Sangamo BioSciences (NASDAQ:SGMO) is one of those companies that could be a part of a great Hollywood science fiction movie -- only it’s not. In fact, their platform to control and modify genes is very much a reality and it could be the future of biotech -- putting legacy drug development out of business. After all, why just treat the symptoms of a disease if you could cure it?
The field of genetics has exploded since the completion of the mapping of the human genome. Scientists are discovering new genes and their underlying function at record pace. Biotech companies use these discoveries to find novel compounds that can influence the impact these genes have on our bodies. What if you could actually control the gene to either turn it on or turn it off? What if you could actually replace a defective gene with a corrected one? This is exactly what Sangamo BioSciences and their partners are doing.
Sangamo BioSciences was founded in 1995 (public in 2000) by Ed Lanphier, who remains President and CEO and Sangamo’s largest inside shareholder. This is a unique biotech in that they already generate revenue through mutually beneficial partnerships and they have an Intellectual Property Monopoly on a promising science that is the foundation of the company. Since its inception, Sangamo has licensed and internally developed a majority of the patents surrounding the use of Zinc Fingers for manipulating the genome. Gene therapy has held great promise but the problem has always been how to influence a particular gene without messing another one up in the process. Think of legacy gene modification tools as almost a shotgun approach. Sure, you may hit the right gene but there is also great risk of an undesired effect. Try getting a therapy like that past the FDA! Sangamo’s Zinc Finger technology functions more like a sniper rifle -- only affecting the targeted gene with little risk of not hitting what you are aiming at. Sangamo has two flavors of Zinc Fingers for interacting with all living genes including plants, animals and humans.
Zinc Finger DNA-binding Protein Transcription Factors (ZFP TFs) are created by Sangamo to regulate the function of a specific gene. This would include turning a gene off that is having a negative impact or turning on a gene for a desired one. Even cooler are Zinc Finger Nuclease (ZFN), which can actually modify a targeted gene in DNA, including deletion, disruption and insertion. The applications of these technologies for therapeutics are endless.
I’m usually not interested in investing in biotechs that aren’t approaching or already in Phase III human trials. However, what I find exciting about Sangamo BioSciences is the strong, revenue-generating partnerships they already have in place. Sangamo has an exclusive partnership with Dow AgroSciences (NYSE:DOW) to improve crops, licensed under the trademark ExZact Precision Technology. When I first heard about gene modification in the foods we eat, I was skeptical as most people are. Once you understand how the science works, though, it makes complete sense to pursue and it is already having an important impact on agriculture. Sangamo also has an exclusive partnership with Sigma-Aldrich (NASDAQ:SIAL) for their research reagents under the trademark CompoZr. CompoZr is one of the highest growth segments within Sigma-Aldrich. Together, these two exclusive partnerships have generated $80M to date for Sangamo and annual revenues should continue to grow YOY given the infancy of the ExZact and CompoZr programs.
Sangamo also has non-exclusive collaboration agreements with leading Big Pharmas Genentech / Roche (OTCQX:RHHBY) Amgen (NASDAQ:AMGN), and Pfizer (NYSE:PFE) for the development of novel Protein-based drugs. In addition, there are non-exclusive collaboration agreements for the creation of Transgenic animals with Open Monoclonal Technology and Hoffman-La Roche.
The revenue from these partnerships helps to self-fund Sangamo’s line of human therapeutics using Zinc Finger TFs and ZFNs.
Unlike traditional drug development, we are talking about highly-selective gene modification. If it works, it works. In fact, if you can modify a disease-affecting gene in a non-clinical environment, chances are it will also work in a human. This obviously isn’t the case with other drugs such as small molecule or peptides. Very few drugs make it through from the lab to commercialization. A gene-based therapy working at the DNA-level can have a dramatic impact on the future of human therapeutics. Sangamo has two lead drug candidates targeting highly unmet needs.
SB-509 is Sangamo’s most advanced therapy for the treatment of Diabetic Neuropathy (DN). DN is one of the leading complications of diabetes, which is exploding in this country and all over the world. Today’s therapies only treat the symptoms of DN but SB-509 has been shown to regenerate nerve endings and has the potential to halt or even reverse Diabetic Neuropathy. SB-509 is in the middle of Phase II/b trials (partially supported by the Juvenile Diabetes Research Foundation) and the results are expected to be released in Q4 2011. I expect Sangamo will look to partner SB-509 for DN after these results are out, assuming they are successful. This same gene therapy on the VEGF-A gene is also being tested in ALS-patients with SB-509-801 (Phase II), Parkinson’s Disease (supported by the Michael J. Fox Foundation and undergoing testing in primates), Spinal Cord Injury (preclinical), and Stroke (preclinical).
The therapy that could soon shine the spotlight square on Sangamo is SB-728-T, a potential “functional cure” for HIV / AIDS. HIV / AIDS patients today have to undergo a lifelong antiretroviral drug therapy (HAART), which averages $12,000 a year per patient. This slows down the advancement of HIV and has extended countless lives from this dreaded disease but is in no means anything close to a cure. CD4 cells (T-cells) are the key to controlling HIV infection and CD4 counts are how physicians track disease progression. Researchers have found that there is a “natural occurrence” of HIV-resistant people (.6% of all HIV carriers) where HIV is kept in check and causes no impact to the carrier’s health. These patients have a genetic mutation in the gene that HIV attaches to (CCR5) on the CD4 cells. This CCR5-delta 32 mutation appears to not have any negative consequences but prevents HIV from attaching to the CD4 cells. In 2007, an HIV positive man (known as “The Berlin Patient”) received a bone-marrow transplant to treat Leukemia. The blood-marrow donor turned out to be a carrier of the CCR5-delta 32 mutation. The patient's immune system (after being destroyed by chemotherapy) was rebuilt from the new blood-marrow and as a result, The Berlin Patient also became a carrier of the gene mutation. Not only did the blood-marrow cure his Leukemia, it also cured his HIV. Three years later, he still has an undetectable amount of HIV in his body. Sangamo’s SB-728-T deletes the CCR5 gene effectively replicating this natural gene mutation and may provide a “functional cure” for those carrying HIV. Sangamo received a $14.5M grant in 2009 California Institute of Regenerative Medicine to advance this program. SB-728-T is currently in two Phase I trials and a Phase ½ trial. The first results of the Phase I data will be presented the end of February or early March at the 17th annual Conference on Retroviruses and Opportunistic Infections (CROI). Positive results have the potential to light a fire under SGMO’s stock price.
From a pipeline perspective, there is no shortage of available genes for Sangamo to target and there are dozens of University institutions that are leveraging Zinc Fingers in their research programs. This provides almost a virtual-cloud type environment for innovation on human therapeutics which functions as free R&D for Sangamo. If any of these Universities discovered therapeutics, they would need to license with Sangamo before they could enter human trials and eventually commercialized. Sangamo recently presented a late-breaking session at the American Society of Hematology where they announced the correction of the gene causing Hemophilia B in mice. If you correct a monogentic disease such as Hemophilia in one mammal, you can hypothesize that it would correct it in other mammals. This is an exciting time for advancements in the treatment of rare diseases.
Sangamo’s current marketcap is about $350M. With $60M in the bank, a burn of $25M annually, increasing revenues from partnerships and collaborations, well-protected IP and promising drug candidates, SGMO is a strong long-term buy ahead of their presentation at CROI. There is good Institutional Ownership, a bullish Call to Put ratio and a stock chart showing a nice uptrend. After the CROI presentations, there is a chance you could see a secondary in Q2 or Q3, which is a risk. However with strong HIV results, increasing demand on the stock will hopefully offset the potential dilution effect on the stock price.
Will Sangamo BioSciences be the next Celgene (NASDAQ:CELG)? Only time will tell but I believe they are a good company to sock away some shares and see where it is at 5 years from now. By then it could have a monopoly treatment for Diabetic Neuropathy, a cure for HIV and pipeline drugs for Parkinson’s, Spinal Cord Injury, ALS, Hemophilia and a number of rare diseases. If they do, no telling what the company will be worth but I look forward to finding out.
Disclosure: I am long SGMO.