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Sangamo BioSciences, Inc. (NASDAQ:SGMO)

Acquisition of Ceregene, Inc. Conference Call

August 27, 2013 8:30 am ET

Executives

Elizabeth Wolffe – Senior Director-Corporate Communications

Edward Lanphier – President and Chief Executive Officer

Geoffrey Nichol – Executive Vice President-Research and Development

Analysts

Charles C. Duncan – Piper Jaffray, Inc.

John L. Newman – JMP Securities LLC

Ryan S. Martins – Lazard Capital Markets LLC

Operator

Good morning and welcome to Sangamo BioSciences Teleconference to discuss the Company’s recent acquisition of Ceregene Incorporated. This call is being recorded. I will now like to pass the call over to your coordinator of this event Dr. Elizabeth Wolffe, Senior Director of Corporate Communications.

Elizabeth Wolffe

Thank you Kevin. Good morning and thank you for joining Sangamo’s management team on our conference call to discuss the Company’s recent acquisition of Ceregene. Also, present during this call are several members of Sangamo’s senior management including Edward Lanphier, President and Chief Executive Officer; Ward Wolff, Executive Vice President and Chief Financial Officer; Geoff Nichol, Executive Vice President of Research and Development; and Dale Ando, Vice President of Development and Chief Medical Officer.

Following this introduction, Edward and Geoff will provide more detail about yesterday’s announcement of our acquisition of Ceregene, our plans for the assets and the implications for our business going forward. Following that we will open up the call for questions.

As we begin, I’d like to remind everybody that the projections and forward-looking statements that we discuss during this conference call are based upon the information that we currently have available. This information will likely change over time. By discussing our current perception of the market and the future performance of Sangamo with you today, we are not undertaking an obligation to provide any updates in the future.

Actual results may differ substantially from what we discussed today and no one should assume at a later date that our comments from today are still valid. We alert you to be aware of risks that are detailed in documents that the Company filed with the Securities and Exchange Commission, specifically, our Quarterly Reports on Form 10-Q and our Annual Report on Form 10-K.

These documents include important factors that could cause the actual results of the Company’s operations to differ materially from those contained in our projections or forward-looking statements.

Now, I’d like to turn the call over to Edward.

Edward Lanphier

Thank you, Liz. Good morning, everybody. Thank you for joining us for our conference call to discuss our acquisition of Ceregene Inc., a privately held biotechnology focused on the development of adeno-associated virus or AAV gene therapies. This transaction immediately brings a number of valuable AAV assets into Sangamo, which will augment our existing delivery capabilities and in some areas potentially accelerate future ZFP Therapeutic programs.

In addition, we also acquired several preclinical and clinical assets including a fully enrolled and fully funded Phase 2 clinical trial in Alzheimer’s disease. I’d ask Geoff to provide more details about the Ceregene portfolio later on the call, but first let me give you a little background on the company, the transaction and the broad benefits for Sangamo and our ZFP Therapeutic pipeline.

As many of you know, we are using AAV for delivery of all of our in vivo ZFP Therapeutic programs. Consequently we see the acquisition of Ceregene as a great opportunity to capitalize on the 12 years of development and over $120 million that Ceregene has invested in their AAV platform and AAV-based gene therapies. Specifically they have deep domain knowledge and experience in AAV manufacturing including a well established GMP process that is scalable, validated and commercially viable.

They have arguably the most experience of AAV delivery to the central nervous system of any company in the world in terms preclinical studies, regulatory filings and in treating patients. As you will hear, we believe that these assets will be of significant value to us, saving us both time and money as we advance all of our own in vivo ZFP Therapeutic programs.

To give you some background, Ceregene was founded in 2001 around the AAV IP and manufacturing know-how developed by first generation gene therapy companies; Somatix Therapy Inc. and Cell Genesys. When spun out of Cell Genesys, Ceregene attracted venture capital from some of the most highly regarded biotech investors including Alta Partners and MPM Capital. In total, Ceregene raised over a $120 million in both equity and non-dilutive financing.

Over the past several years Ceregene has used its AAV technology to safely treat approximately a 115 subjects under two IMDs on seven clinical protocols supported by a significant regulatory database including GMP manufacturing, preclinical efficacy and toxicology and clinical datasets.

In addition to the AAV manufacturing, delivery and regulatory assets Sangamo also acquired over a 120 issued, pending or in-licensed patents covering AAV manufacturing, therapeutic transgenes and technology for neurologic and ophthalmic applications as well as all of Ceregene’s therapeutic programs. This includes CERE-110 AAV delivery of Nerve Growth Factor or NGF for the treatment of Alzheimer's disease. CERE-120 for Parkinson's disease and several preclinical programs.

Regarding CERE-120 in April of this year Ceregene announced the top line data from its double-blind randomized placebo-controlled Phase 2b clinical study in Parkinson’s disease. The trial does not demonstrate statistically significant efficacy in the primary endpoint. Despite demonstration of benefit in one of the key secondary endpoints and clear evidence for the safety of AAV delivery and the dosing methods employed Ceregene’s Board and investors decided to develop a strategy to monetize the assets of the company.

Under the terms of our definitive agreement Sangamo issued to the stockholders of Ceregene 100,000 shares of Sangamo common stock. Importantly, the upfront consideration includes no cash and going forward including the costs of the ongoing Phase 2 Alzheimer’s trial will have no impact on our current operating expense guidance or year-end cash guidance. Also, we will not bring on any Ceregene employees or maintain operations in San Diego. In the future, if we license or commercialize either CERE-110 for Alzheimer’s disease or CERE-120 for Parkinson’s or Huntington’s disease we will owe Ceregene’s stockholders certain earn out payments.

However, if we use any of Ceregene’s AAV technology in our own ZFP Therapeutics we will not owe any milestones or royalty payments to Ceregene. The acquisition is expected to close in September subject to customary closing conditions.

I’d ask Geoff to provide more details as for this specific AAV assets, the basis of the ongoing Alzheimer’s clinical trial and how we believe this acquisition will strengthen our AAV capabilities, and aid development of our own pipeline of ZFP Therapeutics. Geoff?

Geoffrey Nichol

Thank you, Edward. Neurodegenerative diseases such as Alzheimer’s disease, amyotrophic lateral sclerosis, Huntington’s and Parkinson’s disease are the result of specific cell loss in the central nervous system, substantial scientific evidence has shown that specific neurotrophic growth factors can have remarkable effect on numerous models of neurodegenerative disease.

Ceregene has been focused on developing AAV therapeutics. They can provide sustained expression of such practice for the lifetime of the patient after a single administration to a targeted area of the central nervous system or CNS.

Over the course of the last 12 years, Ceregene has refined AAV manufacturing processes and constructed AAV vectors that expressed a variety of growth factors. They have carried out extensive preclinical animal efficacy and toxicology studies in rodents, rabbits and non-human primates, and most importantly tested these therapeutics in humans, developing a specialized targeted delivery device, a proprietary surgical needle and the surgical protocols for its use.

All of this has been achieved with a great safety record preclinically and clinically. We have acquired all of this know-how as well as a portfolio of approximately 120 issued, pending or in-licensed patents covering this effort. As Edward said, information from every stage of this process will be useful to Sangamo and will provide an important contribution to clinical translation of our ZFP Therapeutics that use AAV for delivery.

Ceregene has developed protocols and materials for manufacturing GMP AAV, which will contribute significantly as we develop our own vector manufacturing capability. If we employ Ceregene systems we’ll benefit immediately from their manufacturing materials, which include master cell banks for the growth of AAV that are very expensive to generate and characterize as well as the plasmids that have been generated for making vectors.

Ceregene has also generated a significant database of documents as part of their IND filings that cover CMC, preclinical and toxicology studies of AAV in a variety of animal models from rodents to non-human primates. We have acquired all of these submissions as well as the FDA responses to the studies. These data and documents provide us with valuable insights into the toxic studies that the FDA has previously approved for an AAV-based therapeutic. This could save us time and money and enable us to de-risk and potentially accelerate future internal program timelines.

Finally, in addition to a number of preclinical programs, primarily in the ophthalmic space, we have acquired their ongoing Phase 2 clinical program to evaluate CERE-110 for the treatment of Alzheimer’s disease. CERE-110 is an AAV vector that carries the gene for nerve growth factor or NGF, a naturally occurring protein that maintains survival of nerve cells in the brain.

Using Ceregene’s proprietary delivery device CERE-110 is surgically injected into the nucleus basalis of Meynert, NBM, the region of the brain that contains the majority of its cholinergic neurons and which undergoes progressive degeneration in Alzheimer’s patients. As evidenced by the success of the acetylcholinesterase inhibitors in Alzheimer’s disease, the cholinergic system is important in memory and cognitive function and restoring and protecting the function of this system may improve and preserve memory in individuals with the disease.

Delivery of NGF using an AAV vector has been shown to induce long-lasting expression of NGF in the system, which has the potential to slow disease progression and possibly restore function.

Clinical data from their Phase 1 study are encouraging. They demonstrate that CERE-110 can be safely injected into the specific area of the brain and achieve long-term expression of NGF with evidence in post-mortem studies of maintenance of neuronal size in the nucleus basalis of Meynert.

As I mentioned, preclinical studies suggest that this treatment can produce levels of NGF that protect cholinergic neurons. Based upon these data, in 2008 Ceregene and its collaborators of the Alzheimer’s Disease Cooperative Study or ADCS were awarded a $5.4 million grant from the National Institute of Aging of the National Institutes of Health or NIH to support the double-blind, sham surgery-controlled, Phase 2 clinical trial of CERE-110 in 50 subjects with mild to moderate Alzheimer’s. The trial is being conducted at 11 Alzheimer’s centers across the country. It is now fully enrolled and the subject, half of whom were treated with CERE-110 and half with sham surgery, are in the two-year follow-up stage of study and will be evaluated using established approval of clinical end-points in cognitive function and quality of life along with a range of exploratory investigations such as FDG PET.

Alzheimer’s is a progressive brain disease that gradually destroys memory and a person’s ability to learn, reason, communicate and carry out daily activities. There is no cure for this disease. Over 5 million people in the U.S. live with Alzheimer’s, which is devastating for both patients and families. Currently there are two classes of small molecule drugs approved for the treatment of patients with Alzheimer’s disease and one of these classes is the cholinesterase inhibitors, which also affect the cholinergic system, but in a systemic fashion. These drugs improve cognitive function, but only delay worsening symptoms for six months to 12 months on average for about half of the people who take them and are limited by significant side effects.

It is clear that more effective treatment options are needed particularly approaches such as CERE-110 that is more targeted to the affected neurons. The involvement of NIH and ADCS signal strong support for the development of this type of novel therapeutic that is designed to protect neurons and slow disease progression. The double-blinded, Phase 2 clinical trial is expected to read out in 2015 and we’ll update you once the data are available.

Regarding the preclinical programs that I’ve mentioned, at this stage we are still in the process of assessing these assets and we will provide more information if we decide to advance any of these programs.

And with that, I will turn the call back over to Edward.

Edward Lanphier

Thanks Geoff. As Geoff outlined, we’ve acquired a significant portfolio of AAV related assets that we believe will strengthen and enhance Sangamo’s capacities and capabilities to develop our own ZFP Therapeutics. To be more specific this acquisition has augmented our resources to successfully pursue our strategic objective of developing ZFP Therapeutics capable of engineering genetic cures for diseases where there is an unambiguous correlation between a specific gene and a specific disease.

Also, from a financial perspective this acquisition does not change our financial guidance. We’re on track to have a cash and investment balance of at least $55 million at the end of 2013 inclusive of research funding from Shire, but exclusive of any new funding from any other partnerships. We also expect 2013 operating expenses to be in the range of our previous guidance, $46 million to $50 million and revenues to be in the range of $20 million to $24 million.

Finally, this acquisition does not alter any of our ZFP Therapeutic development plans or timelines. We expect to complete our Phase 2 clinical trials of our SB-728-T HIV/AIDS program and present the complete dataset at a medical or scientific meeting by the end of the year. In addition, as I announced earlier this month, we will present and update on our SB-728-902, Cohort 5 clinical trial in a Late Breaking Abstract at ICAAC on September 12.

As 2013 progresses, we also expect to present data from our partnered programs in hemophilia and Huntington’s disease and our proprietary programs in hemoglobinopathies and lysosomal storage disorders.

We remained very focused on our development goals and plan to file INDs in 2014 for hemophilia A and B with Shire, beta-thalassemia and our HIV applications in stem cells for our own account. In 2015, our goal is to file INDs for our Huntington’s program with Shire and up to two proprietary programs in lysosomal storage disorders.

In conclusion, this acquisition significantly strengthens our AAV delivery capabilities as a fully funded Phase 2 asset to our clinical pipeline, and will have no impact on our cash or our operating expense guidance. We look forward to updating you as we begin to assimilate these assets into our development plans for our ZFP Therapeutics.

This completes our prepared comments. I would now like to open up the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Charles Duncan with Piper Jaffray.

Charles C. Duncan – Piper Jaffray, Inc.

Taking my questions and it looks like a pretty interesting acquisition Edward. My first question is though kind of related to what you’re just talking about in terms of timelines specifically for the monogenic protein replacement platform. Is it possible that it’s more work in assimilating its assets that those could change or is this just much more expand or extend the potential for the asset of our technology platform.

Edward Lanphier

Yeah, good morning Charles, so this acquisition really broadens our base of delivery alternatives. As we mentioned I think probably first time publicly in December at the analyst briefing, we’ve made a significant investment in AAV. At that time we announced our licenses and freedom to operate around AAV-5 and AAV-6, and signaled that all of our in vivo programs and I will come back to the in vivo protein replacement platforms that we discussed, as for liver delivery as well as direct tissue delivery we are based up on AAV. At that time we talked about freedom to operate, but we really didn’t talk much about the kinds of infrastructure and manufacturing know-how, and regulatory filings and toxicology studies that really underpin the critical path to bringing these programs into the clinic and into the marketplace.

Ceregene has invested, as I said, over 10 years over $100 million in really building out a world-class manufacturing platform for AAV, and so that’s what we’ve augmented and added to Sangamo.

In terms of guidance on timelines, I’ve reiterated our previous guidance and that is very much what we expect to do. Those are ambitious objectives, seven new INDs over the next now 2.5 years or so. And while this will strengthen our alternatives in terms of delivery and particularly perhaps most importantly in terms of brain delivery in our Huntington’s program is probably the most directly in the line of that previous work. We’re certainly not guiding to acceleration of any of the timelines at this point.

Charles C. Duncan – Piper Jaffray, Inc.

Okay. And then my other question is regarding the ongoing clinical programs Edward, were they primary consideration or were they just nice to have kind of validation of the delivery and regulatory value of the technology platform?

Edward Lanphier

Well, it’s both. We’ve known and Dale shared with us, and surely Cliff, who is our Head of Regulatory and even back in my impetuous youth, I have known this technology for a long, long time and I followed Ceregene. And the work that they’ve developed in terms of regulatory packages, toxicology studies, communications with the FDA are very, very impressive and very valuable, and de-risk many of our internal programs, just with that information. But the clinical experience that they have and the ongoing clinical asset in Alzheimer's was important to this decision, and I think as Geoff outlined based upon the preclinical data that they have developed, the Phase 1 safety data and packages that they have developed, and the fact that the Alzheimer's asset is fully enrolled and fully funded is an important part of the transaction, but clearly the principal driver for us were the very significant AAV assets that Ceregene had developed.

Charles C. Duncan – Piper Jaffray, Inc.

And final question is regarding that Alzheimer's program should it work out in Phase 2 perhaps just a little bit too early to speak to this, but would your Plan B to develop it internally or seek partner for Phase 3 development?

Edward Lanphier

Yeah, I think you’re right Charles, it’s probably a little early to give guidance on our plan there. As Geoff suggested, this trial will read out in 2015 and we’ve got a little bit of time between now and then to figure that out.

Charles C. Duncan – Piper Jaffray, Inc.

Thanks for taking my questions.

Edward Lanphier

Sure. Good morning.

Operator

Our next question comes from John Newman with JMP Securities.

John L. Newman – JMP Securities LLC

Hi, Edward. Thanks very much for taking my question, and I’m glad, it does seem like a very interesting deal for Sangamo this morning. I just had a question about some of your earlier programs, kind of following on the first question that Charles had, would you plan on incorporating directly some of the AAV technology in perhaps some of the INDs that you’re planning on filing later on in 2015 or do you view the technology that you’ve gained as helping you out more on the manufacturing side should you reach later stages of development with those INDs?

Edward Lanphier

Good morning, John. I think if there was an A and a B, I think I’ll take C. C, all of the above. We are definitely and already actively evaluating the Ceregene assets and their platform in our ongoing programs, and as I mentioned, probably the area of most immediate relevance is in their broad experience and delivery to the central nervous system and so, our Huntington’s program. But we also view this as a significant package in, of experience and materials in manufacturing, toxicology, regulatory filings, clinical safety and AAV delivery. So it really is I think C, all of the above.

John L. Newman – JMP Securities LLC

Okay. And a question about the Alzheimer’s program. Can you describe what the primary endpoint is that you will be looking at, and can you also talk about maybe some of the secondary endpoints that you think will be interesting.

Edward Lanphier

Sure. Let me ask Geoff to cover that.

Geoffrey Nichol

Yeah, John, the primary endpoint is the endpoint that’s used in most of these trials and certainly in pivotal trials and that is the ADAS-Cog. So that will be followed over the course of two years following the surgical implantation of the AAV. There are a wide range of secondary endpoints that have a quality of life that cover other aspects of cognition and that also evaluate the energetics of the cerebrum using FDG PET as the outcome measure.

John L. Newman – JMP Securities LLC

Okay, great. Thank you. And if I could ask one additional question regarding the Alzheimer’s program. Could you characterize the disease state of the Alzheimer’s patients? Are you looking mainly at the patients that are in the later stage of the disease versus earlier or do you have sort of a broad range of disease stage that are in the Phase 2?

Geoffrey Nichol

John, it’s Geoff again. It’s mild to moderate. So it’s relatively early disease that we are looking at, and that makes sense given the wish that, and the opportunity that we have to have the nerve growth factor actually not only sort of rejuvenate the neurons, but actually preserve them from further degeneration. So, we’re aiming to get a couple of potential treatment effects. And so it’s obviously beneficial to do that in patients whose neurons are hypothetically at least better preserved.

John L. Newman – JMP Securities LLC

Okay, great. Thank you very much.

Edward Lanphier

Thanks, John.

Operator

(Operator Instructions) Our next question comes from Ryan Martins with Lazard Capital Markets.

Ryan S. Martins – Lazard Capital Markets LLC

Hi. Congrats on the deal and what seems to be a pretty favorable cost for Sangamo.

Geoffrey Nichol

Thanks.

Ryan S. Martins – Lazard Capital Markets LLC

I just wanted to ask few questions, starting with the delivery, that the needle-based delivery that Ceregene has. Can you maybe talk about that in relation to, I know you’ve not been in the clinic with Huntington’s, but what you’ve been using contemplating at least preclinically and going into the clinic with Huntington’s disease?

Edward Lanphier

Sure. Now let me ask Geoff to comment on that.

Geoffrey Nichol

Yeah, there is a variety of approaches that you can take. There are certainly different designs of needles and applicators for AAV delivery, some instill directly others have special steps in them that prevent reflux of the material and some provide a kind of convection-enhanced delivery following beyond the tip of the needle, key issues are absorption of the AAV on the inner lining of the needle system itself, obviously that’s the placement and the stereotactics that are required to place the system.

What’s striking about the – and useful, potentially useful about the Ceregene approach is that they have a special stylet inside the needle, they have a special approach to preventing absorption of AAV, and so we’re going to be evaluating that extremely closely as we move towards making our decision for the clinical delivery system for Huntington's disease. That decision is not yet made, but this Ceregene acquisition gives us a great deal of insight into what are the necessary features of such a delivery system in order to open an IND effectively as well as giving us another quiver if you like, another arrow in the quiver of options for delivery.

Ryan S. Martins – Lazard Capital Markets LLC

Okay, that’s great color. And then just on the manufacturing side, I know you said at the end GMP manufacturing, do you have an idea of what the manufacturing facility’s capacity range from in terms of how many vector genomes per lot that they can make with their process.

Edward Lanphier

I don’t have the vector genomes per lot the top off my head. That’s obviously something we can get for you if you are interested, Ryan. But Ceregene has made clinical material, GMP material for now over 100 subjects that have been treated. They still have fairly significant quantities of GMP materials available. I think the critical issue is that they put in place a process, a GMP process that’s scalable and for relatively focused lots of material, potentially useful in a commercial setting as well. So, I don’t have the specific quantification you asked for, but in terms of the process and materials and what they have demonstrated in terms of being able to take into humans, it’s a validated scalable process.

Ryan S. Martins – Lazard Capital Markets LLC

Okay, but we can definitely follow-up later on that.

Edward Lanphier

Sure.

Ryan S. Martins – Lazard Capital Markets LLC

Finally, with HIV, you are having a late-breaker at ICAAC probably a little more than a couple of weeks from today. You’ve seen data on four patients that have been to the treatment interruption at ASGCT. You know there are another three that were in the trial and potentially another three that were enrolled after. I was hoping maybe you could help provide some color around as to the extent you can, around what we can expect from this Phase 2 update for HIV.

Edward Lanphier

Sure. So what we’ve guided to is to have a complete dataset by the end of the calendar year and that is our reiterated guidance. The late-breaker at ICAAC is an update. So it’s not the complete dataset as it relates to Cohort 5 and it’s focused on Cohort 5. So I characterize it as an update as you just did, and I’d have just prefer you at this point in terms of the direction of the focus of the presentation to the abstract title, and I discussed that I think a couple of weeks ago when we announced that. So, certainly look forward to an opportunity to talk about that on or after September 12.

Ryan S. Martins – Lazard Capital Markets LLC

Okay. Thank you.

Edward Lanphier

Sure. Thank you.

Operator

And I’m not showing any further questions at this time. I’d like to hand the conference back over to our host for closing remarks.

Edward Lanphier

Great. Thank you. We’d like to thank you for joining us and we look forward to speaking with you again when we release our third quarter financial information. We’ll be available later today if there are any follow-up questions. Thanks very much.

Operator

Well, ladies and gentlemen, that conclude today’s presentation. You may now disconnect and have a wonderful day.

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