Sangamo BioScience: A Real Bargain Below $5

Includes: SGMO
by: Michael Slattery

Sangamo (NASDAQ:SGMO) in its last two conference calls, has discussed the prospects, timing and eventuality of partnering with a larger pharmaceutical producer. This article makes reference to the many times this specter has been raised by management. Given their oft-stated goals and timeline regarding this process, announcements should start to materialize in the next 90 days.

Sangamo BioScience is a remarkable company that is in the process of singlehandedly introducing completely new, revolutionary forms of therapeutics that are capable of activating or repressing the complete spectrum of DNA based genes. There are two main arms to Sangamo’s human therapeutic development program: directly injectable pharmaceuticals and the x-vivo modification of cells. Their Diabetic Neuropathy studies represent the direct injection pharmaceutical approach and their HIV program is admirably proving the cellular modification approach.

Gene regulation and Genetic engineering have been bandied about as the next therapeutic breakthrough for twenty years, but the results with few exceptions have produced a long list of failures. Sangamo is the first biotech to advance this new approach, allowing for the accurate, effective, and very targeted alteration of human, animal and plant genes. You can read an easily understandable explanation of their technology and it’s potential here.

Early, but positive results in diabetic neuropathy and HIV, are acting as proof of concept for their entire platform. Both of these indications are considered to be very demanding diseases to treat, much less conquer and no effective treatments exists to treat either condition with the curative approach that Sangamo is pursuing in clinical trials with apparent safety and success.

The following two clinical program data presentations should be followed closely by partnering announcements.

Diabetic Neuropathy using SB-509 targeting VEGF-A Phase II B. Top line efficacy data is to be presented in 4th Qtr. “With that data we will move forward in discussions that are well anticipated in terms of corporate partner relationships. Our plan is to follow the patients in these studies for safety and long-term benefits to day 360, but our (development) plan is to move forward with SB-509 in a partnered situation.” Edward Lanphier, CEO.

HIV/AIDS using SB-728-T targeting the HIV receptor CCR5 on human T-lymphocytes. Two clinical trials are ongoing a phase I SB-902 and SB-1002 in phase I/II. Both will be presented at the ICAAC Sept 17 thru 20th. These presentations will be focused on the safety of these modified cells, secondly their trafficking and engraftment, third the basic immunological impact of these modified cells on the immune sites and lastly the reaction of these cells to the exposure of HIV virus during treatment interruptions of antiviral meds.

These new drugs are considered by many scientists to represent the tip of the iceberg in what will become a stream of amazing and unparalleled achievements in human therapeutics. They have already demonstrated a functional cure for HIV in humans and are producing nerve regeneration in the Diabetic neuropathy populations. Sangamo has already produced a long stream of publications each of which is ground breaking for there disease category. (Sangamo Publications) The following diseases are on the Sangamo site as pre-clinical development programs, Parkinson’s Disease, Hemophilia, ALS, Sickle cell disease, beta-Thalassemia, X-linked Severe Combined Immunodeficiency (SCID), Nerve Regeneration—Spinal Cord Injury (SCI), Traumatic Brain Injury (TBI) and Stroke. An article addressing some of these markets can be found here.

Two other publications that are of scientific and financial interest have recently been released. The first is a project that is transforming silkworm’s silk production into spider-web silk production. This would allow for the first time large-scale production of one of the strongest natural fibers known to exist on earth. Some spider species produce a silk that is more than twice as tough as any previously described silk, and over 10 times tougher than Kevlar." Consisting of mainly protein, silks are about a fifth of the density of steel, but have the same strength. As a result, a strand long enough to circle the Earth would weigh less than 500 grams. (Source) The monetary benefits of this program are self-evident.

The second publication in the Proceedings of the National Academy Science was the focus of a Sangamo press release on July 21st 2011 announcing the generation of transgenic Pigs producing the efficient creation of animals as a source of organs for transplantation into humans. (Source) Transplantation is considered to be the best treatment option for thousands of patients every year whose own organs are damaged or diseased. However, the supply of human organ and tissues available for transplantation is insufficient to satisfy the demand. Sangamo’s work in this area represents a major advance as it provides an efficient method of knocking out any desired gene in the pig. “ZFN-mediated genome editing can be used to make porcine cells and tissues less immunogenic and more suitable for transplantation into humans," said Richard Insel, M.D., Chief Scientific Officer for the Juvenile Diabetes Research Foundation (JDRF)

"Sangamo's mission is to develop novel ZFP Therapeutics to address unmet medical needs and make paradigm-shifting therapeutic solutions a reality," stated Edward Lanphier, Sangamo's president and chief executive officer. "This proof of concept study lays the foundation for the use of our validated ZFP platform technology to modify animal organs for human transplantation."

Prospects for Partnerships

The following quote from their CEO, Edward Lanphier underscores the industry focus on Sangamo while at the same time fleshing out the prospect for a partnership deal to be announced within the next quarter. “There is not a pharmaceutical company, really in the world anymore that’s not using this (Sangamo’s) technology.” This quote is referring the laboratory or bench top zinc finger protein and nuclease tools that Sangamo sells through a license agreement with Sigma Aldrich. This program along with another similar licensing agreement with Dow AgroScience will produce between $10 million and $12 million in income for Sangamo this year. Scientific grants, awarded to Sangamo and their research partners produces another strong confirming indicator of the strength of Sangamo’s scientific platform and will add another $27 million to their bottom line for 2011.

As someone who has been involved in drug development deals, I can assure you that pharmaceuticals and biotech’s utilize every opportunity to squeeze as much proprietary, insightful, beneficial and self serving information as is humanly possible out of any access to another companies technologies and when they represent the type of game changing risk to multiple platforms that Sangamo does, this scrutiny will take on an intensity not previously seen in the pharmaceutical / biotechnology industry before.

This is not jealousy or merely scientific curiosity on their part; it is survival. If you don’t think that this industry can be completely transformed by a new innovative and disruptive technology then let me compare Sangamos advancements in the pharmaceutical industry to Apple Computer’s (NASDAQ:AAPL) transformation of the computer, music and mobile communication industries. The iPod and its subsequent variations including the iPhone and iPad have transformed the music industry and is moving in on television and motion pictures. Try and find a brick and mortar music store in your neighborhood? They aren’t any! CD-ROMS are retreating from the market like mythical unicorns as down loading and streaming of music has transported yet another technology into technological purgatory. A once vibrant and broad supply chain has all but disappeared. Digital music has transformed an analog world into a transparent, readily available and liquid resource primarily controlled by one company, Apple Computer.

Historically drug development has been focused on determining an agonist or antagonist that blocked some molecular event in the disease progression cycle. Sangamo’s approach looks for the underlying genetic cause of that process and corrects it. In many cases this will entail one therapeutic administration of their genetic altering products and the patient will be either devoid of any of the effects of that disease process or completely cured. A promise not unlike the flying car we all thought would be here 10 years ago, but this time the science fiction has finally become a reality. If you’re having a problem seeing the music analogy, view traditional drug development as analog music and Sangamo's therapeutics as the digital counterpart beneficially and appropriately modifying DNA instead of administering drugs. Sangamo is the pharmaceutical industry’s version of Apple Computers and its effects on its industry will be just as profound.

Sangamo's Quarterly Teleconference on July 27th, 2011 provided additional insight into what this last half of the year will entail for the company and you can hear the entire call here. In response to a question to flesh out their current business model Edward Lanphier described it as a plan to; “move forward at points of clear value inflections with partners who are committed to addressing the diseases and who have the requisite infrastructure to for development and marketing.”

In Sangamo’s previous 10-Q conference call, April 27th, 2011 they also discussed the prospects and intentions of how they would proceed down this development pathway.

The word “partner” or “partnership,” or collaboration was mentioned no less than 9 times in this conference call which only lasted about twenty-minutes. Most of those references were in response to analysis questions about the release of impending clinical trials data, in both Diabetic Neuropathy and HIV. These were both paired with statements like “facilitating our partnership discussions” and “with positive data from this trial, we intend to move forward with partnering discussions.” I think it’s important to note that their CEO did not say initiate partnering discussion, but move forward with them implying that they have been ongoing for some time, have been productive and that deal term sheets are on his desk.

Another strong indication of an impending deal was their discussion of their positive year end cash position, stating; “We now expect to have a cash and marketable security balance at the end of 2011, in the range of $85 million to $90 million up from the earlier primary guidance of $35 million to $40 million with the only change due to the financing. Again this is exclusive of any new funding from a partnership, but it does include anticipated milestones in 2011 from our existing partnership agreements.” If that was not a clear enough indication of what’s coming and soon, his next statement is irrefutable. “…the obvious stronger cash position gives us greater flexibility around deal structures as we move forward with partnership discussions for various therapeutic programs.” How loud does Edward Lanphier need to shout that there will be a deal or deals before the end of this year.

And finally in response to an analysis specific question regarding the Diabetic Neuropathy Program, Edward Lanphier said the following after a brief and heartfelt protest that the question was getting him “over the handlebars.” “There are many companies out there that have followed the Diabetic Neuropathy Program. There is a great deal of interest in a first-in-class disease-modifying drug in such a large market as Diabetic Neuropathy. And there are a number of companies that are quite up to speed on this program.”

Edward Lanphier is a very intelligent man and I would venture that nothing casually slips out that were not pre-meditated. When holding information close to your vest can mean millions to billions of dollars difference in the outcome of your prospective licensing deals, you must assume that his response to that question was well thought out, well in advance and directed to a target audience; potential partners. He is well aware that the best way to price his partnerships are to let the market do that for him and he just announced to all of the companies that have been allow to see beneath the corporate veil, including clinical data and possible future targets, that they are not alone in this race, they are competing against each other and the winner will be the partner who antes up the best combination of up-front cash, development capabilities, marketing, distribution, strategic advantages, and profit sharing percentages.

Sangamo is the future of human therapeutics writ large. It was an amazing opportunity at $8 a share; all the more so at its current level below $5. It has been lumped in with many other traditional drug development companies in an attempt to determe how much this realignment of our economy and its entitlements will impact this segment. They missed one very important distinction; Sangamo produces cures, not a lifetime commitment to consume a specific drug. This is a saving in healthcare costs that our economy is being driven towards by necessity.

Disclosure: Author is long SGMO, AAPL.