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Edward Lanphier - President and CEO


Rachel McMinn - Bank of America Merrill Lynch

Sangamo BioSciences (SGMO) Presentation at Bank of America Merrill Lynch 2012 Health Care Conference May 16, 2012 5:20 PM ET

Rachel McMinn - Bank of America Merrill Lynch

My name’s Rachel McMinn. I’m one of the biotech analysts here at Bank of America Merrill Lynch. It’s my pleasure to introduce our next speaker. The company is Sangamo BioSciences, and our speaker is President and CEO Ed Lanphier. Thanks so much.

Edward Lanphier

Thank you Rachel, and thanks for including us in this year’s conference. It’s a pleasure to be here. My presentation will continue forward looking statements, and I’d refer you to our forms 10-K, 10-Q, filed with the SEC.

Starting at 30,000 feet, the single fact that differentiates Sangamo from every company at this meeting, every company in biotech, is our core technology, our ability to engineer a naturally occurring class of proteins that bind DNA. And these are called zinc finger proteins.

They’re actually the most common, the most abundant, class of DNA binding proteins found on our planet, and the reason being is evolution found these to be very engineerable, very manipulable, in that they can bind to three sequences of DNA, three base pairs of DNA, and then linking these together kind of like Legos, could build proteins that could recognize longer and more specific sequences of DNA.

And so in organisms such as man, where we have a large number of genes compared to yeast, this is the most abundant type, the most common type, of DNA binding protein, and the most common type of protein that regulates DNA. And so what we’ve been able to do is really take advantage of this protein structure, this protein motif, and build out a library at Sangamo that allows us to prospectively build a zinc finger protein to target any DNA sequence we want with singular specificity.

And then using that to target exactly that gene sequence, we can bring into the context of that gene proteins that allow us to drive biology at the DNA level. And this is a fundamentally unique approach in drug development, in agriculture, in generating unique cell lines or transgenic animals, because it’s the only platform that allows you to drive unique biologies at the DNA level.

So that’s the thing that really differentiates us. What we’re doing, then, is applying us in the area of novel drugs. And instead of looking at novel treatments that might function at the protein level by blocking a receptor for a certain period of time or something like that, we’re actually looking at driving outcomes at the DNA level, which allows us to talk about curing diseases, actually changing the DNA in a way that actually cures, not just treats, diseases.

And so those are the two fundamental elements at Sangamo. Because I think if you walk out with nothing else, that’s the critical view from our perspective. From a business model point of view, and I’ll go into this in a bit more detail, we’ve been very successful in leveraging this core technology in areas outside of human healthcare, and as a matter of fact, I think in about an hour from now our collaborators at Sigma-Aldrich will be presenting, and you’ll hear a lot more about zinc fingers and the work that they’re doing in the area of research reagents and transgenics.

We also have a significant collaboration with Dow Agrisciences in the ag space. And those collaborations, along with a very successful partnership that we just announced with Shire, have allowed us to operate the business in a very different way. For instance, we started this year with $85 million in cash and while prosecuting Phase II clinical trials on our own, bringing forward a pipeline of preclinical programs, we’ve guided to ending the year with at least $75 million in cash, because of this diversified business model.

And our costs, both in terms of dollar outlays as well as intellectual outlays, for those revenues that come in from Sigma and Dow, is essentially zero. They’re running those businesses and we receive milestones and royalties. And finally, in all of this, we have an absolutely dominant intellectual property position.

So that’s the overview. I think that’s the critical points to understand. Very quickly, this is what I just told you about in terms of the technology platform. We have the ability to engineer DNA binding proteins, zinc fingers, to target exactly the gene we want, and then we can use this to drive biology. So we can use this to regulate gene expression.

And our most advanced program in activation of a gene is in the Parkinson’s field, where we’re now in non-human primate models. So in monkey models of Parkinson’s, where we’re activating the endogenous GDNF gene, the gene that has been shown have a dopaminergic effect. And by activating the endogenous gene, we don’t end up with any of the immunological problems that are seen with the recombinant protein.

From a repression perspective, our most advanced effort there is again another neurological indication, in Huntington’s disease. And that’s a very active effort for us. So that’s the gene regulation side of things.

We can also use this technology to edit genes, to physically change endogenous genes. And so one of the things that’s probably the most relevant set of data that drove our new Shire collaboration was correcting a gene. And we showed this in two years of presentations at ASH, and a most recent Nature Medicine paper where with a single treatment, a single injection of a zinc finger nuclease targeting the factor 9 gene in a mouse model of hemophilia B, we were able to correct that gene, change the DNA sequence, and get the correct protein, and normalize the coagulation timeframes in this mouse model of hemophilia. And arguably that’s the principal data that drove our Shire deal.

We can also use this technology to disrupt a gene. And this is exactly what we’re doing in the case of HIV and the CCR5 field, and I’ll speak more to that. And we can also do targeted insertion. We can put large sequences of DNA in exactly the site on the genome that we want. And at the American Society of Gene and Cell Therapy meeting this week, going on right now, there are several presentations looking at targeting coding regions of genes in the so-called safe harbor sites within the genome. And that’s very relevant in terms of a general approach, a general platform, for addressing protein replacement therapies. And again, we will see more and more of that in data coming out at ASGCT.

So that’s the platform. As I mentioned, we’ve been very successful in leveraging this from a business perspective. I’ll come back and talk about our Sigma Aldrich collaboration, our Dow collaboration. I’ll quantify that for you. And I’ll spend more time talking about Shire. But the main thing I’m going to focus on is really our therapeutic pipeline, and with the exception of the deal we just did with Shire, we own 100% of these programs. And so I’ll go through each one of these.

First, our HIV program employs patients who have HIV, taking white blood cells, CD4T cells, out of these patients, and modifying the genome to knock out their CCR5 gene. Why would you want to knock out CCR5? First, it is one of the required doorways, one of the required receptors, for HIV to infect cells in the immune system. And specifically, these CD4T cells, which are the target of HIV.

But it is known that people who do not have a functional CCR5 gene, where both of their copies of their CCR5 gene are dysfunctional, while those cells in that patient or that person can get exposed to HIV, they do not get infected. It’s a required doorway for HIV.

And probably the best human proof of concept in this is a person who went over to Germany, who had leukemia and HIV, and the standard of care for leukemia is a bone marrow transplant. And he received bone marrow from a person, a third party, who had this homozygote, or the knockout, in both of their CCR5 genes, and four years later this person is both cancer-free and HIV-free. And it’s one of the many examples of a very credible, very validated human proof of concept around CCR5 as a target in HIV.

What our zinc finger nuclease platform allows us to do is provide this same kind of genotype, the same sort of knockout, for anybody, anybody’s genes, by targeting CCR5. And that’s exactly what we’re able to do, and that’s exactly the clinical program that we’ve undertaken.

We’ve now completed several Phase I, Phase I-II clinical trials, and the culmination of all that work is summarized in the top line, where we’ve seen exactly what the human biology, the human proof of concept, suggested, that the greater the amount we knocked out both of the CCR5 genes, the greater the impact on reduction in viral load, the elimination of the HIV virus. And the clearest example of that was with a person who actually came into the trial having one of his CCR5 genes disrupted, a so-called delta 32 heterozygote, and that person actually became aviremic, unmeasurable HIV RNA, during the clinical trial.

So there’s two new Phase IIs that we’ve just initiated in this calendar year, in January. One in exactly that population, this delta 32 heterozygote population, that represents about 5-10% of the U.S. HIV infected population. And then in the other 90-95%, we’re looking at an engraftment enhancement study where with a modest pretreatment, we can generate a significant increase in the secreted lymphokines of these patients that give a massive expansion of these modified cells. And so both of those are ongoing.

We also just recently presented data from these Phase I studies at CROI. Very consistent with what we presented earlier, but a little more on the durability of these programs. And so we’re seeing a durability out over 100 days - actually in the longest case over 700 days - of these modified T-cells. And very importantly, a consistent and durable improvement in increasing their CD4 counts, and normalization of their CD4/CD8 ratios.

And as I mentioned, in one of the protocols we’re looking at in Phase II, the best expansion of these was in association with a significant increase in their interleukins and certainly lymphokines. So that was a very critical observation. We also continue to see this antiviral effect, so reduction in HIV RNA, as I mentioned in the delta 32 patient, who was undetectable at the end. And this correlates directly to the number of biallelic knockouts.

So those are the observations. The Phase II studies are ongoing, and we’ll have a guidance on timeframe for data out of those trials on our second quarter call. So that’s where we are in our lead clinical programs. Again, using the zinc finger nucleases to knock out gene expression. But we can also, as I mentioned before, use the zinc finger nucleases to actually physically change, physically correct, mutations.

And because the technology drives at the DNA level, we can modify permanently an endogenous gene. And we can do this to any gene of choice. And the critical piece in a monogenic disease such as hemophilia is that if you can correct that gene at its site in the genome, you leave that corrected gene under the control of its own promoter. All the normal biological feedback that would normally regulate that gene is in place. And, because by definition the correct gene sequence leads to the correct protein, you get a permanent and controlled promoter of an endogenous gene.

And so as I said, we’re not looking just to treat these diseases, we’re actually looking to permanently correct the mistake and thereby engineer genetic cures. And there is a litany of monogenic diseases that are driven by a mistake in a single gene. And that’s not only validated because of recombinant protein strategies that have done that, but it’s also something that can be validated very quickly not only in preclinical models, but also in early-stage clinical models. And so derisked from a development perspective with relatively modest economic exposure.

So these are an example of targets that I’m sure you’re aware of. This is an eye chart that will help test your vision, but it will give you a sense of a lot of diseases you’ve heard about, a lot of the recombinant proteins that are out there, and the size of these, and the gamut of opportunities that this technology can address.

It also can significantly address some of the issues relating to the current standard of care. A lot of these protein replacement patients have to go in a couple of times a month. It’s a very expensive annual procedure, and with any recombinant proteins, and certain patients, there’s an [unintelligible] issue. If one can go in and do this with a one-time infusion, permanently modifying that gene in the liver, get high outputs of protein back into the bloodstream, this potentially eliminates those biweekly infusions and can significantly lower the lifetime cost. So really aiming at genetic cures.

Arguably, this is exactly what drove Shire’s interest in a collaboration with Sangamo, and specifically, in the most advanced programs that we have in this space, which is in the hemophilia area. And so the collaboration with Shire, which we announced on February 1, is really very straightforward. They received worldwide exclusive rights to seven gene targets using our zinc finger nuclease technology. Four of those are the clotting factors in hemophilia, factors 7, 8, 9, and 10, and then three additional targets to be named.

We receive up front funding. And I’ll characterize that for you. And importantly, Shire covers all of our internal and external costs through the IND filing at which time they take over all of the costs and all of the development activities.

So the economic terms, $13 million up front. As I said, Shire funds all of the preclinical costs, internal and external, at Sangamo. We receive milestones through IND filing of $8.5 million per target, over $200 million in the case of each target in total commercial milestones. So a very significant deal. And what I would also say is very importantly, even though these are research stage programs, tiered, double-digit royalties. So we retain a significant percentage of the downstream value of this in these targets.

So in summary around this, this is an area of significant leverage, significant opportunity, for this technology platform that can be applied to any monogenic disease target. And there are significant differential technical advantages that come from regulating or modifying the endogenous gene at the site and leaving it under the control of its own promoter.

And as I said, these are targets that have been well-validated based upon not only the biology of the target, but by the recombinant protein therapeutics. And this is something that with a single infusion and early stage clinical trials can be very significantly derisked.

Many of these targets will be discussed at the American Society of Gene and Cell Therapy that’s actually going on right now. Multiple targets, multiple presentations. I think it’s a total of 12 just of the Sangamo presentations. Clinical data from the HIV program as well as presentations around many of the monogenic diseases I discussed, and also around our emerging approaches in cancer.

I’ll say more about Sigma in a moment, but the Sigma collaboration has actually more than doubled, probably quadrupled, the number of presentations at ASGCT in the use of zinc finger nucleases. So historically, academic collaborators have come to Sangamo, we’ve done an MTA, we’ve collaborated with people. But now anyone in the world can go to the composer website, order a zinc finger nuclease, and they’re doing this.

And one of the major areas of activity is the AAVS1 safe harbor site. We’re going into progenitor cells, hematopoietic stem cells, IPSCs. One can put any gene one wants using the Sigma AAVS1 kit and there are numerous presentations - these are just the therapeutic presentations - that are taking place at ASGCT. So significant leverage on our therapeutics platform from the activities of our collaborators and our partners at Sigma-Aldrich.

So that gives you a sense of the therapeutic pipeline and where we are, and there will be more visibility coming out around that later on. As I mentioned, we have a very important collaboration with Sigma leveraging this technology outside of the human therapeutic space in the research tools, transgenic animal models and engineered cell lines for protein production. We also have an important collaboration with Dow Agrisciences, which is applying the technology not only internally at Dow but also our sublicenser of the technology broadly.

This business model, this hybrid business model, for us has been very productive in terms of bringing in dollars to the company that we’ve been able to use to drive forward and derisk our therapeutic programs, but more importantly going forward, we retain a significant amount of downstream value from both of these collaborations. And that’s a significant source of revenues for Sangamo going forward. These two partnerships, plus our Shire collaboration, we’ve guided to revenues this current year in the range of $14-18 million.

And that is a transition to our financial position. Sangamo, because of its business model, has been able to aggressively develop this novel therapeutic platform, but doing it in a way where we’ve burned very little cash on an annual basis. And so this year we started the year with $85 million in cash. With the Sigma revenues, with the Dow revenues, and now with the Shire up fronts, we’re guiding to ending this year with at least $75 million in cash.

And so that’s a very significant offset to our burn and one that really positions the company in terms of the strength of the balance sheet very well. And lastly, in terms of the balance sheet, only common stock. 52 million shares outstanding. No debt, no warrants, no converts. Just common stock.

So in terms of near term catalysts, looking backwards, I mentioned the data at CROI. We’ll update on the timing for the 902 cohort 5, and the 1101 trials on our second quarter call. You should see continued progress on the preclinical program. And as I said before, our business model is to continue to look for ways to really accelerate the therapeutic program development. And that really does come from partnerships such as the deal that we have done with Shire.

And then going forward, I’ve given our revenue guidance in the range of $14-18 million based upon our commercial collaborations and the impact that has on our cash guidance of greater than $75 million for the year.

So very quickly, in conclusion, as I said, the thing that really differentiates Sangamo from others is our core technology, our ability to target and drive biologies at the DNA level. Internally, we’re focused on the very ambitious task of converting this or generating it as a new therapeutic platform, a way of modifying DNA and not just looking at treatments, but looking at cures, engineering genetic cures, to diseases. And I think those are well-reflected in the targets that are under development: the knockout of CCR5 in HIV, and the development of novel therapeutics in the case of monogenic diseases.

But we’ve also done this with a business model that allows us to be very good stewards of shareholder capital, and we’ve kept a very clean balance sheet in doing such. So thanks very much, and Rachel, I’m happy to take questions.

Question-and-Answer Session

Unidentified Audience Member

So, a couple questions. One is, why is no one else doing this? You mentioned you were the only company that’s working on the sort of technology. I would think this would be something that a lot of people would want to produce.

Edward Lanphier

The short answer is intellectual property. We absolutely, fundamentally, unambiguously dominate the intellectual property in this area. But, you’re right, there are lots and lots of people who want to use this technology, and they’re accessing it through our partnership with Sigma-Aldrich.

Unidentified Audience Member

And does the Sigma-Aldrich partnership impair your IP around human therapeutics?

Edward Lanphier

No, the scope of the license with Sigma is for research purposes only. So we retain all of the therapeutic rights.

Unidentified Audience Member

Can you talk about safety of the data that you have to date in humans?

Edward Lanphier

I can go through all of the work in the two major clinical trials. In the first clinical program that we did, which was an injectable product of a plasmid encoding a zinc finger transcription factor, we saw virtually no toxicities. There was injection site pain, which was resolved with Tylenol. So virtually nothing. And in the case of the HIV program, which is the first zinc finger nuclease, we’ve had some infusion-type reactions, but no issues associated with the modification of the cells.

Unidentified Audience Member

And just for clarification, this is a one-time treatment?

Edward Lanphier

Right. So in the case of the HIV program, that’s one of the things we’re evaluating. That’s why I think the data that came out at CROI are important. As we have more and more data on the durability of this, we’ll be able to look at how often or how long - and if there is going to be need for retreatment. But for many adoptive immunotherapies - and this is actually work that recently came out - after 10, 15, 20 years, you still see evidence of these memory T-cells from adoptive immunotherapies. So it’s one of the things that we’re going to be looking at as time goes on.

Rachel McMinn - Bank of America Merrill Lynch

And maybe you could highlight, compare and contrast, your original plasmid zinc finger program, just from a technology perspective, with the HIV program. And I guess the corollary question from that is if HIV ends up not panning out, and sort of giving you the results that you’re hoping for, what kind of [read through], if any, does that have for hemophilia or some of these other… You know, you’ve [unintelligible]. I just want to try to understand the differences in the technology.

Edward Lanphier

Sure. So the big difference between the earlier diabetic neuropathy work and the HIV work is that the diabetic neuropathy work involved a zinc finger transcription factor. So it was activating an endogenous VEGFA gene. And then the HIV work is a zinc finger nuclease that we’re able to show knocks out the CCR5 gene.

In the case of the knockout, we’re able to go in and literally sequence those cells in a way that we can look at and calculate the biallelic modification, the number of genes that are modified, and so on. And there is an, I’d say, unambiguous correlation between HIV entry into those cells and CCR5. In the case of diabetic neuropathy, while there are enormous amounts of data associated with VEGF and neuroregeneration, it’s not as binary as CCR5 and HIV.

And in terms of if, under the hypothetical, the HIV program, is not positive, I’d say we’re to the point now where it’s a lot like any other platform - an antibody platform or a small molecule platform, where you can say, well, it didn’t work here. The most recent antibody work is Genentech’s going into an APOE program in Alzheimer’s, right? In Colombia, in familial Alzheimer’s. Is that a great target for an antibody? I don’t know. What if it doesn’t work? Does that mean that Avastin was a bad idea? So I think we’re to the point where it’s really around the target, not necessarily around the modality.

Unidentified Audience Member

As I was looking at your eye test chart up there, I noticed a bunch of organ diseases, which are quite profitable for a number of other companies. How do you think through the timeline on getting to those? Do you get to those yourself? Do you partner with those companies who might have an interest? What’s the strategy there?

Edward Lanphier

That’s a great question, and I’ll give you a short answer and then I’ll be happy to give you a longer answer. The short answer is we’re actually aiming toward an analyst meeting in December where we’re going to roll out in much greater detail that eye chart in terms of priority, in terms of timing to IMDs, in terms of timing to clinical data, as well as hopefully we’ll have more to say from a business development perspective.

But a large percentage - I don’t know what the right number is, but a percentage - of those targets up there are targets that we’re pipetting on, that we are moving forward on. And one of the things that we’ll talk increasingly about is the leverage that one gets from particularly some of these safe harbor strategies. Once you’ve created a zinc finger to take the AAVS1 site, or the [rosa] site, or whatever it happens to be, those same nucleases can be used to put any CDNA you want into that site.

And that’s highly, highly leverageable for monogenic diseases. And after you’ve done that, and after you’ve created that master cell bank, after you’ve created those toxicology studies, after you’ve put all that in place, and you know what that is, then it’s just a function of putting a different CDNA into that site, and that’s highly, highly leverageable. And that’s something that we’re going to be talking more and more about, and particularly begin to quantify that near the end of the year. So it’s a great question.

Rachel McMinn - Bank of America Merrill Lynch

And just a similar question, on hemophilia. When should we expect that to move into the clinic?

Edward Lanphier

That guidance will be at the same time as what we just discussed. All of that will be done together.

Unidentified Audience Member

What are the key proof points, do you think, as we look forward to - you know, validate’s maybe not exactly the right word, but to overcome skepticism perhaps?

Edward Lanphier

Well, I think every technology has what I would think about as the staircase. Once you’ve gotten to one staircase, then you’ve got a whole other big step to go up to derisk to the next level and to the next level. I think if you pick one that’s a classically successful Phase II, is classically, at least in my view, the most derisking element of things, and that’s where we’ll be when we complete these HIV studies.

But I think the more often you do that, and particularly when you’re working in A) monogenic diseases, and B) antivirals, where you can see early on some of these kinds of outcomes, I think you can derisk even earlier.

Unidentified Audience Member

And then on the financial side, I think you said you’ve got up to $75 million or so at the end of this year. I think you guys were in the $25-30 million burn rate over the past couple of years…

Edward Lanphier

Yeah, a little less than $25 million.

Unidentified Audience Member

Is the expectation that will grow over time as you guys are trying to bring more into the clinic? Or will you start to see the offset from your partnerships do you think?

Edward Lanphier

Great question. So we haven’t given any guidance yet on 2013, so the only guidance I’ll give is on 2012, which is to end the year with at least $75 million, or greater than $75 million. With that said, if you look at where we are right now, I think two points. One, we expect to complete, at least from a manufacturing perspective, the vast majority of the costs associated with the two Phase II HIV trials this current year.

And so that obviously is included in this financial guidance. And then remember, all of the preclinical costs, all of the costs associated with our Shire collaboration, are reimbursed by Shire. So going into 2013, if you consider both of those facts, I think you’d likely come to the conclusion that the burn certainly won’t be greater.

Rachel McMinn - Bank of America Merrill Lynch

All right. I think we’ll leave it there. Thank you.

Edward Lanphier

Thanks everyone.

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