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Sangamo BioSciences, Inc. (NASDAQ:SGMO)

Global Collaboration with Biogen Idec to Develop Treatments for Hemoglobinopathies Conference Call

January 09, 2014, 08:30 AM ET

Executives

Elizabeth Wolffe - Senior Director of Corporate Communication

Edward Lanphier - President and Chief Executive Officer

Philip Gregory - Vice President, Research and Chief Scientific Officer

Ward Wolff - Executive Vice President and Chief Financial Officer

Analysts

Charles Duncan - Piper Jaffray and Company

Heather Behanna - JMP Securities

Operator

Good morning and welcome to the Sangamo BioSciences Teleconference to Discuss the Collaboration with Biogen Idec to develop the ZFP Therapeutics to treat hemoglobinopathies which was announced this morning. This call is being recorded.

I will now pass you over to the coordinator of this event, Dr. Elizabeth Wolffe, Senior Director of Corporate Communication. You may begin ma’am.

Elizabeth J. 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 agreement with Biogen Idec to develop ZFP Therapeutics for the potential cure of hemoglobinopathies.

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 Philip Gregory, Vice President of Research and Chief Scientific Officer.

Following this introduction Edward will provide more details about this morning’s announcement of our agreement with Biogen Idec, of plans and timelines for this program 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 everyone 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 overtime. 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 updates in the future.

Actual results may differ substantially from what we discuss 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 which are detailed in documents that the company files 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 everyone and thank you all for joining us so bright and early for our conference to discuss this morning’s announcement of our collaboration with Biogen Idec to develop ZFP Therapeutics that have the potential not just to treat but to cure hemoglobinopathies, such as sickle cell disease and beta-thalassemia. I will provide more details about the disease and specific therapeutic approaches that we have partnered with Biogen in a few minutes but first let me give you a little more background on the scope and terms of the agreement and the broader benefit for Sangamo in the development of our ZFP Therapeutic pipeline.

As we described in this morning’s press release and accompanying Form 8-K the agreement with Biogen Idec is focused on the use of our ZFP technology platform to provide a potential curative treatment for hemoglobinopathies, specifically sickle cell and beta-thal. These are conditions that result from defects in beta-globin, the gene editing codes, an essential component of the oxygen-carrying proteins of red blood cells or RBCs. As you will hear later these are serious conditions that currently have sub-optimal treatment at best. And we believe that for a number of reasons our approach can potentially provide a cure for both diseases.

Regarding the agreement we announced this morning we have granted Biogen an exclusive worldwide license to our technology platform and intellectual property for the treatment of hemoglobinopathies. The agreement includes certain gene targets that enable either the direct correction of mutations in the beta-globin gene or the expression of proteins that enable a person to compensate for these mutations. Sangamo will be responsible for all research and development activities through the first clinical trial in beta-thalassemia or the sickle-cell disease program. Both companies will perform activities to enable submission of an investigational new drug or IND application.

As is customary in these types of collaborations the research program will be overseen by a joint steering committee consisting of equal numbers of representatives from both Sangamo and Biogen. Biogen is responsible for subsequent worldwide clinical development, manufacturing and commercialization of products arising from the alliance. Sangamo has also retained an option to co-promote beta-thalassemia and sickle-cell disease products in the United States.

As part of this agreement Sangamo will receive a $20 million upfront payment and we will be reimbursed by Biogen for our internal and external research and development program related costs. We will also be eligible to receive additional payments of approximately $300 million based upon achievement of certain development, regulatory, commercial and sales milestones, as well as tiered escalating double-digit royalties on product sales. The nearest term milestone payments will be Phase I milestones of $7.5 million for each of the two programs.

Regarding amortization of the $20 million upfront payment, at this stage our guidance is that this amount will be amortized on a straight line basis over a period of approximately four years which is roughly $5 million per year or $1.25 million per quarter. However we continue to review this issue and we will update you when you report our fourth quarter and year-end 2013 financial results in mid-February of 2014.

So let me provide a little more background on the disease. Our ZFP Therapeutic approach and what Sangamo and Biogen and why and what makes Sangamo and Biogen confident that this will provide a life changing benefit for hemoglobinopathies patients.

Both sickle-cell disease and beta-thalassemia are a result of mutations in the gene-encoding beta-globin, a sub-unit of the hemoglobin protein that is found in RBCs and enables them to carry oxygen from the lungs to the tissues. In sickle-cell disease or SCD, the beta-globin gene defect results in abnormal hemoglobin which causes RBC to develop a sickle or crescent shape.

These abnormal RBC are stiff and sticky and can block blood vessel flow in small blood vessels of the limbs and organs resulting in painful episodes called crisis, progressive organ damage and an increased risk of infection that result in shortened life expectancy. The current standard of care is to manage and control symptoms, to limit the number of crises.

Current treatments, including blood transfusion, iron chelation, therapy, administration of hydroxyurea, pain medications and antibiotics do not address the underlying cause of the disease, the gene defect responsible for beta-globin leads to poor production or excessive destruction of RBCs, leading to life-threatening anemia and large spleen, liver and heart and bone abnormalities.

Beta-thalassemia Major is a severe form of thalassemia that requires regular, often monthly blood transfusion and subsequent iron chelation therapies to treat the result iron overload. Both diseases have been treated by a bone-marrow transplant of hematopoietic stem cells or HSCs from a matched donor, a so-called allogeneic transplant. However this therapy is quite limited due to the scarcity of matched donors and the significant serious risks of graft versus host after transplantation of foreign cells. The ultimate goal of our ZFP therapeutic approach which is based upon our highly specific zinc finger nuclease or gene-editing platform is to provide a safe one-time curative treatment for both sickle-cell disease and beta-thalassemia and we have two ways to do this.

We can correct the mistake in the beta-globin gene in patient’s hematopoietic stem cells so that those cells make the correct protein and can now develop into normal RBCs or we can make -- we can make use of an observation that these patients actually already have a normal copy of a form of a hemoglobin that can be substituted for the mistake carrying adult beta-globin that causes both diseases.

There are no newborns with symptoms of either disease. This is because during early development a fetal form of hemoglobin is made using a separate beta-like globin gene called gamma or fetal globin. In infancy this fetal form of hemoglobin fully protects beta-thalassemia and sickle cell disease patients from developing disease symptoms. However later in childhood production of fetal hemoglobin is turned off and is replaced by the adult type beta-globin that in beta-thalassemia and sickle-cell patients is defective and symptoms of the disease then appear.

It is well established that the percipients of fetal hemoglobin beyond the newborn stage lessens the severity of both of these disorders in the adult. The goal of our therapy is to do just that, enable continued production of fetal globin and thus ameliorate the disease in all patients.

We have used our proprietary ZFN genome editing technology to precisely knock-out BCL11A, a key regulator of the biological switch from fetal to adult beta-globin expression. Without BCL11A expression -- with BCL11A expression the mutated adult beta-globin is turned on -- is not turned on and efficacious fetal hemoglobin continues to be made. The increased fetal globin restores the normal balance of the alpha and beta globin proteins that together form the oxygen-carrying hemoglobin in red blood cells and production of normal levels of hemoglobin and red blood cells.

Data that we presented last month at the annual meeting of the American Society of Hematology demonstrated that ZFN gene editing can be accomplished in beta-thalassemia subject cells and at clinical scale reproducibly achieving high levels, up to 80% of gene editing in hematopoietic stem cells.

Importantly by performing our ZFN BCL11A knockout in hematopoietic stem cells that are isolated and return to the same patient, a so called autologous transplant our approach can be used to treat any patient, eliminating both the need for a matched donor and the risk of acute and chronic graft-versus-host disease which has limited the use of BMT as a treatment for hemoglobinopathies.

As you may recall we have had a significant head-start on this program. Last May Sangamo was awarded a four-year $6.4 million strategic partnership award from the California Institute for Regenerative Medicine or CIRM to support a Phase I clinical trial in transfusion dependent beta-thalassemia subjects. The clinical trials will be carried out at City of Hope and at Children’s Hospital and Research Center, Oakland. Our collaboration with Biogen is not expected to change our development path for these studies, specifically our plans to file an IND application for beta-thalassemia later this year.

As you can imagine we are very pleased to announce this collaboration with Biogen. As a proven leader in drug development with a history of successfully translating cutting edge science into treatments that provide life-changing clinical benefit for patients Biogen Idec is a tremendous partner of our hemoglobinopathies program and we look forward to working with them to bring these potential curative treatments to patients.

The collaboration is also further validation of our ZFP platform as a transformative technology and accelerates our goal of developing a novel class of therapeutics which has the potential to revolutionize the treatment of genetic diseases.

As 2014 progresses we remain very focused on our development goals and plan to file IND applications in 2014 for hemophilia A and B with our partner Shire, for beta-thalassemia with Biogen and our own ZFN CCR5 HIV application in hematopoietic stem cells. In 2015 our goal is file IND applications for our Huntington's with Shire and up to two proprietary In Vivo Protein Replacement program -- platform programs in lysosomal storage disorders.

I plan to update on all of this and more a week from now at the 32nd Annual JPMorgan Conference, which is being held in San Francisco. 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 Duncan - Piper Jaffray and Company

Hey, good morning, folks and congratulations on what looks to be a really great deal.

Edward Lanphier

Thanks Charles.

Charles Duncan - Piper Jaffray and Company

So, Ed I wanted to ask you a question, just kind of philosophical regarding gene therapy platforms and I appreciate your biases but can you help me understand the diligence process and what may have compelled BIIB to work with Sangamo versus some other Boston-based companies which really may have been more convenient

Edward Lanphier

Well, sure. Yeah, I mean taking it up to a higher level looking at different strategies there are probably two that are most visible in the field right now in cell modification. So gene therapy in autologous stem cells for beta-thalassemia and sickle cell disease, our approach of genome editing using ZFNs and another approach employing viral vectors, specifically lentiviral vector.

And I'd say at 30,000 feet there are quite similar in term of the objectives. I think when you drill down there are important differences and I would argue that those very important differences were very important in establishing this agreement or the decisions that were made. But let me ask Philip maybe to comment a little more specifically on maybe to compare and contrast between the respective platforms.

Philip Gregory

Sure. So good morning, Charles. So as you know lentiviral vectors which are the classical gene therapy approach operate by randomly inserting a corrective gene into the stem cell genome. So this process results in the necessary introduction of this corrected cassette but because one can’t control where that integration occurs there remains the risk, that important genes for both for stem cell function, possibly genes associated with the transformation of those cells could be targets for the integration.

And so there is a risk of insertional mutagenesis, this inherits to the usable lenti platform. And for me I think that's probably the biggest delta or the biggest differentiation between the highly targeted approaches that the Sangamo platform enables, this ability to select a location in the stem cell genome and to target specifically that location and the proposed strategy for thalassemia that we've outlined the target here is the BCL11A gene and we're able to target that gene specifically using an approach that just transiently expresses the reagents’ necessary to knockout that gene.

So it’s a very hit-and-run approach if you will. We can provide the reagents. They target one specific location but what gets returned to the patient no longer contains the operable activity to grow, it doesn't contain the zinc finger. And so I think that's really the biggest differentiation between the two that we have the ability to target one specific site. We can do that using mRNA delivery of the zinc fingers and provides a very transient delivery approach and there is very little or no collateral damage to those stem cells. We can really ensure that those cells go back into the patient with just the mutation that we're interested in.

Edward Lanphier

And the only thing I'd add and this is getting even more into the [LEEDS] trial is that we've demonstrated that we can do this process at clinical scale because of the efficiencies that we are able to achieve with mRNA, transient mRNA delivery to 300 million cells, so at clinical scale. And I think that's a critical, critical piece in terms of successful translation.

Charles Duncan - Piper Jaffray and Company

That's helpful, Phil and Ed. Let me ask you one last question perhaps for Ward. In addition to the upfront milestones you mentioned about $200 million or excuse me, $300 million in milestones for both programs. Can you give us a rough breakdown of development versus regulatory and commercial? And also with regard to that Phase 1 $7.5 million milestone, is that for the start or completion and could that be earned in 2014?

Ward Wolff

So Charles I would love to give you all of those details but I am compelled not to disclose much more than, let me rephrase that, any more than what was in the 8-K this morning. So I'd encourage everybody as they would like additional color or depth on the financial terms to look at the 8-K.

With that said I am going to repeat the guidance or the new information that's there. One $20 million upfront and the scope of the license and such as defined in the 8-K is what I had said on the call. Biogen will fund all Sangamo’s internal and external R&D cost for the beta-thal program through the initial human clinical trial. The parties will determine respective responsibilities in a similar way for the sickle cell program.

The milestones that I've pointed out, the Phase 1 milestones of $7.5 million for both the -- for the beta-thal program and $7.5 million for the sickle cell program are Phase 1 milestones. To be more specific on exactly the timing of those Phase 1 milestones, I am unable to do at this time, Charles but I did highlight that I think those are the most likely near-term milestones for the agreement.

And then in total the agreement is approximately $315 million, including those downstream milestones associated with clinical development and regulatory milestones as well as commercial and sales milestones. Those are not broken out by program. I've not been able to break them out by program here but they are broken out by program in the agreement.

And then as I mentioned there is an escalating tiered double-digit -- we're starting at double-digit royalties going forward. And lastly I think the material term I highlighted was our retention of a co-promote option in the United States for both programs.

Charles Duncan - Piper Jaffray and Company

Thanks for the added color. Congrats on the deal.

Edward Lanphier

Thanks, Charles.

Operator

(Operator Instructions). Our next question comes from Heather Behanna with JMP Securities.

Heather Behanna - JMP Securities

Congratulations on the news this morning. I just have a follow-up question, I am not sure how much you can say as far as, the co-promote, if you could just, if you could give us any color just so what would trigger that co-promote at what stage of development? And then more just sort of a big picture of what you guys are thinking of what would sort of be, as you think moving forward with this partnership what would sort of trigger you guys to want to trigger that option?

Edward Lanphier

Yeah. Well, Heather good morning. You concluded that the question from my perspective with exactly the right word, it’s an option for us. And it’s an important option for us as we think about building our business and continuing to think about value creation and shareholder value. So it’s an option for us, it’s not a near-term option that we have to trigger. I can't get into the specifics at this point of the timing of that and so on.

And if you allow me at this point, suffice it to say it’s something that is important to us, it’s important to us as we continue to evolve our business and I intend to speak next week at JPMorgan a little more about our strategies for forward integration, our strategies for proprietary product development. So if you'll let me off the hook at this point I'm a little bit restricted in terms of what I can say specifically about this deal but I'll be talking more broadly about our business development plans next week.

Heather Behanna - JMP Securities

Fair enough. I'll let you go this week. Thank you so much for that color.

Edward Lanphier

Fair enough. Thank you.

Operator

And I am not showing any further questions at this time. I'd like to turn the conference back over to our host for closing remarks.

Edward Lanphier

Great. We would like to thank you for joining us. And we look forward to speaking with you again when we release our fourth quarter and year-end financial information in mid-February. We will also be attending the 32nd Annual JPMorgan Healthcare Conference next week. And I know that we'll have a chance to speak with many of you then. We'll also be available later today if you have any follow-up questions. Thanks very much.

Operator

Ladies and gentlemen this does conclude today's presentation. You may now disconnect and have a wonderful day.

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