Is Sangamo Therapeutics Pointing Toward Success? – Seeking Alpha

Sangamo Therapeutics (SGMO) is a $650 million dollar market cap company focused on gene and cell therapies, including conducting the first-ever genome editing studies in clinical trials. The company uses gene therapy, genome editing, cell therapy, and gene regulation techniques to develop novel therapies. In gene therapy, attenuated Adeno-Associated Viral ((NYSE:AAV)) delivery systems are employed to carry functional gene copies to patients suffering from an ineffective or absent protein causing a disease state, such as in Hemophilia A (in collaboration with Pfizer (NYSE:PFE). The company is developing genome editing technologies for Hemophilia B and various lysosomal storage disorders, employing zinc finger nucleases (ZFN) to knock out harmful, defective, or unwanted proteins and also to insert helpful donor genes. The company is also utilizing gene editing and cell therapy techniques (T cell and stem cell) to treat HIV, and is partnering with Bioverativ (BIVV) to develop stem cell treatments for beta-thalassemia and sickle cell disease. Cell therapy can be used in conjunction with ZFN technology after harvesting afflicted cells, treating, testing for desired effects, cultured, then reinfused into the patient. Because ZFPs are the most common DNA binding motif in transcription factors of eukaryotic systems, gene repression or activation systems can be generated. SGMO is pursuing in central nervous system afflictions such as Huntington's Disease (in collaboration with Shire (SHPG)), by using specific gene repression of mutant disfunctional HTT gene but leaving functional gene products unchanged. Sangamo is attacking Alzheimer's and various tauopathies utilizing the same approaches. The company is also advancing non-therapeutic technologies with Sigma-Aldrich Corporation and Dow AgroScience.

Pfizer is a leading developer of AAV-based technologies. SGMO and Pfizer's collaboration in hemophilia A in May 2017 to develop AAV-based drug candidate gene therapy SB-525, one of Sangamo's four lead drug candidates, has received orphan drug status and fast track from FDA and EMA, and was perceived by the market as a big boost of confidence for Sangamo. The stock is up over 100% since the announcement. Pfizer made an initial payment of $70 million with up to $475 million in potential milestones, with $175 million potential for additional gene therapies if opted by Pfizer. Mikael Dolsten, president of worldwide research and development at Pfizer, stated, "We believe SB-525 has the potential to be a best-in-class therapy" that could provide stability to patients "with a single administration treatment." SGMO ZFN technology had recently been overshadowed in market sentiment by next-generation genome-editing technologies such as CRISPR prior to the announcement.

The company announced in the first quarter 2017 that it had received orphan drug designation (ODD, previously attained) and fast track designation from FDA for genome editing treatment SB-FIX for Hemophilia B. SGMO also progressed in lysosomal disorders by obtaining Rare Pediatric Disease Designation for in vivo genome editing treatment SB-318 for MPS I. In this disorder a deficiency in alpha-L iduronidase results in toxic buildup of glycosaminoglycans. According to the 2017 first quarterly report, "a sponsor who receives approval for a new drug application or biologics license application may be eligible to receive a voucher for a priority review of a subsequent marketing application for a different product. The voucher may be used by the sponsor or sold or transferred." SB-318 had also previously received ODD. The company also received ODD and Rare Pediatric Disease Designation for in vivo genome editing treatment SB-913 for MPS II (Hunter's disease). In this disorder, iduronate-2-sulfatase deficiency results in the buildup of glycosaminoglycans as well.

Sangamo's ZFN-mediated genome editing program for sickle cell disease and beta-thalassemia hemoglobinopathies transferred to Bioverativ in November of 2016, as part of a 2014 deal with Biogen. Bioverativ spun off from Biogen in early 2017 as a separate entity with specific experts to handle transformation of therapies for these rare diseases. Experts in related blood diseases hemophilia A and B medications will oversee sales and marketing of its lead products ELOCTATE and ALPROLIX respectively, as part of the responsibilities of the company.

Sangamo is using ZFN-mediated genome editing in the HIV space as well. Sangamo Therapeutics' approach inserts a naturally occurring human mutation which renders individuals largely resistant to HIV into T-cells and is monitoring patients in an open label phase 2 trial. Sangamo's SB-728-T HIV drug candidate targets the most common form of HIV. A Phase 1/2 clinical trial is also being conducted to evaluate safety and efficacy of its stem cell candidate, SB-728-HSPC, in HIV patients.

At the preclinical level, in vitro human culture and animal model data demonstrated significant reduction of tau mRNA and tau protein expression using ZFP transcription factor-mediated gene regulation technology. Results from the laboratory studies were presented at the 13th International Conference on Alzheimer's & Parkinson's Diseases.

Sangamo recently raised approximately $72 million in a public offering June 21, 2017, at $7.25 per share. An analyst at Jefferies was recently impressed by the company's presentation at a conference, and set a $17 per share price target on the SGMO shares. The company says it plans to use the funds to develop genomic therapy product candidates and potentially acquire complementary businesses, technologies, or licenses. Additionally the analyst said that this stock can serve as a financial investment hedge against the emerging gene-editing technology of CRISPR.

The gene editing and cell therapy spaces are definitely unproven to some extent and risky. There is also competitive risk in that this company is going up against some of the best regarded technologies in a tough field of gene and cell therapies that are possibly further advanced, including CRISPR. However, the risks are higher for Alzheimer's and HIV than for more straight-forward indications such as Hemophilia A. Pfizer's $70 million stamp of approval should reinforce that argument. Given the high quality partnerships for SGMO and relatively diverse pipeline, the reward to risk ratio should be adequate for a long position at these prices. The company is still in early to mid-stage trials, but a breakthrough in a rare or fatal indication could be an inflection point for the stock.

As of end Quarter one the company estimated $132 million in cash, taken with the recent offering of ~$70 million and estimated quarterly burn rate of ~$30 million leaves about $170 million in cash. This is a significant cash runway but given the immaturity of the clinical trial pipeline it is hard to predict if more dilution will be necessary in coming years. With only about $3 million in quarterly revenues trickling in its doubtful that the company can go without diluting if something were to go wrong. However, with its nice strategic partnerships and potential milestones from Pfizer, if things go well in the Hemophilia A project the company could near a cash neutral position within a couple of years.

Strong Bio regards this stock as a great watchlist stock, with intent to invest on significant pullbacks over time. Future clinical trial updates that indicate novel and robust responses could indicate FDA breakthrough therapy designation-worthy therapies. Of particular interest to Strong Bio are the projects of Alzheimers, HIV and cancer, as they have potential to show strong benefit in large markets. However, waiting too long might put investors in a "pay over the top" position as the more lead project Hemophilia A, B, and HIV projects progress. Strong Bio targets an entry in the $6.75 range.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Is Sangamo Therapeutics Pointing Toward Success? - Seeking Alpha