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Regulus Therapeutics (NASDAQ:RGLS)

Q1 2013 Earnings Conference Call

May 14, 2013 17:00 ET

Executives

Amy Conrad - Director, Investor Relations and Corporate Communications

Kleanthis Xanthopoulos - President & CEO

Garry Menzel - COO and EVP, Finance

Neil Gibson - Chief Scientific Officer

Analysts

Bill Tanner – Lazard Capital

Simos Simeonidis - Cowen & Company

Alan Carr - Needham & Company

Greg Wade - Wedbush

Operator

Good afternoon ladies and gentlemen and welcome to the Regulus Therapeutics First Quarter 2013 Conference Call. My name is Jamie and I will 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 ended March 31, 2013. I hope you have all had chance to review today’s press release. If you have not and need a copy you can visit our website at www.regulusrx.com.

Joining me on today’s call are Kleanthis Xanthopoulos, PhD, President and Chief Executive Officer; Garry 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. Garry will summarize our first quarter 2013 financial results and Neil will provide an update on our microRNA program. 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 Xanthopoulos

Welcome everyone and thank you for joining us this afternoon. 2013 is shaping out to be the best year so far for Regulus and a defining moment in our history as we aim to grow our company into top tier bio-pharmaceutical company focused on microRNAs. Today marks the achievement one of our most important research and development milestones. We’re pleased to report that we’ve nominated our first microRNA candidate for clinical development RG-101 GalNAc-conjugated anti-miR which targets microRNA 122 for the treatment of patients with Hepatitis C virus bringing us one step closer in the evolution to a clinical stage company.

As I reflect on our recent activities, I believe that we have demonstrated significant growth and progress. We have completed the transition to a public company only two quarters ago. We launched our road to the clinic strategy for 2013 last quarter and have already achieved our first stated goal under this strategy, with RG-101 now poised for clinical development.

As a remainder our road to the clinic strategy is focused on clinical candidates and the overall advancement of our microRNA pipeline. Our stated goals in 2013 establish a clear path to enable clinical development of our anti-miR and we expect to nominate two candidates for clinical development with the first being RG-101 that we announced today. We expect to file our first applications with regulatory authorities in 2014 with the first being RG-101 in early 2014 and we expect to support the preparation of our clinical activity with a strong balance sheet ending the year with at least 60 million in cash.

It’s a truly exciting times for Regulus. We’re extremely proud of our progress on the scientific front in such short order and believe that we have (inaudible) solidify Regulus as a recognized leader in microRNA therapeutics. We look forward to achieving and reporting additional milestones to you throughout the remainder of the year. On today’s call we will focus our commentary on the recent news and we will also report our Q1 2013 financial results.

Let me now provide you with more detail on our exciting news this afternoon, i.e. the nomination of RG-101 as our first microRNA candidate for clinical development. As I mentioned earlier RG-101 is a GalNAc-conjugated anti-miR that targets microRNA 122 for the treatment of chronic Hepatitis C virus infection. We plan to develop a specific compound RG-101 independently of our alliance with GSK. That being said we and GSK remain committed to the existing alliance and to the overall microRNA 122 programs as this remains a collaboration target under the alliance.

Furthermore GSK fully supports our efforts with RG-101. It is also worth taking a few moments to comment on the dynamic Hepatitis C therapeutic space to appropriately position our first clinical candidate. The HCV space as most of you know is rapidly evolving and is focused on the direct acting antiviral or DAA combination therapies. Despite the remarkable achievements of this emerging DAA combination (inaudible) clinical trials we believe that there is a large number of [niche] populations and difficult to treat patients who will emerge as the space continues to evolve over the next several years. These patients may benefit from a second or even third line therapies or RG-101 and this makes for an attractive market opportunity for Regulus to build value in such a dynamic space.

We’re excited to begin testing RG-101 in the clinical setting and we believe that positive results in this program will validate our emerging and expanding microRNA base therapeutic technology platform.

Later in the call we will provide you with further details on the RG-101 program. In addition to the nomination of our first clinical candidate we made great strides in identifying new opportunities to utilize our microRNA expertise. Our strategies to focus on identifying specific organ oncology indications targeting microRNAs to execute this strategy therefore we have been working on a handful of potential microRNA targets with a critical role in oncology.

microRNA 221 has emerged as a very strong candidate target for the treatment of Hepatocellular Carcinoma based on numerous published studies and our own experimental efforts. We’re pleased to announce today that we have selected microRNA 221 as an attractive new target for the potential treatment of patients with Hepatocellular Carcinoma and we expect to report further progress on these target in the second half of 2013. Neil will discuss microRNA 221 in more detail later in the call.

Lastly we continue to make very good progress on the advancing of our proprietary biomarkers platform and we hope to communicate initial progress to you by the third quarter this year. With that I will turn the call over to Garry for a brief review of our financial results. Garry?

Garry Menzel

Thank you Kleanthis and good afternoon everyone. As Kleanthis mentioned we are pleased with our progress thus far in 2013 and are taking steps to begin the transition to a clinical [stage] [ph] company. On the February financial results call we discussed our disciplined financial strategy and we continue to maintain a tight control on cost finishing the first quarter with over $90 million in cash, cash equivalents and short term investments. It is our objective to have sustainable balance sheet that can support the continued execution of our stated goals on the road to clinic.

Turning to the first quarter results on a GAAP basis our net loss for the quarter ended March 31, 2013 was $7.2 million compared to $2.2 million in the first quarter of 2012. The loss in the first quarter of 2013 included a non-cash charges of $1.8 million related to the change in value of our convertible promissory note with GSK which was primarily driven by an increase in our stock price at March 31, 2013 compared to December 31, 2012.

We recognize revenue of $20.2 million in the first quarter of 2013 compared to $3.3 million in the first quarter of 2012. Revenue during these periods consisted primarily of amortization of upfront payments received from our strategic alliances and collaboration which we would recognize over our estimated period of performance.

Total operating expenses in the first quarter of 2013 were $8.8 million compared to $5.5 million in the first quarter of 2012. This change was driven primarily by an increase in research and development expenses of $2.3 million totaling $6.9 million in the first quarter of 2013 compared to $4.6 million in 2012. This increase is attributable to an expansion of our research and development team, expertise and capabilities in addition to increasing preclinical study activities in the third quarter of 2013 as we move closer to entering the clinic.

Our general and administrative expenses were $1.9 million in the first quarter of 2013 compared to $0.9 million in 2012, this increase is driven by the cost of being a public company. To reiterate our previous guidance we anticipate ending 2013 with over $60 million in cash on hand excluding the achievements of any further milestones or additional financing. This cash division should be sufficient to fund operations in 2016 and enable us to continue to fund and execute our research and development objectives on the road to the clinic.

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

Neil Gibson

Thank you Garry. As Kleanthis highlighted we made great progress in hitting our goals on the road to the clinic so far this year and we’re looking forward to testing our [anti-miR] [ph] clinical setting. We have nominated a first candidate for clinical development RG-101 for the treatment of patients with HCV. Kleanthis discussed the business and market opportunity for you and I would like to focus on the significant scientific opportunities that targeting miR-122 may have in the treatment of HCV.

miR-122 is the most prevalent microRNA and hepatocyte and this is a critical host factor for the Hepatitis C virus. miR-122 interacts with HCV virus by binding to two closely (inaudible) that enables HCV’s replication and function. These specific miR-122 sequences have been found to be highly conserved across all HCV genotype making the development of (inaudible) extremely unlikely.

The active oligonucleotide of RG-101 has shown activity against specific HCV genotypes as well as some of the known mutations that may cause resistance to the oral agent. In preclinical studies we have shown in rodent models that RG-101 has a rapid onset of action and that target gene de-repression was staying for longer than 28 days after a single subcutaneous dose. RG-101 has thus shown a favorable potency in PK profile but supports once a month dosing paradigm and disposition for reduced duration of treatment against the broad range of HCV genotypes.

We are on track to initiate the GLP toxicology program for RG-101 in the next few weeks and we anticipate the regulatory filing and the start of a clinical study in early 2014.

We’re planning a single ascending dose study in healthy volunteers that will be followed by a multiple dose study in healthy volunteers and a single dose study in HCV patients designed to show human [pivotal] [ph] concept. We anticipate that these studies could be completed by the middle of 2015. At that time we expect the competitive landscape in HCV to clarify alone as to identify the niche populations likely to benefit from a novel mechanism such as RG-101.

I would like now provide you with an update on another proprietary program in our pipeline, mir-10b for the treatment of Glioblastoma or GBM. In the last call we communicated that we have achieved effective (inaudible) rate as measured by global target gene derepression established within the adjacent normal region of the brain relative to the tumor (inaudible). Preclinical proof of concept has yet to be established for our lead candidates. We had been hoping to measure the ability of our lead molecules to de-repress individual target messenger RNAs and use this pharmacodynamic information to (inaudible) dosing in our efficacy experiment.

Despite observing significant changes in global gene expression we have not yet identified an individual target messenger RNA which responds (inaudible) to guide our dosing paradigm and optimal route of administration for the efficacy study.

The critical efficacy experiments that will validate miR-10b as a target are (inaudible).

In closing I would like to touch upon the new target that Kleanthis mentioned that we have recently selected miR-221 in Hepatocellular Carcinoma, the extensive validation of miR-221 as a target has been published in the literature and overexpression of miR-221 in HCC is known to be associated with poor prognosis.

We have already identified potent leads candidate that inhibit miR-221 and we have shown that naked oligonucleotides formulated in [saline] (ph) can inhibit the growth of HCC tumor models that overexpress miR-221. We’re working to optimize our ability to deliver these lead molecules. We’re using a variety of formulations including the lipid formulations for which our head of Pharmaceutical Development Victor Knopov has broad experience and we’re also using the GalNAc conjugation technology that has worked so efficiently so far for RG-101.

We know that human HCC tumor samples and our HCC models express (inaudible) protein receptor that facilitates intracellular delivery of GalNAc conjugates. We expect to have more robust data package for the miR-221 program in the next six months and look forward to reporting progress on these attractive targets in the near term.

I would like to now turn the call back to Kleanthis for closing remarks.

Kleanthis Xanthopoulos

Thank you Neil. Do allow me to summarize this call, 2013 is shaping up to be a pivotal yield to growth of our company. We are excited about the transition to clinical stage company and are pleased with a rapid advancement of our microRNA pipeline especially the nomination of our first microRNA candidate for clinical development RG-101 in Hepatitis C. We’re also excited about the identification of attracting new oncology targets such as microRNA 221 for Hepatocellular Carcinoma to be evaluated for potential used for clinical studies. Now more than ever we continue to focus on the execution of the remaining goals in our road to the clinic strategy and expect to nominate a second microRNA candidate for clinical development in the second half of 2013 keeping us on track to find our first applications with regulatory authorities in 2014.

In closing we look forward to reporting our progress to you over the next few months at the following conferences. The 38 Annual Deutsche Bank third conference in Boston on May 29th, BMO Corporate Access Day in San Francisco on August 1st and the Wedbush Life Sciences Conference in New York on August 14th. With that we are now ready to take your questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). The first question comes from Bill Tanner from Lazard Capital.

Bill Tanner - Lazard Capital

As it relates maybe Neil just on the, if you could talk a little bit about 101 in compared and contrast with miravirsen and just how you see there being some similarities and how we should look at the human POC data that they have generated, just some general thoughts and then I have a follow-up.

Neil Gibson

Yes, so what I can do and we had originally identified a naked oligonucleotide before we conjugated it with GalNAc carbohydrate residues and the naked oligonucleotide was as good if not slightly better than the SPC3649 on a number of front in terms of the tissue half-life and the kidney to liver ratio, and what we have found with RG-101 that the GalNAc conjugate increases the potency of the naked oligo by 20 to 30 fold and also significantly reducing the kidney to liver concentration more. So I think we’re very excited about the profile that we have for that molecule.

Kleanthis Xanthopoulos

The differentiation point of course is the PK properties of RG-101 allows us to schedule dosing once a month which is of course the time the patient goes back to the doctor to draw blood and monitor viral load so it's a very convenient and clearly compliant to the dosing regimen and it's a volume that we think it's going to be 1ml or less so it looks as an extremely convenient dosing schedule in the presence of the doctor.

Bill Tanner - Lazard Capital

And Kleanthis just as it relates to the collaboration with GSK so it sounds like 101 is going to be Regulus’ but the anti-miR 122 program continues so can you just describe how the rest of the miR-122 programs are carved up and I’m assuming that Glaxo would not have the right to develop anti-miR 122 for Hep C, is that fair?

Kleanthis Xanthopoulos

Not without Regulus’ collaboration that is fair. Since we said we are very excited about the opportunity of Hepatitis C, we saw RG-101 to play a very significant role as a second line or third line or specifically for genotypes that the client direct antiviral agent do not fulfill such a genotype three or four. This is a huge opportunity and we want to get this to the patients as quickly as possible. So we’re able to reduce case collaboration to extract that particular compound out of the global microRNA 122 program and (inaudible) to develop it. We have the full support of GSK.

Bill Tanner - Lazard Capital

And then just finally is it on the commercialization, I’m assuming that this is a market that Regulus as you feel that the company could target on your own without a partner at least in the U.S.

Kleanthis Xanthopoulos

Certainly given 80% of HCV patients are followed by relatively small number primarily of hepatologist, so, yes we know the markets and something that we like to have the potential upside to [market tiding] [ph] in the U.S.

Operator

The next question comes from Simos Simeonidis from Cowen & Company.

Simos Simeonidis - Cowen & Company

Kleanthis or somebody from the team can you give us the - an update on what’s going on with the IP landscape for miR-122. I remember that GSK had a partnership with Santaris back in ’07 – ’08 then they dropped them as a partner and picked you guys up but in terms of the IP what’s owned by you and whereas the challenges that are ongoing from them, where would you spend that?

Kleanthis Xanthopoulos

We have as you recall exclusive licensed global rights to IP generated by Peter Sarnow at Stanford University which has resulted in a number of issued patent in North America, Europe and handful of other countries around the world. We have multiple claims around method of use of any oligonucleotide that is used against microRNA 122 to block Hepatitis C viral replication. So those are issued patents and IP estate is extremely solid and strong.

In addition of course we have the exclusive IP rights to the Tuschl III patent that identifies microRNA 122 as a very important microRNA for the body function and so combined with the Tuschl III and the Peter Sarnow patents we have within extremely solid IP estate which of courses was the basis for why GSK after doing their own IP analysis elected to work with us and not with Santaris.

Santaris has since as you know advanced their program in the clinic and has been challenging some claims of these issued patents and of course the proceedings - and our position is that we very rigorously defend issued patents and move on. We believe we own the space solidly.

Simos Simeonidis - Cowen & Company

A quick question for Neil. Neil you spoke, you introduce to us miR-221 and I know there are a lot of publications there. Can you talk about any differences between this target and miR-21 that’s under the Sanofi collaboration and miR-221 just to be sure is yours fully owned correct?

Neil Gibson

Yes, the miR-221 expression will predominantly occur in different segment of the HCC relative to the miR-21 overexpression so there may be a small amount of overlap but there is minimal overlap, so we do believe that the patients who overexpress miR-221 represent a different segment of HCC than those who overexpress 21. This is a program that we’re obviously very excited (inaudible) our own internal portfolio.

Simos Simeonidis - Cowen & Company

Okay, and then can you tell us how do you get to the decision to use the GalNAc-conjugation versus the other ones and is this one that you might go forward with rather for example liver directed molecules or we shouldn’t read anything other than this was selected for this target.

Kleanthis Xanthopoulos

We’re excited to have the opportunity of course to access technologies there through our funding, licensing agreement with Isis and Alnylam on technologies that these two respective funding companies developed for exclusive using in microRNA. So we’re very fortunate to have the experience that Alnylam has demonstrated with (inaudible) program on GalNAc and elected to test that in our Hepatitis C program and of course in other programs that target the liver.

The way I want you to think about this is that, we at Regulus are looking at all opportunities of different formulations and we’re going to be selecting the right one for the right indication, by that I mean there will be indications where we will use a naked oligonucleotide which of course Isis has consistently using the clinic with some very good data. We will select the GalNAc-conjugate as we did in the case of RG-101 if you want to consider the receptor mediated introduction of an oligo particularly to target a specific organ in this case liver or lipid formulation if you want to go to broader tissues and not simply use a naked oligonucleotide. So the beautiful thing about this is that we have at least the formulations to use from, we have five different ways of administering these drugs and so if you combinatorily put them together we have many, many options and we’re going to be using the best options for that particular compound and the indication we’re going to go after.

Simos Simeonidis - Cowen & Company

And final quick question for Garry so he doesn’t feel left out of our party. Garry the guidance for 60 million at year end and burn rate of 30 to 35 all of that does not assume new influx of cash from your collaborators, correct?

Garry Menzel

That’s correct.

Operator

(Operator Instructions). The next question comes from Alan Carr from Needham & Company.

Alan Carr - Needham & Company

Wondering if you can give us an update on the miR-21 and miR-33 programs and then also with respect to RG-101 you mentioned that you will be doing med studies in patients, what are your thoughts there in terms of whether it will be a single agent or in combination with direct antivirals? Thanks.

Neil Gibson

So the miR-21 obviously as you know Alan had to therapeutic approach is one was in oncology and one was in Alport and we’re working extensively on both fronts with Sanofi. So for the fibrosis we have ongoing Alport’s experiments in generally Regulus as well as ongoing at Sanofi as well as with the collaborator Jeremy (inaudible) Washington. So we have a number of studies that we will be reaching out in the next month or two and we remain very excited about the data that we have been generating in that program. For the miR-21 program that was obviously targeting an HCC focus as well so we have been looking forth to sort of extend the original data that we had with (inaudible) we showed in the activated model that we would see efficacy and we are doing that with the native oligon and some of the GalNAc-conjugated in miR-21 so that’s ongoing studies that we also be updating in the near future and then for 33 weeks continuous to make good progress with 33 with AstraZeneca as our partner on that program.

Alan Carr - Needham & Company

With respect to RG-101 and HCD patients would that be singular? So would the single dose proof of concepts are in HCD patients will be able to quickly know how effective our won compound is that we just in the viral title in HCD patients on that basis will be able to make an assessment of whether we would need to do a combination with a PI inhibitor or one of the other mention that is currently in development for that decision I think will make in early clinical development unfold. Okay so that’s just single dose of RG-101. Okay thanks very much.

Operator

The next question comes from Greg Wade from Wedbush.

Greg Wade - Wedbush

First on Kleanthis with respect to the Hep C program is it your expectation now that Glaxo wouldn’t go forward with any different constructs and review to work that program? Or how should we think of that?

Kleanthis Xanthopoulos

You should think about this Greg and thank you for asking the question to clarify. We continue to have a very, very strong relationship with Glaxo. We have seen this is a compound RG-101 that has a very, very good target product profile. We think we can target it in specific needs indications and we are in the middle of as Neil just alluded to layout clinical development with our key opinion leaders and advisors to introduce it to the clinic. We will be and continue to be very transparent with Glaxo and all of these steps we have their full support and there is always a dialogue ongoing and we will keep them absolutely 100% informed but we feel strongly about this, we’re going to take control of that particular compound and putting the clinic in control the development of that compound.

Greg Wade - Wedbush

Okay a quick follow-up and then I’m just going to have another question, are you still doing and discovery work and formulation work to try to identify something they might like?

Kleanthis Xanthopoulos

Yes that is correct for a certain period of time and then we will be discussing them again I presume based on the success of RG-101 in the clinic.

Greg Wade - Wedbush

And if I just switch to Neil, Neil can you help us understand some of the approaching biology that you expect 221 participate and does this lead you to another potential indications outside of (inaudible) and thanks for taking my question.

Neil Gibson

221 looks as if it's a target, some of the cell type of proteins like B27 so it clearly would have an important role in sort of managing the cell cycle progression of a number of the HCC segment. We have looked at 221 in a number of other tumor types and we’re currently in value think where there is also the potential for 221 in some of those other tumor types but initially we’re focusing first on HCC.

Operator

I’m showing no further questions. I would now like to turn the call back over to Kleanthis for closing remarks.

Kleanthis Xanthopoulos

Thank you all for joining us on the call this afternoon. As we stated we’re proud of this recent accomplishments. We look forward to achieving our goals in the road to the clinic as well as keeping you informed in that process. Thank you.

Operator

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

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