Edward Lanphier – CEO
Geoff Nichol – EVP, Research and Development
Liana Moussatos – Wedbush Securities
Sangamo BioSciences, Inc. (SGMO) 2012 Wedbush PacGrow Lifesciences Management Access Conference August 14, 2012 9:10 AM ET
Okay. We’ll get started. I’m Liana Moussatos from Wedbush, and today we have the CEO of Sangamo, Edward Lanphier, who will give us a corporate presentation followed by Q&A. Edward?
Good morning. I don’t know why it is that West Coast companies draw the short straw and get the early morning talks, but I’m fully caffeinated and ready to go. Good morning, Liana. Thanks so much for including us in this year’s conference. In addition to myself, I’m joined here upfront by my colleague, Geoff Nichol, who is our EVP of Research and Development, and also in the audience, my colleague, Dr. Elizabeth Wolffe, Head of Corporate Communications.
My presentation today will contain forward-looking statements. I refer you to our Forms 10-K and 10-Q filed with the SEC for additional information. Before diving in to the presentation, Liana has asked that maybe I go through this relatively quickly. I won’t try and speak coherently in the morning here, but leaving time for questions and happy to do so.
So as we dive in, just to remind you, Sangamo is unique, unique in a very specific way, and that is our core technology provides an opportunity to engineer a naturally occurring class of DNA-binding proteins, the most common, the most abundant class or type of DNA-binding protein found on our planet, from humans all the way down to worms and flies and so on. These are called zinc finger DNA-binding proteins, and these are small, about 30 amino acids. They’re modular proteins that nature was able to use or engineer to bind to unique sequences of DNA as genomes became larger and larger.
We’ve been able to take exactly that same motif, exactly that same protein structure into the laboratory and build out a library of proteins that allow us to target with singular specificity any endogenous gene. And so this is our core technology. And we can use this to drive biologies from the DNA, at the DNA level. And it’s that opportunity which really differentiates us and defines our strategy and business model going forward.
So our internal focus is to employ this technology in the area of human therapeutics, but we’ve also been quite successful in leveraging this into areas outside of human therapeutics in partnerships in the area of life science research, as well as in plant agriculture. And I’ll cover those at the end of the presentation.
And lastly, just from an overview perspective, we dominate the intellectual property in this area, and because of our partnerships and because of our business model, this hybrid business model, we’ve been able to grow the business quite significantly while retaining a very strong cash position and a very clean balance sheet. And I’ll come back to that near the end of the talk.
But first, just one slide on the core technology. As I mentioned, we employ this class of DNA-binding proteins called zinc finger DNA-binding proteins. And again, without going through all of it, we simply have been able to take what nature created and develop this and all manage it in a way that in the laboratory we can use this to assemble zinc fingers and can target exactly the gene we want. But what we want to do is drive biologies.
And so we can link these targeting proteins, these zinc finger proteins that bind to a specific sequence of DNA to what we would call functional domains. So we can use this to create zinc finger transcription factors that allow us to turn on or turn off the expression of a gene and we can link these with molecular scissors, the so-called nucleases to allow us to induce or create a double-stranded break at a very specific site in the genome and then we can drive the resolution of that double-stranded break in several ways. We can cause that gene to be put back together in a way that’s dysfunctional, that losses some of the nucleic acid. This causes a disruption in the gene expression, and this is what we’re doing in our HIV program.
We could also use this to actually change DNA sequences or correct them, and much of our monogenic disease particularly in the areas of hemophilias are involved with this. We could also and finally use this to insert large sequences of DNA into so-called safe harbor locations in a genome. We can do this in plants, we can do this in humans, and so it’s a very broad, very general technology platform that has very unique opportunities in the area of human health care.
And so, when you think about the technology platform and you start to filter that through the kinds of therapeutic programs that can be developed, we can think about this in two large buckets, direct in vivo applications and modified cells or ex vivo applications. And while I won’t go through all of these today, this begins to give you a sense of how we think about the opportunity to leverage this very general, very robust, gene-specific, gene-modification, gene-regulation technology platform to create highly differentiated, and in many cases, therapeutics that are not just intended to treat diseases, but actually physically and permanently correct or change DNA sequences in a way that can engineer genetic cure. And that’s really the ultimate goal of the technology.
And I’ll address several of these as we go through it, but let me focus on our therapeutic pipeline to start. Just give you a sense of where we are in the area of drug development. I’ll spend some time talking about our HIV program and highlight that there will be new data coming out at ICAC in a couple of weeks. And then I’ll talk about our monogenic disease programs, with particular emphasis on our newly announced collaboration with Shire. And then I’ll come back to our business model.
So first, in the area of HIV/AIDS, the program employs, and then there are several applications here, but the programs that are in human clinical trials employ autologous CD4 T cell, so T cells from people who are infected with the virus are taken out of the body, modify with our zinc finger nucleases and then re-infuse back into the patient, autologous cell therapy. The target for the modification, and in this case the disruption, is a gene called CCR5, and there is substantial both in vitro as well as in vivo, as well as human proof of concept allows CCR5 as an HIV target.
It’s well-established that people who have this so-called Delta 32 mutation in both of their genes do not get infected by the virus, their cells, as well as those people. And probably the best human proof of concept in this is a person who had both leukemia as well as HIV. He received stem cells from a person who had this homozygote knockout and four years later, this very, very famous Berlin patient is both cancer-free as well as viral-free.
That’s a very onerous procedure, very rare, but if one can recapitulate exactly that genotype, that exact same knockout, biallelically knockout CCR5 genes, one could recapitulate that protected phenotype in a clinical situation. And that’s precisely what our goal is and that’s precisely what we’re executing on initially in the area of CD4 T cells. This could then be applied to any patient with HIV. And that’s what we’ve done.
So to date, to summarize an enormous amount of work done with Sangamo, our collaborators, our collaborators at the University of Pennsylvania, we presented last year at ICAC the following -- that there is a highly statistically significant correlation where we knock out, with our zinc finger nucleases, both of the genes, the so-called biallelic modification in CD4 T cells, and a reduction in viral load. And this was a wonderful day to present, but it’s exactly consistent with what the human proof of concept has shown. So this is where we gain our tracking on a highly validated target in a situation where we absolutely know that this is a target that’s involved in stopping HIV infection.
So with that observation that led to this very clear strategy for our next round of studies, two phase 2 trials, one, where we’re going to take subjects that already have one of their CCR5 genes naturally disrupted, the so-called Delta 32 heterozygotes, and what we see there is essentially a doubling of the biallelic knockout rate, because one of them is already disrupted. And then, two, where we can actually go in and get more than a doubling, maybe a 10 to 100 fold increase in these biallelically modified cells by pre-treating these patients ahead of time to get engraftment enhancements.
So both of these trials are under way. We announced the initiation of the heterozygote study in January and then the engraftment enhancement study in the first quarter. We updated both of these trials on our call two or three weeks ago, our second quarter call, and at that time we said that we would have data from these trials, preliminary data in the first half of next year, and complete data sets in the second half of next year.
However, before that, from earlier studies, and let me be clear here, not from these two phase 2 trials, but from earlier studies, there will be new data in this program presented in a couple of weeks at ICAC. And we look forward to speaking with you about those data after they’re presented at ICAC.
So that gives you a quick summary of where we are, our clinical programs in HIV. Let me move to our monogenic disease program. Again, this is an area where because we function at the DNA level, we can drive very unique outcomes, and that’s really what I want to say here. We can design zinc fingers to target any gene sequence. We can get stable, long-term, permanent modification of a gene, leaving it under the control of its own promoter or inserting this at the safe harbor side within the genome. So we’re very flexible in terms of where we can put these modifications depending upon the need or the clinical outcome.
And as I mentioned, if we can get permanent modification of the endogenous gene, we can actually and are driving towards this opportunity to engineer genetic cures. That’s really the goal here. And as many of you know, there are broad, broad range of monogenic diseases, many of them, especially the larger ones, are addressed with recombinant protein or enzyme replacement therapies. And these represent very significant commercial opportunities or commercial markets. And I won’t go through each one of these and hopefully you can see these from the back.
But these are -- and you will recognize this in many of the specialty pharma companies that are addressing this from a protein perspective -- these are very, very large markets. And if one come in and leapfrog recombinant protein therapies with an approach that is aimed at a genetic cure for these diseases, our platform can be enormously disruptive in these markets. And that’s really our goal and it’s very much the goal of our collaboration with Shire that we announced earlier this year.
So the Shire collaboration, I’ll go into this in some deal. It was initially focused on seven gene targets. Four were announced at the beginning of the collaboration. Those involve Factors VII, VIII, IX and X, so clotting factors, and we just announced on our call two weeks ago that they have selected the fifth target, and that is in the area of Huntington’s disease.
So let me just give you a general sense of the structure of this and then I’ll move on to the economics, and I’ll talk about the development plans here. It’s a very vanilla deal. Shire has exclusive worldwide rights in this area of seven-gene targets employing our technology. Sangamo will do 100% of the work on these targets and the program development and the drug development through IND filing. Shire will fund 100% of all of our internal and external costs on these targets as they go forward, and then we receive milestones both in IND filing as well as through regulatory and commercial development. Shire will have full responsibility in terms of the tasks as well as the cost for clinical manufacturing, clinical trials, and commercialization.
The deal itself we announced February 1st was $13 million. I mentioned that Shire funds all of the programs through IND filing at Sangamo, $8.5 million in milestones for each one of the targets through IND filing, another $200 million plus for each of the targets again through commercialization. And I think very, very importantly and something I’m very pleased about, for early research, for pre-clinical targets, we were able to obtain a tier-escalating double-digit royalties, which is really where we wanted to focus our elements of commercial value on this. And that’s again a very disruptive platform and one where we retain significant downstream commercial value from escalating double-digit royalties.
So that gives you a sense of at least where we’re heading in terms of the tip of the sword, but as I mentioned, this is a highly leverageable platform, one that can be applied to numerous monogenic diseases and is very disruptive in terms of current enzyme and protein replacement therapies. Happy to come back on some of these points here. But I think the key issue is that we’re really moving forward on this very quickly. And at the end of this year, December 6, we plan to host an analyst briefing, at which time we will roll out our schedule and priorities around these programs.
So again, that gives you a sense of where we are, how we’re thinking about the development of this technology platform and the status of those programs in both clinical and pre-clinical status. Lastly, I mentioned our diversified business model has given us a very significant source of non-dilutive capital. We have a very important partnership with Sigma-Aldrich. It’s been not only successful financially, but in terms of distribution of the technology broadly within the pharmaceutical and academic communities. We also have a broad collaboration with Dow AgroSciences in the area of plant agriculture.
And collectively, these relationships abroad and then close to $85 million into the company today, I will note these numbers do not include the $1 million sales milestone that we achieved from Sigma. That payment actually came in in the third quarter. So these are numbers through the second quarter. But even more importantly, and that is represented by this milestone payment, we retained very significant downstream value in the commercial success of these programs. So an additional source of funding, non-dilutive funding for the company.
And then, finally, the specific quantification of that business model and our focus in these areas is here. I think you can see in the second line we’ve been very careful and good stewards of capital over the years while driving multiple programs on our own into human clinical trials. And in terms of cash guidance, we started this year with $85 million. We’re guiding to ending the year with at least $75 million in cash, and that assumes no additional partnerships or financing. So the balance sheet is in very good shape and from a balance sheet perspective, only common stock outstanding, about 52 million shares, no debt, no warrants, no converts, just common stock.
And then in terms of near-term catalyst, and maybe this will serve as a next step in terms of questions, I think I’ve mentioned several of these, there will be new data from our SB-728-T program in HIV presented at ICAC in the couple of weeks, and then preliminary data from our ongoing phase 2 programs in the first half of next year and complete data in the second half of next year.
We’ve talked a lot about the continued visibility and maturation of our monogenic disease programs, and certainly the Shire collaboration has put a big spotlight on that. But there will be continue to be data. And I think at Society for Neuroscience in October, you will get a very good, detailed, data-driven view of exactly why we’re enthusiastic about this, and I think it will be clear to you why Shire selected this as their fifth target in the program. We certainly look forward to those data presentations.
And lastly, again, our business model is to bring programs forward to points of value inflection and then either take those forwards on our own to further points of value inflection or look for additional partnership. And that’s certainly part and parcel of our business model. And in the areas outside of therapeutics, you continue to see the value that we’re creating, particularly in terms of this third-quarter payment of the $1 million commercial milestone from Shire. And last, just to reiterate, a very strong cash position.
So a fundamentally differentiated, very powerful, very broad core technology focused in the area of human therapeutics, focused on very unique outcomes, engineering, genetic cures, and I think a successful business model that we’ve shown that we can leverage and access non-dilutive capital that we can use to then drive our own therapeutics forward in a fiscally responsible manner.
And with that, I’d be delighted to take questions.
So can you give the approach you’re using for monogenic diseases and apply it so that you could create patients that are homozygotes for Delta 32?
Could you say the question back, because I’m not quite sure? Would you ask the question again?
Instead of a functional cure for HIV --
When it gets to the efficiency of the delivery, it gets to the efficiency and then selective advantage of these cells. But the real issue is, what do you need to have in terms of numbers of modified cells that then circulate outside the bloodstream, go to reservoirs that are capable of having an antiviral effect in those reservoirs and then the durability of those modified cells.
From the data that we’ve presented -- and Geoff, I’ll look at you over here to either shake your head no or shake your head yes -- from the early data that we presented last year at ICAC, it appears that that therapeutic window for CD4 T cells is in the 10% to 15% range of biallelically modified cells, and that data suggests that that would create a therapeutic window that would drive an undetectable viral load. And that’s what we’re trying to maximize in these two studies.
Geoff, you want to comment further?
Yes. So a way to do that is to take stem cells, for example, and biallelically knock those out and then do a bone marrow transplant. And that is a follow-up program, which we have gone [ph] which essentially would create a bone marrow that essentially will have a very significant number of stem cells that are producing, essentially, homozygotes hematopathic products.
What we’re doing in the CD4 program is producing homozygote CD4 cells and re-infusing those back and generating, in a sense, a circulating mosaic of a proportion of CD4 cells that are fully protected by being homozygotes. So that’s what we mean by biallelic knockout. And the question is, I think, immunologically, how many of those -- how big a mosaic do you need to have and how many of those cells you need to have fully protected so that they will then stand up and start performing as if they were the CD4 cells from a homozygote patients.
And all of these cells are homozygotally sort of affected. And again, as Edward was saying, the suggestion from our phase 1 data is that we can sort of start the headband at the 10%, 15%, 20% zone to really make a big difference and have those cells -- and we know that they’re circulating, we know that they’ve engrafted, we know that they are where CD4 cells need to be. So our strategy in this sort of early phase 2 is to try to get those numbers up either by treating people who are already heterzygotes or by using cytoxan in the standard way to get multiplication of those infused cells immediately following the infusion.
So my question was, can you use the approach you’re using for the monogenic diseases to come out with a permanent cure? Did I understand that right, that you’re going to treat them once and they’re going to be cured if they don’t have that follow-up treatment?
Obviously, once we show that we can get that mosaic, if you like, standing up and providing protection, would one infusion be sufficient? It certainly looks like well past a year those sales are still there. They’re still there in significant quantities that are trafficking normally. So our hope is that maybe one infusion of sufficient cells at the beginning may well be able to start a virtuous cycle that would take down the virus and leave the patient protected permanently. As our hope, obviously, we would need to evaluate that in further clinical studies.
Yes, just to kind of follow-on. These questions Liana was asking, I know that part of them is having a design to cells. What happens in the engraftment of those biallelic monozygotic cells and what’s their lifecycle? Do you know anything about that when you say, sure -- I mean, when you guys have 10% to 15% you engraft into patients, 10% to 15% biallelic to the cells straight from the [inaudible] to those cells?
So the question is really the durability of the modified cells in this setting. And so as Geoff said, that’s one of the things that we’re evaluating. We’re out actually seven years and some of the earliest patients that were treated with our modified cells are still circulating. We’ll continue to monitor that. We’ll also continue in the trials, the phase 2 trials that are ongoing patients who become -- if they become, A, viremic during the treatment interruption, have the potential to stay off of their heart going forward, and that will also give us the chance to look at the durability as well of the antiviral effect of this study.
So those are ongoing. The data to date suggested from the earliest patients treated is that these cells are durable. If you then sit back and say what do we know from other adoptive immunotherapies, other programs outside of HIV, say, cancer, others where T cells have been used, and memory T cells can survive 10 years, 20 years. And so there are evidences of this in other settings, but certainly in our setting, it’s one of the things that we’re evaluating.
[inaudible – microphone inaccessible]
Yes. Let me go back a slide here and just repeat our guidance on that. So under the first bullet point, SB-728-T, the four sub-bullets there. The two at the bottom are the phase 1, phase 1, 2 trials, phase 2 trials, and what we’ve guided to this is preliminary in the first half of next year, complete data set in the second half of next year.
[inaudible – microphone inaccessible]
One of them is the Delta 32 heterozygote study. That’s the Cohort 5 you see there. That’s the third bullet point. And then the 1101 study is the engraftment enhancement study.
[inaudible – microphone inaccessible]
Sure. The question was about Dow and about, I guess, the lack of visibility or updates on them or from us through them. It’s a fact of life. I won’t say it’s frustration. It’s a fact of life that when you deal with a company like Dow Chemical and Dow AgroSciences as a very small subsidiary within Dow Chemical, what percolates up to what Dow Chemical decides is disclosable and relevant to their shareholder base is not the same, for instance, to Sigma-Aldrich. Sigma-Aldrich talks about our programs on every conference call, in every presentation, and emphasizes our collaboration and technology and centrality of what they’re doing in terms of growth.
I can say that Dow is a good partner of ours. They’re employing the technology both internally as well as sublicensing it. But I agree with both the facts and the premise of your question that we and our shareholders don’t see as much as visibility from the Dow collaboration as we would like and certainly not as much as we see from the Sigma collaboration, I argue, largely because of the structure of Dow AgroSciences within Dow Chemical.
[inaudible – microphone inaccessible]
So the question is about our HIV program and particularly in the context of very effective heart therapies at this point. And so, the goal really here is beyond treatment. The goal here is a, quote, “functional cure” for the virus. And that’s defined as a situation where these modified cells are circulating within an HIV-infected person. That person is no longer on heart or antiviral medication and yet is able to achieve and maintain an undetectable viral load.
So moving beyond a chronic treatment and the issues that go with chronic therapy to one of a functional cure. And maybe you know this, but I’ll tell you everything. If you look and talk to any -- and we’ve done pretty extensive market research and met with the community, advocacy community, there’s an enormous demand and interest in moving beyond the issues of chronic therapy towards functional cure for this disease.
[inaudible – microphone inaccessible]
And you’re right. One of the things we do -- well, I mean, everybody does in clinical trials is to evaluate both the efficacy, in this case, antiviral activity and immunological activity, as well as the safety of the drug. And we do that in all of our studies. I can tell you to date the only adverse effects that we’ve seen of any consequence or infusion-related, so typical of any sort of infusion are related. So there is non-significant safety issues today.
Great. Thank you very much for your attention. Appreciate it.