceeds from the IPO and related transactions.

Based on our current operating plan and recent financing activity, we expect our current cash position to be sufficient to fund operations into 2016 and enable us to continue to support our research and development objectives.

Let me now turn the call over to Neil for an update on our microRNA program.

Neil Gibson

Thank you, Gary and good afternoon everyone. As Kleanthis has mentioned, we had an extremely rewarding year in which we built a solid, strategic foundation for Regulus. In 2013 we are focused on clinical candidates that are apprised for the advancement of our microRNA therapeutics platform on the road to the clinic.

In the recent period we’ve focused our efforts on building the capabilities and expertise that will enable a smooth transition into clinical development. For instance we’ve enhanced our pharmaceutical development capabilities by attracting and retaining key talent, namely Dr. Victor Knopov, a recognized expert in the delivery of nucleic acid therapeutics with over 30 years of experience.

We’ve also recently engaged chief intelligence with expertise in specific areas of pharmaceutical development such as pharma connected modeling, toxicology, chemistry manufacturing and control, quality assurance and regulatory affairs. We’ve also established key agreements with clinical research organizations to support our programmatic objectives. The road to the clinic will begin with our most advanced program targeting miR-122 for the treatment of HCV.

The advance lead candidate is [inaudible] and also shows [inaudible] against some of the known mutations that lead to resistance for the current oral HCV therapies in development. In addition, we have shown in rodent models that our lead candidate has a rapid onset of action and the target gene depression was sustained for longer than 28 days after a single subcutaneous dose.

As you know, the HCV landscape is rapidly developing and constantly evolving. Despite this constant change, we believe there’s a clear market opportunity for our miR-122 program in a niche population of difficult to treat patients, those who may have failed current therapies or in combination with other anti-HCV agents. Currently our program supports once a month dosing and it’s positioned for a reduced duration of treatment against a broad range of HCV genotypes. We are excited to advance our miR-122 program and expect to nominate a clinical candidate in the first half of this year.

We also continued to make progress in our other partner development program, miR-21 in both kidney fibrosis and oncology and miR-33 for atherosclerosis and metabolic diseases. Specifically at the Kidney Week 2012 meeting, we presented new pre-clinical data demonstrating that therapeutic oligonucleotides targeting miR-21 reduces the severity of fibrosis and improves renal function in a rodent model of Alport syndrome. Alport syndrome is an orphan disease and it’s an inherited form of kidney disease that accounts for up to 2% of all patients reaching end stage renal disease. We believe that Alport syndrome may represent a new orphan indication for our microRNA therapeutics and an anti-miR-21 could be a potential new therapy for treating kidney disease.

We’ve also continued to advance our proprietary efforts in orphan diseases and niche indications such as our program that targets microRNAs in glioblastoma or GBM, the most prevalent form of primary brain tumor. We’ve established effective delivery of our anti-miRs measure by target gene repression within the adjacent normal lesion of the brain relative to the tumor. We believe the targeting microRNA may be a compliment to surgery in patients with GBM. Pre-clinical proof of concept has yet to be established and we expect to report additional information in this program in the coming months.

We also continued to pursue additional proprietary opportunities in orphan and niche indications by identifying and discovering various microRNAs targets. In the recent period, we believe that we’ve identified several attractive oncology targets and we look forward to reporting our findings to you in the near term.

Now I would like to turn the call back over to Kleanthis for his closing remarks.

Kleanthis Xanthopolis

Thanks Neil. To summarize, we have a remarkable year of major achievements that solidify Regulus as the leader in the field of microRNA therapeutics. We’ve built the strongest foundation with the right people, the right strategy and a strong financial profile. We also witnessed the evolution of the overall RNA therapeutics stage which has provided us with increased confidence in our microRNA technology platform. In the coming year, we’ll focus on the execution of our key corporate goals on the road to the clinic. Most importantly, we expect to nominate at least one microRNA candidate for clinical development in the first half of this year and expect to produce and the company to file our first I&Ds in 2014.

We look forward to reporting our progress to you over the next few months at the following conferences; March 4 through 6 at the Cowen and Company's Healthcare Conference, in Boston; April 5 at BioCentury’s Future Leaders in New York; April 30 through May 1 at Needham & Company's Healthcare Conference in New York and May 29 through 31 at the Deutsche Bank’s Access Healthcare Conference in Boston.

With that, we’re now ready to take questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from the line of Bill Tanner with Lazard Capital Markets. Your line is open.

Bill Tanner – Lazard Capital Markets

Congratulations on the progress. Neil, a couple of questions for you. As it relates to miR-122, presumably the first in human testing would be normal healthy. At what point in time just roughly do you think you could be in a position to be able to demonstrate human proof of concept?

Neil Gibson

So actually that’s an open discussion that we’re having with the clinical PRO as to how quickly we can transition from healthy volunteers into HCV infected patients and depending upon whether we do this in Europe or the U.S, we could get into these HCV infected patients relatively quickly. And then we need to figure out whether we do this in some of the specific genotypes like the G2 or G3 genotype. But hopefully we’d be able to start to see clinical proof of concept towards the end of 2014.

Bill Tanner – Lazard Capital Markets

And then maybe just the bigger picture, the medical or the science meetings that one would anticipate that Regulus might have data or presentations at or maybe just even the bigger picture in terms of the microRNA field, the data that would be of interest generally.

Neil Gibson

So for instance we just presented at the recent Keystone meeting. We’ll be at the AACR meeting and we’ll be at the upcoming kidney meetings later on in the year and the metabolic meetings. So for some of these meetings we’ll most likely be presenting posters and for others we might just be there to pick up the latest trends and latest observations in the specific therapeutic areas we talk about.

Operator

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

Simos Simeonidis – Cowen & Company

It looks like miR-21 is your lead program. I know it’s still early and you have to be flexible with your R&D, but is it too early to see or to tell us which one might be the next one to enter the clinic or are you still trying to figure that out?

Neil Gibson

You mean, Simos, post 122 advancements? So what comes next after 122?

Simos Simeonidis – Cowen & Company

Right.

Neil Gibson

It’s basically either really going to be miR-21 which could either be in fibrosis or oncology and or miR-33.

Kleanthis Xanthopolis

But one of the powers of the microRNA product platform that we are moving forward is of course the fact that we have multiple opportunities and arrays between different programs to reach the clinic, which is why we have the modality of managing of the road to the clinic. So we’re not for the first time alluding to the lead program will be one for June, but behind that as we said 21, 33, a couple of our programs in oncology are also advancing very nicely and in due time this year we will communicate more specifically the progress.

Simos Simeonidis – Cowen & Company

But it sounds from your answer that 21 or 33 are at least slightly ahead of 10b, correct?

Neil Gibson

Yes, at this time.

Simos Simeonidis – Cowen & Company

And I guess then the next one is a question for Gary. The at least $60 million in cash that you’re guiding for the end of the year, that does not include any milestones that you might get. Is that correct?

Gary Menzel

That’s correct, Simos.

Simos Simeonidis – Cowen & Company

And the spend that you had in this past quarter, is that a decent guide for what you’re going to have going forward? Or is that – it’s too early to tell?

Gary Menzel

I would think in terms for this year, Simos, of $30 million to $35 million will be our spend, again without any milestones attached to that.

Operator

Our next question comes from the line of Alan Carr with Needham & Company. Your line is open.

Alan Carr – Needham & Company

A follow up on Simos’s of that – I’m wondering from a 21 and 33 is an I&D for those realistic in 2014? And then my second question around miR-10b, I guess can you give us a sense of there’s an update there on the work with Samsung where you stand there in terms of assurance proof of concept, the preclinical proof of concept for that.

Neil Gibson

So let me take, Alan the first question. So just from a timing perspective, the historical averages are around 12 months for collecting your clinical candidate to filing to the I&D. So obviously with our first ever in 122, we’re trying very hard to meet those types of timelines and whatever we do there with our first program will smooth the way for the filing of the second I&D. So if we can get that selection of the second clinical candidate early in the second half of the year, that would certainly position us to be in a strong position to file that second I&D before the end of 2014 and if it happens later, towards the end of 2013. Historically, based upon the timelines, we can still make that, but obviously that we have a slightly higher level of risk. For the miR-10b we’ve been working very closely with some of the heavy specialized patients derived xenograft models and we’ve been generating a lot of data with them over the last six months to a year and we’re currently in the midst of analyzing all the data that we generated to help us assess whether we have achieved preclinical proof of concept yet. So we’re still evaluating those data sets and look forward to reporting back to you on that in the next month or two.

Operator

(Operator instructions). Our next question comes from the line of Jim Birchenough with BMO Capital Markets. Your line is open.

Nick Abbott – BMO Capital Markets

Nick standing in for Jim today. In terms of HCV, you indicated niche populations. Do you have an idea of what sort of populations you think would be amenable to injectable product. And then in terms of bio market validation strategy that’s ongoing, what’s the likely output of that validation strategy? Precisely, what are you going to validate and how then do you monetize that? Thanks.

Kleanthis Xanthopolis

Let me attempt to address both of them. In HCV we’re very excited about the potential of 122 despite a very crowded and ever evolving landscape for the following reasons. We’re looking at a compound that we think is appropriately to be built once a month. As you all know, the patients return to the clinic to have viral load measurements and [inaudible] in the monkey basis and sometimes that determines the course of therapy. So in being able to introduce an anti-miR-122 at the same time is very good, both for the compliance perspective and of course the ease of administration through enlarged [inaudible]. The reason also why I love the conveying and treatment of our large 122 and the niche indications is that in over 3,000 clinical isolates, this is real live clinical isolates, the two binding sides for 122 and the so called [inaudible] with some of the entry side of the virus that prefers oligonucleotides of the virus genome identical are identical.

Nothing for sure, but identical. Therefore we expect 122 to be efficacious in all genotypes and that of course provides an opportunity to differentiate this compound versus the direct acting antivirals. We do know that there are differences between genotype one and B in terms of efficacy and especially genotype two and three as you originally saw with the video data. So there is good anticipation that 122 can find a very strong niche. We also know that we address essentially all the mutations that we’ve cascade against – that are induced by direct antiviral action. So we think that in combination with oral lesions we can have an increase in the sustained viral response itself. That’s of course prophetic. That’s what the biology is telling us now, but that we’re designing gene type trials to get some good answers quickly. So that’s the reason we’re excited about 122 and how we’re positioning for the compound for a niche indication.

In terms of the bio market, your second question, we expect by midyear, at the latest starting third quarter to announce the data from our collaboration with Biogen Idec. To remind you, we’re looking at multiple sclerosis patients and we’re looking for profiles to differentiate between therapy and disease, but more importantly, respondents specific dry versus not and we expect that data to be ready at the latest the beginning of the third quarter. That constitutes a specific milestone and if we reach that milestone, that sets the stage for further discussions regarding either to potentially extend the collaboration in other areas. And of course most importantly validates the platform and then we’ll find ways of monetizing across varying [inaudible].

Operator

Our next question comes from the line of Liana Moussatos with Wedbush Securities. Your line is open.

Liana Moussatos – Wedbush Securities

Can you remind us how with – you had talked in the past about how microRNA going through phase one has lower risk than say small molecules. Can you talk about where you are now and the steps to that point that are different and maybe lower risk than if you were dealing with small molecules? Or maybe talk about a specific program like 122 or 31, what you have left to do.

Kleanthis Xanthopolis

Liana, let me give you general information about the momentum that we have and the expertise for RNA therapeutics by getting educated if you like by our founding companies, ISIS and Alnylam that collected, they have over 50 compounds into the clinic and we there know that from clinical candidates to essentially completing a phase one, we have a very high success rate in over 85% and that is based on a variety of issues that differentiate and make the RNA therapeutics unique, mostly because we don’t see drug-drug interactions with oligonucleotides. You’re not going to see people fitting metabolic activities. You’re not going to see certain signals or any unexpected protrusion in their class, particularly associated we’re introducing oligonucleotides into humans. We know what these are and they’re highly predictable. So both the experience of ISIS and Alnylam guide us here and secondly, the very nature of the chemical entities that we’re using being so different than others. We can predict with high degree of confidence the outcomes of some of the tests that we’re undertaking in the pre I&D phase. I’ll pass it to Neil to give you a little more color where we are with some of our programs.

Neil Gibson

Just to amplify that, for instance in 122 and as part of our discovery cascade with a number of existing cascades that were designed to pick up some of the potential off target effects of the oligonucleotides. So whether they’re pro inflammatory or whether they could induce ALT and hepatocytes or whether they had a high potential to accumulate in the kidneys. So these are all screens that we can prudent place on our discovery cascade and eliminate what I call the bad actor and ultimately our clinical candidates selected from the good doctor pool. We’ve already for instance done chronic rodent toxicology and done investigative toxicology in non-human primates and the key step for us in addition to the GLP toxicology or just basically making sure that we can make the API to start the clinical program.

Operator

And we have a follow up question from the line of Bill Tanner with Lazard Capital Markets. Your line is open.

Bill Tanner – Lazard Capital Markets

Neil, just on the 10b program, how important are the models that you have? I understand they’re important obviously in establishing some proof of concept, but as you look at them, how representative do you feel that they actually might be in terms of the ability to treat glioblastoma, meaning whatever data that might come out from the current testing, how that would inform a go, no go decision I guess.

Neil Gibson

So I think that these patient derived xenograft models I think are considered state of the art in the field, specifically for the GBM patient derived xenograft models have been profiled extensively by our collaborators at Samsung and they’ve actually published a number of papers that talk about the segmentation within GBM, how the models align with the different segments within GBM and the sensitivity of those models for the current approved agent which is obviously not high given that the current approved agent have minimal activity in the disease. So they’ve also shown that as they can select models with the genetic basing, they can increase significantly the therapeutic efficacy that they see and we know from other published work that both 10b and 21 are two of the microRNAs most commonly found when we profile CSF from glioblastoma patients.

So the initial data in those models I think is going to be very informative to helping us assess whether we’ve established preclinical proof of concepts and must be very important as we make a potential go, no go decision on this program. And this is true for any program that we work on. We try and work with the most relevant model that we can access. So you see that also in the miR-21 outpost program where we spend a significant amount of time making sure we have access to all the relevant animal models that were most predictive of what you may see in the human population.

Kleanthis Xanthopolis

And to be clear here Bill, those models are technically challenging which is why it takes a long time to establish those experiments and even the experimental design, but I would consider the state of the art from every expert that we’ve talked to and translatable into the clinic, any data that we’re going to get. So we have not yet established a proof of principal of the program, but we’re working hard to get there with what we think are the best potential models.

Bill Tanner – Lazard Capital Markets

I guess that was sort of my question, the answer there, Kleanthis, is just understanding that they’re technically challenging, but the translatability. So the answer that you would get from that should inform you as to how to proceed just from the perspective of the translatability of the data.

Kleanthis Xanthopolis

Exactly. We’re confident that the answer will be translatable to human conditions. So once we have these running we’ll get these answers and of course communicate that to you.

Operator

Our next question comes is a follow up from the line of Jim Birchenough with BMO Capital Markets. Your line is open.

Nick Abbott – BMO Capital Markets

Just a follow up on Bill’s question really with respect to the Alport model. Hasn’t the model you’re using been used to take compounds into the clinic before or are you developing a base bank model? And then a follow up question on that which is, this breakthrough therapy designation which is now being dimmed by FDA, is that something that your regulatory group is going to be discussing with the FDA as a rapid way to get some of your products to the market?

Neil Gibson

So with regards Nick to the Alport’s model, first of all I should say that there is no approved therapy for Alport’s syndrome. The current standard of care if you will is looing really at the ace inhibitors and the ace inhibitors have been profiled in this specific model and have shown moderate activity in this model. So according to our key opinion leaders, including all of the growth over in Germany, there’s definitely room for improvement and the model will allow you to identify mechanisms that would be better than the current agents being tested. With regards to your second question, Nick, obviously we’re going to do everything we can to accelerate the development of our programs, including the opportunities that the FDA provides.

Kleanthis Xanthopolis

And Nick, to compliment that answer, I’d like to emphasize that we have at least three different mass models of human kidney disease that we’ve shown very strong activity of microRNA 21 or in anti-miR against microRNA 21 that shows both physiological and functional improvements. So we’ve been very positive about the role of 21 in kidney fibrosis with the process of repeating the Alport’s data that were extremely well received in the recent kidney meeting that we presented the data and identify the potential inducing there and those of course would be the basis of discussions with the regulatory authorities and yes we believe each crew to be one of these breakthrough designated areas.

Operator

I’m not showing any further questions at this time. I’d like to turn the call back to Kleanthis for closing remarks.

Kleanthis Xanthopolis

Well, thank you all for joining us this afternoon. We are very pleased with our recent accomplishments and as I said, we named this year the road to the clinic. There’s a lot of programs we’re working on. We discussed a few of them and we’re confident that we’re going to reach our goals to name our first clinical candidate very shortly and be in the clinic with two I&Ds by 2014. Thank you and we look forward to talking to you soon again.

Operator

Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect. Goodbye.

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